Here is a list of terms frequently used in property but rarely explained. If there is a term you have heard that’s not included in this list please let us know and we will add it.
These will be applicable in certain situations when a property is owned on a leasehold. The administration charges will come from the freeholder (or a management company if they have appointed one) for the performance of certain tasks.
The tasks that can be charged for include things such as:
permission to change certain aspects of the property, such as updating the windows
costs incurred due to non-payment of a sum due by the leaseholder, for example non-payment of the service charge
These charges must be reasonable and examples of them will usually have been set out in the purchase documentation. Any administration charge demanded must be accompanied by a summary of the leaseholder’s rights and obligations in respect of administration charges. If the summary is not included, the charge is not regarded as being payable.
This is the mortgage you would apply for if you’re buying a property with the intention of renting it out rather than living in it. For a buy to let mortgage a 25% deposit is usually required meaning the banks will only lend up to 75% of the property value. Due to the higher deposit amount however it does mean that the option to just repay the interest on the amount borrowed (interest only) rather than paying off the loan itself as well (capital repayment) opens up.
Capital repayment mortgage
This is where the amount repaid each month pays off the interest on the amount borrowed as well as part of the amount that was originally borrowed therefore reducing the loan with each repayment.
This is the final stage of buying a property and the point at which you will officially own the property and be given the keys.
Also known as a rentcharge, is an annual sum payable on some freehold properties in the United Kingdom. It is particularly common in North West England, where the usual term is chief rent, and in Bristol where the terminology is rentcharge.
This is not the same as ground rent which is payable on most leasehold properties, see below for full definition.
This is when the buyer’s & seller’s solicitors swap signed copies of the contracts. At this point the property transaction is confirmed and any changes in the details of the contract, such as a delay in completing (see above for definition), can incur penalties.
A 10% deposit has to be paid at the point of exchange and if the buyer pulls out following this they are likely to lose their deposit.
It’s also at this point that the buyer should insure the property as they would still be obliged to go ahead with the purchase even if the property was damaged by floods, for instance!
Buying a property with the intention of selling it on within a short time frame. Usually after renovation work to increase the property’s value.
Buying a property with the freehold means that you own the property and the land it is built on. If a flat is purchased on share of freehold this will then mean that all upkeep costs of the building and shared areas will have to be split between the “units” in the building
Is a regular payment made by the owner of a leasehold property to the freeholder, as required under a lease. A ground rent is created when a freehold piece of land or a building is sold on a long lease or leases. The ground rent provides an income for the landowner, which may increase over time (i.e. double every 20 years).
Ground rent should not be confused with chief rent which is payable on some freehold properties, see full definition above.
If a property is listed with a guide price it is probably being sold at auction. The guide price is therefore the amount the auction house think it is likely to sell at, and may be where bidding starts, however many properties sell for more than the guide price at auction.
It is not a requirement of most mortgage providers to carry out a homebuyers report however this can be helpful to do as it will provide a detailed report on the state of the interior and exterior of the property and flag any potential issues that could cost a lot of money to repair in the future, e.g. roof repairs or a new boiler being required.
The person who carries out this report could also be the person to give the valuation therefore it could affect their assessment of the value. On the other hand though it could also provide a point from which to negotiate down the agreed offer on the property if extensive work is required.
There is one report more detailed than this which is a structural survey, see below for more information.
Interest only mortgage
A mortgage where only the interest charged on the amount that has been borrowed is repaid each month.
This is a percentage that will be charged on the loan amount as interest.
Flats are most frequently sold with a leasehold rather than freehold. What this means is that you are purchasing the property for a fixed period of time (the period of the lease). If the lease isn’t renewed at the end of that time period or if the terms of the lease are breached it would then return to the owner of the freehold.
A flat being leasehold rather than freehold isn’t anything to worry about but it does mean that you should exercise caution when there aren’t many years left on the lease (some lenders won’t loan on leases under 75 years). It will also mean there will be additional charges to pay each year for rent of the ground (ground rent) and upkeep of the common areas/building (service charge).
Loan to value ratio (LTV)
The ratio between the amount being loaned and the amount the property is worth, e.g. if someone wanted to borrow £80,000 to purchase a property worth £100,000 this would give them an 80% loan to value ratio with a deposit being required of 20% to make up the £20,000 difference between the loan amount and the purchase price. For more information on how this calculation fits into the amount you can borrow see our step by step guide to buying section.
Market value refers to the average amount that would be paid for a certain type of property in a certain area, i.e. the average price for a 2 bedroom house in Croydon.
If a property is below market value that means it is listed for sale at under the average for a property of that type in that area or that you managed to purchase it at that price point (regardless of what it was listed for).
If a property is above market value it therefore means it is listed or sold for over the average amount for a property of that type in that area. This happens a lot in areas where there is a high demand for properties of a certain type as that can result in bids having to be higher than the listed price in order to be the person whose offer is accepted.
This is an individual or company who will search the available mortgages for your borrowing criteria and provide information on the rates, fees and affordability of the different options. They therefore cut out a lot of the leg work for you much like price comparison sites for insurance, but bear in mind some providers won’t be listed with them therefore check which providers they don’t cover before assuming they’ve looked at all possible options for you.
The length of time over which the mortgage will need to be repaid. The longer the period of time the lower the monthly repayments will be, although this will mean you also have the loan for more years and therefore pay more interest in total.
Mortgage in principle (Decision in principle)
This is an agreement that a mortgage advisor in a bank or mortgage broker will get for you that says how much they would lend you in theory based on your salary and deposit amount. Credit checks etc. would then need to be performed before the actual mortgage is issued but it shows the estate agent, and sellers, that you’re not wasting their time.
There are a number of searches that a mortgage provider will require to have been carried out in order to issue the mortgage. There are some other searches as well which are optional but may be helpful in deciding whether the property is a worthwhile investment. The standard searches required and offered are:
Land registry search – provides information on who the property is currently registered to and how far it’s boundaries extend to
Local Search – this will provide the mortgage provider with all the information the local authority hold on the area around the property. This is important as it could flag issues which could affect the value of the property such as land contamination, major works in the area, charges or debts owed to the authority etc.
Drainage Search – this will reveal what the property’s mains drainage connections are.
Environmental search – this provides information on whether there are any environmental risks in the area that could affect the value of the property. The result of this search will be a status of “passed” or not. If the property has passed there are therefore no factors that are deemed to affect the value of the property however detail will be given on all risk factors, inc. flood risk so it is important to read the report even if the property has passed.
Chancel Search – search confirms whether or not the property is in an area which could be affected by a chancel charge. If the property is within a chancel charge area your solicitor may recommend getting an indemnity insurance policy.
Plans Search – this provides a list of all the planning applications within a 500 meter radius of the property, however old the applications are, and whether or not permission has been given. It is a personal decision as to whether any of the information contained in this is of concern to you, i.e. someone has planning permission to build across the road which could block a view that was the reason you were buying the property.
This is a fee paid to the freeholder (or a managing agent if one has been appointed) on a leasehold property. This fee doesn’t apply to all leasehold properties but it does to most. The charge usually covers the cost of general maintenance, repairs and insurance of the building. Where applicable it may also include costs for things such as central heating, lifts, concierge, lighting and cleaning of common areas etc.
Details of what can and cannot be charged by the landlord, the frequency of payments and the proportion of the charge to be paid by the individual leaseholder will be set out in the lease. Some landlords may also levy administration charges, see above for full details on this.
This is a more comprehensive survey than a homebuyer’s report and therefore the most thorough way to check the condition of a property. In this report an assessment of the condition of all visible and accessible areas will be given. The results of the survey will include, among other things, information on:
any faults found
the condition and materials the property is made of
results of a damp test
insulation and drainage
recommendations for any further inspections
Before a bank makes a final agreement on how much they will lend they will want to confirm that the property is actually worth roughly the amount that you are going to pay for the property. This is because if you are paying more than the property is worth in a current market it puts the bank at an increased risk of losing the money they loaned if property prices go down.
The person who currently owns a property and is looking to sell it.