Something different this week for my blog reading friends…in recent months I have been asked on several occasions to explain certain terminology that has cropped up during Walsall property transactions or just in conversation. For ease of reference I have gone through the list in alphabetical order; the overwhelming array of acronyms and specialist terminology in simple layperson terms. To save the article from being endless pages I have split this into two parts with part 2 releasing soon – so watch this space! If there is anything I may have missed please feel free to comment or get in touch.
The meaning behind the lingo…
Abandonment – Abandonment is when a tenant leaves the property (usually without notifying the landlord or agent) before the tenancy has ended. Very often this occurs when the tenant owes rent and the tenant may or may not leave possessions in the property. Although the tenant is in the wrong for many reasons, they still have a legal tenancy and can return and demand to take up residence at any time, despite not paying rent. Taking over an abandoned property is fraught with difficulties for the landlord and specialist advice should be sought.
Advance – A mortgage loan – an additional loan is referred to as a further advance.
Adverse Credit – Used to apply to a borrower or application that has past problems with bad credit, for instance frequent late payment, breached arrangement, bankruptcy or County Court Judgement.
APR (Annual Percentage Rate) – The total cost of a loan, including interest charges and product fees, shown as a percentage rate. The calculation assumes that you maintain the mortgage for the full term. APR is an industry standard calculation and enables direct comparison of mortgages from all lenders.
Arrears – Money unpaid by the tenant in whole or in part after the due date specified in the tenancy agreement. When a tenant is more than 2 months in arrears, the landlord has grounds to seek possession.
Assured Shorthold Tenancy – A tenancy agreement is a legal contract between landlord and tenant. The agreement contains the terms and conditions of a tenancy, such as the duration of the agreement and the rental amount payable by the tenant. It is the most common type of tenancy in the rental private sector.
Architects Certificate – A certificate provided by an architect, which confirms their overseeing of the construction of a building. Building societies are unlikely to lend on a new-build house in the absence of either an architect’s certificate or an NHBC warranty or equivalent.
Arrangement fee – The cost that a lender applies to secure a product.
Assignment – The transfer of ownership of an insurance policy or a lease.
Balance Outstanding – The amount of loan owed at a particular time.
Bank of England Base Rate – The Bank of England sets a rate each month known as the ‘Base Rate’. Banks and Building Societies use the Base Rate to set the interest rates they pay on deposits, or charge on debts.
Betterment – The Law does not allow for betterment which means a Landlord cannot expect to have old replaced with new at the tenant’s expense or charge cleaning costs for that are already soiled at the start of the tenancy. An allowance must be made for depreciation and fair wear and tear.
Bridging Loan / Bridging Finance – A temporary loan advanced to help somebody buy a new property before they have sold their existing one. Beware – it can prove very expensive in an uncertain market.
Buildings Insurance – Buildings insurance covers loss or damage to the physical structure of your home, for example, the roof, walls and floors. The value of your buildings insurance will be less than the value of your home as it is the cost to rebuild alone, not the cost of purchase.
Building Regulations – The health and safety requirements that any new construction must meet.
Building Society – A mutual institution owned by its investors and borrowers that provides a range of savings and mortgages.
Buy to Let – Is an income-producing residential investment, with the potential for making a capital gain when the property is sold. The key word here is ‘potential’. Often, when yields are high, capital growth may fall and vice versa.
Break Clause – A term in a fixed term tenancy agreement which allows either or both parties the right to terminate the agreement prior to the end of the term. Such a clause should always apply to both Landlord and Tenant or it may be deemed an unfair term of contract.
Cashback Mortgage – You receive a lump sum or a percentage of your mortgage in cash when you complete your mortgage. These are very rare nowadays.
Charge – An interest in the ownership of a property; usually a mortgage or some other debt secured against the property.
Check-in -This is the process of moving a tenant into a rental property for the first time. The check-in process should include an inventory which describes in detail the condition of the property prior to the tenant moving in.
Check-out – This is the process of moving the tenant out of the property and includes making sure the property is being returned in the same condition as it was originally let to the tenant at check-in.
Completion – End of the purchase process. The seller moves out, the buyer moves in and ownership is transferred once the money is paid to the seller.
Contents Insurance – Insurance against accidental damage or theft of all moveable contents, including furniture, appliances and soft furnishings.
Contract – A document that describes the agreement under which the property will change hands.
Contract Race – This occurs when two parties have made an offer on the same house, usually at the same price. The vendor will sell to whichever party exchanges contracts first. All parties must be aware that more than one contract has been issued.
Conveyancer – A person other than a solicitor who may conduct the conveyancing.
Conveyancing – The process of transferring property from one party to another, usually managed by a solicitor or a licensed conveyancer.
Covenant – A condition, contained within the Title Deeds or lease, that the buyer must comply with, which is usually applied to all future owners of the property. A restrictive covenant is one that prohibits the owner from doing something specific. A binding promise in a deed to do or not to do something i.e. maintenance of a fence, or restrictions to trading from a premises
Credit Search References – References requested for a tenant applying for rented accommodation. Many agents and individual landlords use external companies who will contact the applicant’s employer, landlord and also check out the tenant’s credit history and search public records, providing a report on the prospective tenant’s financial suitability to rent.
Debt Consolidation – The process of combining outstanding debts e.g. loans, credit cards etc, into one loan.
Deeds – Legal documents that show who owns a property or piece of land.
Defective Lease – A badly drafted lease. If this is serious, the vendor may have to obtain a deed of variation getting the freeholders permission to change the original terms of the lease. This can be a lengthy process as it may affect other leaseholders.
Deposit (sales) – Sum of money which the buyer puts down to secure the mortgage loan after exchange of contracts, usually 5 to 10 per cent of the purchase price.
Deposit (lettings) – A sum of money usually equal to 4 – 6 weeks rent to ensure a tenant complies with the terms of their tenancy agreement.
Deposit Protection Schemes – These government-backed schemes ensure your tenants will get their deposit back if they: meet the terms of your tenancy agreement; don’t damage the property; and pay the rent and bills. Your Landlord (or your letting agent) must put the tenants’ deposit in the scheme within 30 days of the deposit being handed over. At the end of the tenancy the deposit must be returned to the tenants within 10 days of agreement on how much the tenant will get back. If you’re in a dispute with your tenants, the deposit is protected in the relevant deposit scheme until the issue is settled.
Dilapidations – Damage to a property, missing items in an inventory, re-decoration required etc, usually assessed on the check out at the end of the tenancy. Landlords may only seek equitable reparation subject to fair wear and tear.
Direct Debit – A Direct Debit is an instruction from a customer to their bank or building society to make regular payments direct from their account.
Disbursements – All the various costs for carrying out the legal work in relation to buying or remortgaging your home such as searches other than the legal costs.
Discharge – Paying off a mortgage.
Discount Mortgage – A discount offered by mortgage lenders to borrowers, reducing monthly mortgage repayments often for the first two or three years of the loan period.
Dutch Auction – The original meaning refers to an auction in reverse, where an offer price is announced and the auctioneer gradually reduces it until a bid is made. However this meaning has been lost, and a Dutch auction now refers to the informal bidding that takes place when two or more potential buyers are outbidding each other for a property.
Easements – A term given to a right which someone may enjoy over another property. These can be rights of way, drainage rights, or more likely access to a neighbour’s land in order to carry out repairs to their own property.
Early Repayment Charge – A charge payable on some mortgages if they are repaid early (during an Early Repayment Charge period). The amount depends on the mortgage outstanding and the terms of the mortgage.
Energy Performance Certificate (EPC) – This is a legally required assessment of how energy efficient a residential property is. It is valid for 10 years and is required for all properties which are advertised for sale or rent with certain exceptions.
Enfranchisement – Leasehold Enfranchisement is simply the technical name given to the process by which tenants can, in certain circumstances, buy their freehold or acquire a new lease (often called a ‘lease extension’) from their landlords. Buying your freehold (also known as Collective Enfranchisement) first introduced under the The Leasehold Reform Housing and Urban Development Act 1993 gives tenants the right to acquire the freehold of their building. Subject to certain exclusions, tenants can exercise this right as long as at least 50% of the tenants in their building wish to proceed. The Act also gives individuals the right to a new lease (also known as lease extension or renewing a lease) and further right to tenants to acquire a lease extension of 90 years on top of the remaining length of the lease at a peppercorn rent (that is, rent free). Subject to certain exclusions, tenants can exercise this right if they have owned their flat for at least 2 years.
Extension or renewal of tenancy – This is where a tenancy due to come to an end can be extended or renewed with the consent of both the landlord and the tenant. Extensions and renewals may be subject to negotiated terms such as a change in rent.
Equity – The difference between the value of a property and the amount of mortgage and / or secured loans owed.
Exchange of contracts – The point at which both buying and selling parties sign their copies of the contract which are exchanged by their respective legal representatives and are legally binding. The buyer usually pays a deposit at this point and the date of completion is agreed.
Fair Wear & Tear – There is no legal definition of “fair wear and tear”. It is subjective and depends on a number of factors. Essentially, it is the amount of damage or deterioration that can be reasonably expected in all the circumstances. You could define it as damage caused by ageing and normal use. In the context of a residential letting, it means damage to carpets, decorations, fixtures, fittings and furniture that would reasonably be expected during a tenancy and allowing for the lifespan of the item in question.
Financial Conduct Authority (FCA) – The FCA regulate the financial services industry in the UK. Their aim is to protect consumers, ensure the industry remains stable and promote healthy competition between financial services providers.
Fixed rate mortgage -A mortgage where the interest rate is fixed for a specific time. It then normally reverts back to a variable rate.
Fixtures and Fittings – Non-structural items included in the purchase of a property ranging from curtains to white goods and disclosed in the fixtures and fittings list.
Flexible Mortgage – An arrangement enabling the mortgage borrower to overpay, and with the overpayments that have been built up, borrow money back, take payment holidays or pay less in some months.
Flying Freehold – This can occur when first floor accommodation forming part of one freehold is located over ground floor accommodation forming part of another freehold. The first floor freeholder does not own the land beneath the property, and is then said to own a flying freehold.
Freehold – Legal title that gives you absolute ownership of the land your property is on.
Full Structural Survey – A full structural survey looks at all the main features of the property, including walls, roof, foundations, plumbing, joinery, electrical wiring, drains, and garden.
Further Advance – An additional loan to your existing mortgage taken after the main mortgage has completed which is also secured against the property.
Gas Safety Certificate – If you are a landlord letting a property equipped with gas appliances you need to understand and comply with the law relating to gas safety. If you let a property, you must make sure that pipe work, appliances and flues provided for tenants are maintained in a safe condition. You need to have a gas safety check every year. A Gas Safe registered engineer must carry out the safety check in your properties. You must give your tenants a copy of the gas safety record within 28 days of it being carried out or before they move in. You are also obliged to show your tenants how they can turn off the gas supply in the event of a gas leak. Annual checks: As a landlord, you are legally responsible for making sure that a Gas Safe registered engineer checks the gas appliances in your rental properties every 12 months and gives you copies of the gas safety records. Gas safety records: When your Gas Safe registered engineer has checked the gas appliances in your rental property they will give you a gas safety record. This record confirms the gas appliances have been checked and are safe. You must give your tenant a copy of these gas safety records within 28 days of the checks being done, or give a copy of the gas safety record to a new tenant before they move in. Remember, you must keep a record of each safety check for two years.
Gazumping – When a seller pulls out of a sale after accepting an offer above the asking price. Often mistakenly used by people who have made an offer below the asking price and where a higher offer is later accepted. If you don’t offer the asking price, you may lose out.
Gazundering – A tactic whereby the buyer offers less than the agreed price just before exchange of contracts, usually at the last minute.
Ground Rent – The annual fee which a leaseholder pays to a freeholder.
Guarantor – A guarantor is someone who promises to pay your mortgage or rent if you can’t or won’t for any reason. This guarantee is legally binding.
Guaranteed Rent – You receive fixed monthly payments regardless of whether the property is ‘let’ or ‘vacant’ and even if the tenant stops paying. Usually and agent will offer a minimum 12 month contract during which they manage every aspect of the tenancy. The key difference between Guaranteed Rent and more traditional services is that it is a contractual agreement between agent and landlord in which the agent effectively, becomes your tenant. This is NOT to be confused with an insurance policy which may have excesses and limits.
Higher Lending Charge – This charge is payable (usually added on to your loan) if you borrow more, for example, than 90% of the valuation or purchase price of your property.
HMO – House in Multiple Occupation – This term covers many categories of housing where a house is ‘occupied by persons who do not form a single household’. If in doubt, you should check with your local authority as in such cases, the property will need to be licensed if it falls into this category.
Home Buyers Report – This is an intermediate-level survey which is usually offered by the mortgage lender and prepared by their own surveyor. The homebuyer’s report comments on the structural condition of most parts of the property that are readily accessible, but it does not involve in-depth investigation or the testing of water, drainage or heating systems.
Home Contents Insurance – A policy insuring household contents against theft and damage.
Home Envirosearch – A report on detailed flood, subsidence and land contamination history for each UK neighbourhood.
Holding Deposit- A holding deposit is intended to reserve a rental property. The landlord/agent does this by taking the property off the market, though new enquiries should still be recorded. If the letting goes through, the holding deposit should be credited to the main deposit or to rent. If the letting does not go ahead, through the fault of the prospective tenant, then it’s usual for the deposit or part of the deposit to be retained in compensation for lost time – this belongs to the landlord. In this respect it’s important not to take too much as a holding deposit – one week’s rent is usually about right and should compensate fairly if retained. If the letting does not go ahead through the fault of the landlord / agent then the deposit should be refunded. In all cases there should be a written Holding Deposit Agreement / Receipt which makes it very clear what will happen to the deposit in these eventualities and when the deposit should be returned or retained. It is important to remember that paying a holding deposit is in no way legally binding on either party
IFA – Independent Financial Advisor.
IDD / Initial Disclosure Document – This is a document designed to assist you in comparing the services provided and the fees and charges made by lenders and intermediaries.
Identity checks – Letting agent must make checks on both landlords and tenants to ensure they are who they say they are. Examples include passport, driving licence, bank statements and utility bills of a previous address you have lived at for three or more years. The money laundering regulations govern these checks
Informal Tender – Requires competing buyers to submit their best bids by a specific time and date. It is not a legally binding contract and the vendor is at liberty to accept a higher offer at any time. Estate Agents are legally required to pass on all offers unless instructed not to do so in writing.
Joint & Several Liability – Where there is more than one adult living in the property, the tenancy will say they are “jointly and severally” responsible. This means that, jointly, the tenants are liable for the payment of all rents and all liabilities falling upon the tenants during the tenancy, as well as any breach of the Agreement. Individually each tenant is responsible for payment of all rent and all liabilities in relation to the tenancy, as well as any breach of the agreement until all payments have been made in full.
Joint Mortgage – A mortgage where there is more than one named individual responsible for the contract.
Joint Sole Agency – This is when you employ two agents to sell your property and where both receive a commission irrespective of which one introduces a buyer. The agents agree to split the fee upon the sale of the property. The agent that sells the property usually gets a higher percentage of the fee. The ratio is pre-agreed with you and written into the agreement.
Joint Tenants – A form of ownership frequently used by couples which ensures that when one dies, the property passes automatically to the other. The alternative is Tenancy in Common.
Key Facts Illustration (KFI) – This document contains key mortgage information which is designed to help you compare the costs and features of different mortgages from one or more lenders. It is designed to make it easy to compare mortgages at a glance.
Land Certificate – A Land Registry certificate proving ownership of a property.
Land Registry – A government organisation that holds records of all registered properties in England and Wales.
Land Registry Fee – A fee paid to the Land Registry to register your details if you have bought a property or changed mortgage lenders.
Leasehold – To be given ownership of a property but not the land it is built on. This normally requires payment of ground rent to the landlord. Length of lease varies and diminishes with time but can be renewed or extended – see Enfranchisement.
Licensee – An agreement giving the right to occupy accommodation. Licenses provide less security than a tenancy agreement.
Life Assurance – Insurance which pays out on the death of the policy holder. Policies can run alongside your mortgage and will pay off all or part of the outstanding debt in the event of your death.
Listed Building – A building which is listed as being of special historical or architectural interest, which cannot then be demolished or altered without local government consent.
Local Authority Search – A search of the local area to highlight anything that may impact on the property or surrounding area, e.g. planned road building, planning permissions etc
Loan to Value (LTV) – The amount of mortgage expressed as a percentage of the property value. For example, if your mortgage amount was £80,000 and your property is valued at £100,000 your loan to value, or LTV, is 80%.
Maintenance Charge (or Service Charge) – The cost of repairing and maintaining external and / or internal communal parts of a building, which are then charged to the tenant or leaseholder.
Maisonette – Technically a maisonette is an apartment which is on two levels, with its own separate access. Although generally properties on two levels, with or without separate access, are sometimes referred to as maisonettes.
Monthly Interest – A method of calculating mortgage interest on a monthly basis.
Mortgage Deed – A legal document relating to the mortgage lender’s interest in the property.
Mortgage Indemnity Guarantee – See Higher Lending Charge
Mortgage Offer – Sum of money that the lender offers to lend you to pay for a property.
Mortgage Payment Protection Insurance (MPPI) – This is insurance designed to pay your monthly mortgage payment for a limited period, usually a year, if you are unable to work through illness, accident or redundancy.
Mortgage Term – The length of time over which the mortgage is to be repaid. Often this is 25 years – but it can be shorter, or in some cases for longer periods of time.
Multiple Agency – This is when you employ the services of more than one agent. The agent that sells the property takes the whole fee. The downside is that fees will be higher and sometimes it can make your property look as if its difficult to sell when prospective buyers receive details from several sources. Additionally, buyers tend to be less confident as they are often concerned another buyer may appear.
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