Financial terms, especially in property finance can be particularly confusing. We all use jargon in daily life and sometimes you don’t want to ask for an explanation.
So – to remove confusion from the property sector we bring you our Jargon Buster – a complete guide to the financial definitions you need to understand!
A
Absolute Ownership
Outright ownership of land and buildings in Scotland with no superior (see Freehold)
Accrued Interest
Interest that has been earned but not yet paid.
Adverse Credit
A blanket term covering borrowers who have missed payments on their credit report, CCJs, Bankruptcies etc.
Amortisation
The process of gradually paying off a debt (like a mortgage) over time through regular payments.
Annual Equivalent Rate (AER):
The effective annual rate of interest, taking into account the effect of compounding interest.
Appraisal
A valuer’s estimate of the value of a property.
Arrears
Being behind on payments. (A form of adverse credit)
Assessed Value
The value of a property as determined by a local government for rates or taxation purposes.
Asset
Anything of value that is owned.
Assignment
The transfer of a contract or rights to another party.
Assured Shorthold Tenancy (AST)
The most common type of residential tenancy agreement in England, typically for private renters, which grants the landlord a right to regain possession of the property at the end of the fixed term without needing a specific legal reason.
B
Balloon Payment
A large payment due at the end of a loan term.
Bank Rate
The interest rate set by the Bank of England, which influences other interest rates.
Bankruptcy
A legal status for individuals unable to pay their debts, where a court order ensures assets are shared among creditors, typically leading to a fresh start for the borrower after about a year. It is difficult to borrow within 6 years of a bankruptcy.
Base Rate
Bank Rate (as above)
Bridging Loan
A short-term loan used to finance a property purchase or capital raise while waiting for long-term financing to be arranged or a sale. (Find out more)
Buy-to-Let (BTL) Mortgage
A mortgage specifically designed for purchasing a property to rent out to tenants. (Find out more)
C
Capital
The money used to invest in property.
Capital and Interest
Repayment of a mortgage or other loan by paying part capital and interest in balanced monthly amounts according to the amortisation term of the loan.
Capital Appreciation
An increase in the value of an asset over time.
Capital Gains Tax (CGT)
A tax on the profit made from selling an asset, such as a property (except your primary residence).
Capital Repayment
See Capital and Interest above
Chain
A series of linked property transactions, where the sale of one property is dependent on the sale of another.
Collateral
An asset pledged as security for a loan.
Commercial Property
Property used for business purposes, such as offices, shops, pubs, hotels, industrial units or warehouses.
A mortgage secured against commercial property which is leased out to other businesses. Sometimes termed as a Commercial Buy-to-Let Mortgage
Commercial Mortgage
Generally refers to a mortgage secured against commercial property from which the owner’s business will operate. (Also termed Commercial Owner-Occupier Mortgage)
Compound Interest
Interest calculated on the initial principal and also on the accumulated interest of previous periods.
Consumer Buy-to-let
Where an “accidental landlord” is created through renting out their former home (let-to-buy) or inheriting a property and letting it out.
Consumer Buy-to-let Mortgage
An “Accidental Landlord” mortgage is given additional protection by the FCA in a similar way to a residential mortgage.
Contract
A legally binding agreement between two or more parties.
Conveyancing
The legal process of transferring ownership of property from one owner to another.
County Court Judgement (CCJ)
A court order issued against you if you owe money and fail to repay it, officially confirming the debt and typically impacting your credit rating for six years. (See adverse credit)
Credit Score
A numerical representation of a borrower’s creditworthiness.
Credit Report
A report detailing a borrower’s credit commitments, repayment history and adverse credit information.
Covenant
A legally binding promise in a contract.
Council Tax
A local tax paid by residents to fund local services.
D
Debt-to-Income Ratio (DTI)
A ratio that compares a borrower’s total debt to their gross income.
Debt Service Coverage Ratio (DSCR)
The ratio of income (or business profit) available to cover debt payments. More than 100% shows debt coverage but lenders will use a stress test expect between 125% and 200% coverage depending on the property or business type.
Deed
A legal document that proves ownership of a property.
Deposit
An initial payment made when purchasing a property.
A loan to finance a property devolpment project. A typical development loan will allow staged payments (or drawdowns) as the project proceeds.
Dilapidations
Costs associated with repairing damage to a property at the end of a lease.
Drawdown
The process of receiving funds from a loan in stages. Especially common in development or refurbishment finance.
E
Early Redemption Penalties (ERCs)
A charge levied by the lender for full or part repayment of a mortgage or loan within a certain term (especially common during a fixed rate).
Easement
A legal right to use someone else’s land for a specific purpose.
EPC (Energy Performance Certificate)
A document that rates a property’s energy efficiency on a scale of A-G.
Exchange of Contracts
The point in the property transaction when both buyer and seller become legally bound to complete the sale.
F
Financial Conduct Authority (FCA)
The UK’s financial services regulator. Regulates residential and consumer buy-to-let mortgages but not commercial products. All brokers dealing with sole traders or partnerships must be authorised and regulated by the FCA.
Fixed Rate Mortgage
A mortgage with an interest rate that remains the same for a specific period.
Fixtures and Fittings
Items included in the sale of a property, such as light fixtures and fitted kitchens.
Freehold
Ownership of land and the building on it outright and in perpetuity. (See Absolute Ownership for Scottish properties)
Feuhold (historical - Scotland only)
Outright ownership of land and building, but with a feudal superior and potential “feu duties” or conditions.
G
Gazumping
When a seller accepts a higher offer from another buyer after already accepting an offer.
Gazundering
When a buyer reduces their offer at the last minute before exchange of contracts.
Gross Development Value (GDV)
The finished value of a property development.
Gross Income
Total income before any deductions.
Ground Rent
The annual payment made by a leaseholder to the freeholder. (Typically in the case of a long lease)
Guarantor
Someone who agrees to be responsible for another person’s debt if they fail to pay it.
H
Head Lease
A lease held by a landlord who then grants further leases (subleases) to tenants.
HMO (House in Multiple Occupation)
A property rented out to multiple tenants who are not part of the same household.
I
Interest-Only Mortgage
A mortgage where the borrower only pays the interest each month, with the principal balance repaid at the end of the term.
Investment Property
Property purchased with the intention of generating income or profit.
J
Joint and Several Liability
Each party to a mortgage or loan is individually responsible for the entire amount, as well as being collectively responsible with the others.
Joint Tenancy
A form of property ownership where two or more people have equal ownership, and if one dies, their share automatically passes to the other(s).
L
Land and Buildings Transaction Tax (LBTT)
A tax payable by the buyer of a property in Scotland.
Land Registry
The government body responsible for keeping records of land and property ownership.
Lease
A legal agreement granting the right to use a property for a specific period in exchange for rent.
Leasehold
Ownership of a property for the length of the lease agreement.
Lender
An organisation or individual that lends money.
Let to Buy Mortgage
A form of consumer buy-to-let mortgage where you remortgage your current home in order to let it out and move to another property.
Loan-to-Cost (LTC) Ratio
The ratio of the loan amount to the cost of a development.
Loan-to-Value (LTV) Ratio
The ratio of the loan amount to the value of the property.
Local Authority
A local government organisation responsible for providing services in a specific area.
M
Market Value (MV)
The estimated value of a property on the open market.
Mortgage
A loan secured by having a charge over an asset.
Mortgage Deed
The legal document that creates a mortgage.
Mortgagee
The lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage agreement.
N
Negative Equity
A situation where the value of a property is less than the amount owed on the mortgage.
Net Equity
The remaining value of a property after all mortgages have been deducted
Net Income
Income after all deductions, including taxes.
O
Offer
A proposal to buy or sell a property at a specific price. (A commitment to buy in Scotland).
Op Co / Prop Co
A situation in commercial motgages where the business can be split into a separate operating company from the property (owning) company.
Over Leveraged
Having too much debt secured against assets.
P
Portfolio
A collection of investments.
Premium
The total price paid for a lease.
Principal
The original amount of a loan, not including interest.
Private Residential Tenancy (PRT)
An open-ended tenancy agreement for private renters in Scotland that gives tenants greater security and protection against eviction, replacing older assured and short assured tenancies from December 2017.
Private Tenancy
Any rental agreement in Northern Ireland not provided by the Housing Executive or a housing association, with its terms largely governed by the Private Tenancies Act (Northern Ireland) 2022, which introduced new protections for tenants.
Probate
The legal process of administering the estate of a deceased person.
Property Chain
See Chain
Purchaser
The buyer of a property.
R
Rate
The interest rate charged on a loan.
Redemption
Paying off a mortgage in full.
Refinance
Obtaining a new mortgage to replace an existing one.
Rental Income
The income received from renting out a property.
Repayment Mortgage
Reserve Fund
Savings set aside for unexpected expenses.
Residential Property
Property used for housing, such as houses and flats.
Restrictive Covenant
A limitation on how a property can be used.
Return on Investment (ROI)
A measure of the profitability of an investment.
S
Searches
Enquiries made by a buyer’s solicitor to check the legal status of a property.
Second Charge (Mortgage)
A loan secured against a property that already has a first charge (mortgage) on it.
Seller
The person selling a property.
Stamp Duty Land Tax (SDLT)
A tax paid by the buyer when purchasing a property in England, Wales and Northern Ireland.
Sublease
A lease granted by a tenant to another party.
Standard Occupation Contract
The primary type of residential rental agreement for private landlords in Wales and replaces assured shorthold tenancies, providing detailed rights and responsibilities for both contract-holders (tenants) and landlords under the Renting Homes (Wales) Act 2016.
T
Tenancy Agreement
A contract between a landlord and tenant outlining the terms of the rental agreement. The standard in England being an Assured Short-hold Tenancy.
Tenant
Someone who rents a property from a landlord.
Term
The length of time a loan or lease lasts.
Title
Legal ownership of a property.
Title Insurance
Insurance that protects a buyer or lender against defects in the title to a property.
Transaction
The process of buying or selling a property.
U
Under Offer
The status of a property when a seller has accepted an offer from a buyer, but the sale is not yet finalised. (Also termed Sold Subjet to Contract)
Underwriting
The process a lender uses to assess the risk of granting a loan.
V
Valuation
Variable-Rate Mortgage
A mortgage with an interest rate that can change over time.
Vendor
The seller of a property.
Void Period
A time when a rental property is unoccupied and not generating income.
Y
Yield
The return on an investment, expressed as a percentage of the cost.
The world of property finance is confusing enough without all the jargon, but sometimes only the correct term will do! We hope our financial definitions will help!
Don’t be confused about your funding, speak to one of our experts who will ensure everything you need to know is clearly explained.
If you have any finance terms that you’re still confused by, contact us now and we’ll get them added to our glossary of finance terminology.
