Nova’s Property Investment Jargon Buster
The property investment landscape can be a tricky minefield to navigate. On top of the already daunting task of starting a property portfolio, new and seasoned investors alike must get to grips with the endless string of property-related jargon flying around. That’s why we’ve compiled a complete jargon-busting list to help you along the way. Enjoy!
A – Agreement in Principle (AIP):
An AIG is an acceptance document from a mortgage lender agreeing that they’d be willing to lend you a specific amount based on your current salary and financial stability.
B – Bridging Loan
As the name implies, this is a short-term, high-interest loan giving to usually ‘bridge’ a financial gap. Investors can often use a bridging loan to purchase a new property whilst waiting for another to sell.
C – Completion
Once a property purchase has completed, legal ownership has officially been transferred from one party to another.
D – Deposit
This is the initial up-front payment that a potential buyer will usually pay to secure their interest in a property. Typically, this amount will be 10%-25% of the total purchase price, with the remainder being requested upon completion.
E – Equity
Equity is the share of the property’s value that is debt-free. I.e. if a buyer puts down a 25% cash deposit and attains a mortgage on the remaining 75%, the owner holds 25% of equity in that property.
F – Fixed-Rate
This is a certain type of mortgage where the interest rate is fixed at a specific level for a defined period; typically, between 2-5 years.
G – Ground Rent
This is an annual payment that the leaseholder pays to the freeholder.
H – Homebuyers’ Report
A comprehensive report carried out by a surveyor to determine the value and condition of a particular property.
I – Interest-Only Mortgage
This is a specific type of mortgage whereby only the interest portion is paid on a monthly basis. The original loan, or principle, is required to be paid back in full at the end of the mortgage term.
J – Joint Ownership
When two or more parties own a vested interest in a property.
L – Loan to Value (LTV)
The loan-to-value ratio is the correlation between how much a bank is willing to lend and how much the property is worth.
M – Maintenance Charge (aka Service charge)
A payment made by the tenant or leaseholder to cover the annual costs of maintaining a property and its amenities i.e. communal areas, elevators, hallways etc.
N – Negative Equity
The is the very unfortunate scenario where the value of the property drops below the amount of the mortgage used to purchase it.
O – Offer
Though not legally binding and prone to change, an offer is an amount given to a property owner from a potential buyer indicating how much they’d be willing to pay for it.
P – Preliminary Enquiry
This is a stage where the buyers’ solicitors will engage the sellers’ solicitors in order to ask questions about the property prior to exchanging contracts.
R – Repayment Mortgage
The opposite of an Interest-Only mortgage. A repayment mortgage is the most common form of loan arrangement where the monthly payments consist of both the interest and principle combined.
S – Stamp Duty Land Tax (SDLT)
The official tax payable to the government by a buyer on the purchase of a property. Typically, it ranges from 1-4% depending on the value of the property in question, however as of Apr 2016, an additional 3% is payable if you’re buying a second property that you won’t live in.
T – Tracker Mortgage
The opposite of a fixed-rate mortgage whereby the interest rate is linked to the Bank of England’s base rate. This means that your mortgage rates are liable to fluctuate when the base rate does.
U – Under Offer
The period after the seller officially accepts the buyer’s offer and prior to the exchange of contracts.
V – Vendor
Another name used for the seller of a property.
Y – Yield
A yield is the correlation between a property’s value and the rental income it generates annually.
i.e. Property Value: £100k, Annual income: £5k, Yield = 5%