Industries of all operations and markets tend to be filled with all sorts of hellish jargon, terminology, abbreviations and acronyms. If you’re a rookie investor choosing property investment as an escape of this, then you’re in the wrong place with the property industry being one of the worst offenders in the business! Even the most seasoned property investors struggle to digest every single term in what makes up a towering glossary. To lend a hand in this, we have created a complete beginners guide to help shed alight on property investment jargon.
A
AIP = Agreement in Principle
When applying for a mortgage, the lender will decide how much “in principle” you can borrow based on a credit search and basic personal information.
APR = Annual Percentage Rate
This is the total cost of a loan. Expressed as a percentage, this figure is calculated through the consideration of interest charges, arrangement fees and additional costs. The APR does not take compounding into account.
AS = Assisted Sale
Where an external party will guarantee a sale price and immediate pay this to the property seller. They then take over the mortgage on the home with permission from the lender and pay all the bills of the home until they find a buyer for the property.
AST = Assured Short-hold Tenancy
The most common form of tenancy in England and Wales. Upon agreement, the tenant is allowed to remain in a property for a fixed-term period on the provision they abide by the terms of a tenancy agreement. This rental agreement is most popular amongst individual tenants where net rent does not exceed £25,000 a year. Both parties will know the date the property is to be vacated and the landlord is allowed to regain possession of their property.
ARLA = Association of Residential Lettings Agents
An organisation based in the UK that represents individuals and companies who manage the renting of properties such as houses and apartments.
B
BMV = Below Market Value
All properties must be valued by a surveyor during the purchasing process, and where a property is valued cheaper than comparable ones in the surrounding area it is deemed below market value. In the property investment world, this is the holy grail of any investment. Remember: buy low,s ell high!
BOE = Bank of England
The central bank of the UK responsible for the governance of monetary policy. Amongst many other things, the BOE decides the country’s interest rates. The most important consideration to make when applying for a mortgage.
BTL = Buy to Let
When purchasing an investment property with the intention of letting the premise out, its classed as a BTL property. As the property is purchased as an investment, rather than a place to live, the buyer will require a BTL mortgage.
C
CG = Capital Gains
This is an increase in the value of the property that gives it a higher value than the original purchase price. Property investors with a longer-term vision of their investment should always keep one eye on this throughout their property investment journey.
COCR = Cash on Cash Return
One of the most important rates of return of a property transaction. This is measured through calculating the cash income earned on the cash invested in a property. To put it simply, COCR measures the annual return for a property investor in relation to the amount of mortgage paid during the same year.
CPO = Compulsory Purchase Order
This is when the government, local council or utility companies under certain circumstances have a statutory right to step in and buy your property or take a right over it.
CRM = Capital Repayment Mortgage
These days there are a range of different mortgage products available to buyers of all shapes and sizes. If you are on the market for a BTL mortgage, it is highly likely that this will be offered on a capital repayment basis. This means that you repay the loan over time rather than simply interest.
D
D = Diversification
In order to maximise the likelihood of success in property investment, diversification is a key strategy used to spread the risks and minimise losses. This can be done in any number of ways but most commonly through involving different types of property of all values and locations within a portfolio.
DD = Due Diligence
All investment partners with Elavace are constantly reminded of the importance of conducting thorough due diligence to the success of any investment journey, let alone property. As a property investment specialist, we always emphasise that when researching properties, local markets, tenants, and so much else; absolutely no stone must be left unturned!
DPS = The Deposit Protection Service
Authorised by the government, the DPS is a tenancy deposit protection scheme free to use and available to all landlords and letting agents. The scheme requires a tenant’s deposit to be paid over to the DPS for the duration of the tenancy and to be returned at the end of the tenancy. The deposit will be paid back in full providing the tenant has paid rent and bills, incurred no damage to the property and met all obligations of the tenancy agreement between both parties.
E
E = Equity
Regardless of whether you’re selling an investment property or a family home, equity is something all sellers need to be aware of. This is the value of the property, minus the amount of money owed for said property. In other words, if you owe £50,000 for a property valued at £200,000, you will have £150,000 equity.
EA = Estate Agent
This is a person/organisation working with the mission of delivering the sale, let, or management of homes, land and buildings for the owners. The range of services provided can often vary from agent to agent. Our sister company, Elavace Estates meet all UK regulations and utilise 65+ years of management experience in the property industry to make owning a property as simple and as safe as possible. The level of service provided is of the highest standard, including market leading research on the performance and security of the UK market while also conducting extensive due diligence on your behalf.
EPC = Energy Performance Certificate
When renting out a property, the EPC is one of the most important documents to provide to a tenant. In fact, residential landlords are no longer allowed to rent out properties with an EPC rating below ‘E’ following new rules that came into action back in April 2018.
ERC = Early Repayment Charges
These are fees paid to your mortgage lender which you might be required to pay if you wish to reduce the amount you’ve borrowed, perhaps by paying off a lump sum. Moreover, if you’re looking to sell a property, you should always double-check with your lender in case there happens to be ERC attached to your mortgage product.
F
F = Flipping property
This is when a property is purchased and sold relatively soon after for a quick and easy profit. A strategy which can prove triumphant in generating immediate return but significantly dampens the potential for more lucratively sustained profit.
FHJH =Freehold
A freehold property owner will own absolutely everything that comes with the building, from the windows and doors to the bricks and patio. The owner will also own and be responsible for the very land which the property stands on. This essentially means that you as the owner are free to do whatever you wish to with the property and garden, providing it’s within the law! We highly recommend you read through our popular Elavace blog offering an in-depth analysis into freehold and leasehold home ownership.
Here is some more jargon which are pretty self-explanatory and worth making a note of:
FTB = First Time Buyer
G
GSR = Gas Safety Record
This is a certificate that specifies all gas appliances, pipework and flues are safe. It is a legal requirement for all landlords and must be provided every year by a CORGI registered engineer following a safety check.
GR = Ground Rent
If you happen to purchase a leasehold property, ground rent is an annual charge that you are entitled to pay the freeholder of said property. This amount can often vary significantly and can typically rise incrementally over time.
H
HHSRS = Housing Health and Safety Rating System
Yet another important piece of lingo for landlords to be aware of. The HHSRS is a system used to grade the sustainability of a property to live in, most commonly used by local authorities to identify health and safety issues in residential properties.
HMO = House in Multiple Occupation
This acronym is used to label properties being shared by more than two persons and not of the same family. Essentially, HMOs are living properties rented out on a per room basis but sharing the same facilities. This is a popular investment type amongst property investors because it generally unleashes the potential for high yields and low void periods.
HPI = House Price Index
A useful statistic that shows the national changes in the value of residential properties in England, Scotland, Wales and Northern Ireland. It is often used by property investors to identify the slowing and emerging property markets from region to region.
I
I = Inventory
A list of all the contents inside a rental property, often including photographs of specific items and existing damage/defects. The inventory will also note the condition of these items and will use this form as the basis of a dilapidation report at the end of the tenancy.
IHT = Inheritance Tax
As you may already know, Inheritance Tax doesn’t stop at property. It is a tax on the estate of someone who has died, including all money, possessions, and of-course, property. It’s important to be aware of this tax as if you inherit a property from a family member, you may very well be liable for IHT. Note: there is normally no tax to be paid if the value of your estate is below the Nil Rate Band (NRB) of £325,000.
IO = Interest-only Mortgage
This is a popular mortgage choice amongst buy-to-let investors. Borrowers can gain a full mortgage and only need to pay interest on the amount borrowed, meaning that the initial amount borrowed must be paid off by the end of the agreed term.
IRR = Internal Rate of Return
The internal rate of return will appear quite confusing on the face of it so just bear with us for now! This is a metric used to estimate the profitability of potential property investments. Easy enough, right? TheIRR is basically a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. Did we lose you? No problem - what’s important to understand is that this measurement is effective when analysing investment projects and comparing potential ROI between properties over time.
J
JV – Joint Venture
A joint venture/ownership is a business agreement between two or more parties to pool their finances to purchase a specific property –like an off-plan property, for instance. There are many different ways to jointly purchase such as joint tenants and tenants in common.
JVP = Joint Venture Partner
Care to wager a guess? As above, a JVP is one member of the group pooling their resources.
L
L = Leasehold
Purchasing a leasehold property means you will be purchasing a lease from the freeholder, who we’ve covered above. They will give you the right to live in the property for a set number of years. In this instance, you will never own the property outright. You simply have the right to live in the property while the freeholder will continue to own the property and the ground it sits on. Lease lengths can very much depend on the location and type of property at hand, but typically a new lease will start off at around 99 years, but there are leases which will run as long as 999 years. As a quick reminder, if you would like to learn more about the responsibilities of a freeholder and leaseholder, feel free to read our Elavace blog which covers this and much more!
LR = Land Registry
This is a government department that records all owners of land and any charges, including mortgages against the property. The information included in these records will cover title registers, title plans, leases and deeds.
LRF = Land Registry Fee
A fee charged by the Land Registry to record the change of ownership of a property.
M
MRF = Mortgage Redemption Figure
The amount required to repay the outstanding capital and interest of a mortgage.
MV = Market Value
This is the price a particular property would fetch in the current market. There are multiple online property portals such as Rightmove and Zoopla which can be a good rule of thumb for property investors unsure of whether they’re paying over the odds. Or on the contrary, have stumbled upon a bargain!
N
NLA = National Landlords Association
The NLA is the UK’s largest membership organisation for private residential landlords home to over 41,000 members. With over 100 Acts of Parliament and 400 sets of regulations governing the private residential sector (PRS), the NLA represent and support the best interests of landlords across the country.
NP = Net Profit
As a property investor, this is something you’re likely to already be familiar with! The net profit figure is calculated by deducted all expenses from the gross income of your property investment. The final figure can either be positive or negative, if it’s the latter, then it’s time to rethink your investment!
O
OIEO = Offers in Excess Of
When searching for the best property to invest in, you’re likely to come across the term OIEO. This is specified when the seller only wants to receive offers over a certain amount for their property.
OIRO = Offers in Region Of
This is very similar to OIEO but slightly more flexible –basically giving the buyer an idea of the kind of offer that would be acceptable for that property.
OPP = Off-Plan Property
Off-plan developments are properties that are purchased before or during the construction period of the building process. A key principle in property investment is that in order to gain the most lucrative possible return, you need to be patient and be in it for the long run. This principle is especially applicable to off-plan developments; although you might have to sit on your investment for months, or even years, the value of the property will grow far faster than any other property investment. This is because the developer will usually reward your trust and commitment by selling the property at a discounted price. If you were in the market for more than one property at a given time, some developers may even offer additional discounts as an added incentive.
P
PCM = Per Calendar Month
This is another one that’s good to tick over if you’re getting into the property investment business. As soon as you have found the right property to invest in and its ready to be let, the property will be advertised and charged to your tenants as rent PCM.
PRS = Private Rented Sector
The Private Rented Sector is a classification of housing in the UK. This is the sector of the housing market where property is owned by a landlord and let to a tenant.
R
ROCE = Return on Capital Employed
A measure of profitability for investors to understand how efficiently capital is deployed. Supposedly, the higher the number is, the better the investment property/s performance has been. ROCE is highly popular amongst property investors and developers as it can often help finalise a decision as to whether to invest in a property.
ROE = Return on Equity
A percentage measure of the return from an investment property in relation to the equity in the property.
ROI = Return on Investment
ROI is often referred to in the same sentence as Return onCapital Employed (ROCE), largely because the two are very much the same. This is one of the most important factors for landlords and property investors to consider when a purchasing a property. To calculate the ROI, take the annual profit (income minus costs) generation by the property, and divide that by the cash you’ve put in. So if you were able to purchase a property without a mortgage by using your own cash, the net yield and ROI would be identical because you will have put in the full purchase price.
S
SDLT = Stamp Duty Land Tax
A tax payable when purchasing a property above a set threshold. As a property investor, you’ll need to pay an additional 3% as your rental property will be classed as a second home. There are currently a number of exceptions and limitations in place following the economic breakdown of Covid-19, most notably the increase of stamp duty threshold to £500,000 for property sales in England until 31st March 2021.
SVR = Standard Variable Rate
As soon as your BTL mortgage product has expired, you will automatically be moved on to your lenders SVR, usually between 2% and 5% above the BOE base rate.
T
TDP = Tenancy Deposit Protection
As discussed earlier with the Deposit Protection Service (DPS), when renting out a property, you as a landlord will need to take a security deposit from your tenants. This is for the protection of tenancy deposits and the resolution of disputes between landlords, agents, and tenants concerning the return of deposits at the end of a tenancy. Upon receiving the deposit, you are responsible for lodging this with one of three government backed TDP schemes within 30 days. And by the end of the tenancy, all deposits must be handed back to tenants within 10 days of reaching an agreement on the amount to be returned.
