To help to clarify 'jargon' words used within the property investment industry, we have set to work and created the useful glossary of terms below to aid new and seasoned investors alike.
% on Exchange » Is the percentage amount required to successfully exchange contracts when committing to purchase your chosen property. Usually only applicable to off plan purchases. This figure will be usually be between 5% to 10% of the purchase price in the UK, and anywhere up to 30% for overseas purchases.
Architects Certificate » An Architects Certificate is often provided by smaller developers or smaller developments. The certificate itself is there specifically to assure the bank or building society lending on the property that the building was checked at certain points during its construction. If required you may be able to claim against the architects liability insurance for any structural problems, however any issues over quality leaves the purchaser with little means if required to seek redress. It should be noted that architects will often sign and issue a number of certificates for different purposes these should not be confused.
Assignable Contract » When you buy off-plan the contract of sale can sometimes be passed on or sold to a third party. In the UK we refer to this as being an assignable contract. It is not automatic that this is the case in all developments.
BMV » or 'Below Market Value' is the term used to describe a property that is available for purchase at a figure that is less than its actual current value.
For Example: A house has a current market valuation of £200,000, the property is offered for purchase at £160,000, this represents an instant 20% appreciation on the price the property can be purchased for. Hence, 20% Below Market Value.
Cashback » In its simplest form, a cashback is the excess funds that are returned to you/your solicitor after fully completing a property purchase.
Comparable » The process of measuring the true market value of a property.
Completion » Completion is the last stage undertaken by your solicitor to finalise your property purchase. This involves the transfer of funds from you/your mortgage company to the developer selling the property.
Discount » The discount is the percentage by which a property has been reduced from its current market value.
Due Diligence » The research and contract checking necessary before making investment decisions.
Equity » The equity is the value of a property after deducting payments and other costs.
Escrow » This is the money held in account by an independent third party to be released when pre-agreed obligations have been fulfilled.
Exchange » An exchange is the initial purchase process that takes place after reservation. This usually involves paying the developer/seller 5-10% of the property price via your solicitor to fully commit to progress the purchase of your selected property. This is always necessary unless the build of a development is very near to completing and you are able to carry out a simultaneous exchange and completion.
Exchange Bond » An Exchange Bond allows an investor to avoid the need to put up the cash normally required at the point of exchange to secure an off plan property. Instead, on completion the investor simply pays the full purchasing price, which additionally repays the majority of the Exchange Bond. This can be advantageous as it means that the buyer continues to have control and use of funds which would otherwise be tied up as a deposit possibly for the entire duration of the build. These cash funds can then be used elsewhere to generate further returns.
Flipping » Flipping is the selling of an Off Plan on or before it is completed / built.
Ground Rent » Ground rent is a fee payable to the freeholder as a condition of your lease. It is usually a nominal amount (such as £100 or £200 a year). Some leaseholders don't have to pay any money at all in ground rent, but most leases will still mention it. This is sometimes called a 'peppercorn rent'.
Lease Term » Usually in the case of apartments and occaisonally in the case of houses, the land on which the property stands is not owned outright by the buyer. Instead it is leased from the owner of the freehold of the land, and paid under the term ground rent. The Lease Term will be for a set number of years, at the end of the Lease Term the land and the building will revert to the freeholder.
Off Plan » Off Plan is best explained as a property that is being purchased during the planning stage or is not yet fully constructed.
Ready Now » Is a property that is fully constructed and completed and is being offered for purchase.
Reservation » The term reservation within the property industry means to provide a nominal sum of money to successfully secure property/properties allowing an purchaser to progress towards exchange and then on to completion.
Service Charge » If you own a leasehold apartment you will often have to pay a service charge to cover the general maintenance costs. Service charges are usually paid annually, but can also be monthly, quarterly or half-yearly. Service charges usually cover things like:
- repairs
- cleaning
- communal gardens
They sometimes include buildings insurance as well, but you may be required to pay this separately. You will normally have to pay a share of everything even if you don't utlise some of the services.
Simultaneous Exchange & Completion » Usually there would be an interval of a couple of weeks between exchange and completion, but Simultaneous Exchange & Completion is when the exchange and completion occurs on the same day.
Title Deed » Is a deed or document providing a legal rights to land or property.
Warranty » Newly built properties will often come with a warranty such as NHBC or Zurich Building Warranty paid for by the developer, which insures against the integrity of the property for a period of approximately 10 years. The developer covers the costs of the first two years, and provides cover for mostly all highlighted defects within the property during that time. In years 3-10 the insurance company will usually cover only structural defects.
Stamp Duty » A government tax on the execution of certain documents, such as the conveyancing of land i.e.property purchases. Stamp duty levels are reviewed in the Budget and currently start at £125,000 for residential property. The tax is payable at mortgage completion and it is important to include this in your budget if applicable. Visit www.direct.gov.uk for up to date information on stamp duty.