Jargon busting for first-time buyers

We demystify some confusing terminology for those getting onto the property ladder

The number of first-time buyers in the UK has reached the highest levels since 2002. As many will be familiar, getting to grips with property market terminology isn’t always easy. Here’s a quick guide to breakdown some of the most common phrases.

Mortgage in principle/Agreement in Principle (AIP): The first step in getting a mortgage, this is a statement from a lender that agrees to lend money towards a property purchase in principle. Sometimes vendors will want proof that buyers have this in place before accepting an offer.

Deposit: The amount of money put towards the purchase price as a down payment. Many mortgage lenders will require this to be 10% of the property value, however, in some cases this may be as low as 5%. Not to be confused with the Exchange Deposit, which is typically 10% of the property price and must be transferred to your solicitor before exchange. Your solicitor will then transfer this to the seller’s solicitor when you exchange contracts on the sale.

European Standardised Information Sheet (ESIS): A document providing prospective buyers with information to help them decide if a certain mortgage is suitable for them. It also enables them to make a comparison with other lenders.

Equity (Negative Equity): Equity refers to the value of the property, minus the outstanding mortgage amount. If the value of the property drops below the amount that is still owed on the mortgage, then the property falls into negative equity.

Loan-to-value: The ratio of the mortgage amount offered by a lender compared to the value of the property. If you buy a £200,000 house and put down a deposit of £50,000, then you will require a mortgage with a loan-to-value ratio of 75% (£150,000).

Help-To-Buy: A Government scheme intended to make it easier for first-time buyers to get on the property ladder. With Help-To-Buy the government provides a loan of up to 20% (40% in London), the buyer pays a minimum deposit of 5% and must arrange a repayment mortgage of at least 25% of the property purchase price. However, buyers may only purchase a newly-built home.

Shared Ownership: Another Government scheme that allows a first-time buyer to buy a share of the home value (usually between 10% and 75%) and pay rent on the rest of the home value. Buyers may ‘staircase’ and purchase incremental proportions of the property at a later date.

Property chain: When property purchases are dependent on one another to complete, this creates a chain. Problems with one transaction may result in the chain falling apart.  ‘Chain free’ means that the purchase isn’t dependent on the successful sale or purchase of other properties.

Vacant possession: An obligation when buying a property that it must be empty upon completion.

Conveyancing: A transfer of legal title of property or land from one individual to another, carried out by a solicitor or a conveyancer.

Survey:  A detailed inspection of a property’s condition to identify any structural issues or necessary repair work, which must be carried out prior to completion.

Searches: Performed as part of the conveyancing process, property searches are undertaken by your solicitor or licensed conveyancer and look for any information about your property, the land, and any factors that may directly (or indirectly) effect it. These searches will show up any potential flood risks, potential subsidence issues, planned development, any debt attached to the property and even any potential soil contaminents if the property was built on industrial land. Any potential issues will be flagged and could prevent you from buying a property that will become difficult to insure, is not worth the asking price or could become unsaleable, which is why your motgage provider will insist upon searches being carried out and results checked before they will release your mortgage funds.

Freehold vs Leasehold (Flying Freehold): Freehold provides a common ownership of property, whereas leasehold provides a temporary ownership. With freehold, you own the property and land, whereas with leasehold, you own the property for a fixed period of time but not the land it is built on. For more information on Freehold vs Leasehold, see our advice article here.

Ground rent: Payments from a leaseholder to a freeholder, generally paid on an annual basis.

EPC (Energy Performance Certificate): A ratings scheme showing the energy efficiency of a property, which will help determine how much it costs to heat. The rating runs from ‘A’ – very energy efficient to ‘G' – not energy efficient.

Planning Permission: Construction, expansion or demolition works on a property will require the owner to seek permission from the relevant local authority. Some properties may be available with planning permission already in place for an extension for example, which means you as the buyer don’t need to get permission granted as long as you stick to what has already been agreed.

Stamp Duty Land Tax (SDLT): Stamp Duty Land Tax (SDLT) is liable on purchases of a property or land over a certain price in England and Northern Ireland. If the property you buy costs £125,000 or below, there’s no SDLT to pay. First-time buyers do not have to pay SDLT on properties purchased for up to £300,000. For properties between £300,000 and £500,000, Stamp Duty is liable at 5% on the difference. However, if the property costs £500,001 no relief applies. If you are a first-time buyer, purchasing with another person who has previously owned a property (in any country), the relief does not apply.

Sold Subject To Contract: Once an offer has been accepted, the property is said to be ‘sold subject to contract’. However, this is non-legally binding as no paperwork has been signed.

Gazumping: When a vendor has accepted an offer but another prospective buyer comes in with a higher offer and the seller rebuffs their original agreement and accepts the higher offer. 

Completion: The deposit has been paid, deeds have been transferred and the buyer has the keys.

______

We received 653 5-star Google reviews in 2020.

6,580 positive AllAgent reviews – Top 5 Agent in the UK (2020).

ludlowthompson staff are measured by how our customers rate them via 1,000s of questionnaires.

Every single questionnaire is read by Stephen Ludlow and David Thompson.

Ashik P via Google Reviews:  

The team at ludlowthompson offered honest advice during the whole daunting process of finding and buying a property. They understood the requirements and fitted me suitably. I cannot thank them enough for all the help and support during the whole process and cannot recommend them enough.

Kyal M via Google Reviews:

Ludlowthompson was always very responsive at all times of the day and always found a way to fit me in for viewings without delay and with a high level of flexibility. As such, thanks to their efficiency, I was able to view a property and submit an offer on the very same day, which was eventually accepted. Overall I’m very happy with the service that ludlowthompson was able to offer.