As a first-time buyer entering the London property market, there’s plenty to unravel. There are many terms used by estate agents, solicitors, and mortgage advisors that can leave you at best, scratching your head or at worst, feeling anxious. Whether you've already started to dip your toes into the market or are contemplating your first-ever property purchase, understanding the market's key phrases can go a very long way in helping you to feel more secure in your future decisions.
At Urban Village Homes, we pride ourselves on doing what we can to keep everything simple. While we wanted to create this guide as a manual to help first-time buyers understand the jargon and navigate the property market with slightly more confidence than they might have had before, it comes with caveat. With deep market knowledge of the property market in and across South and South East London, and decades of experience under our belt, speaking to us before embarking on your journey would always be recommended - because, let's face it: buying a home can be stressful and a helping hand goes a long way.
“15% of people said home-buying jargon adds to the stress of buying a property”
According to a 2022 Moneybox survey, 37% of homeowners said purchasing a property was one of the most stressful life events they had experienced. The top causes of stress listed were the sheer amount of admin (eye roll), unresponsive solicitors, and the challenge of finding a house that A) you like, and B) you can afford. Alongside this, surprise surprise, 15% said home-buying jargon added to the stress.
But here's the thing: much of that stress can be alleviated by understanding what's going on. Below, we unravel the jargon of the property market language and break down everything from the basics of property ownership to the nuances of financial terms. At a top level, we also include some of the latest in home-ownership legislation in relation to the terms we include below.
By the time you finish reading, you'll be well-versed in the lingo, ready to engage with property professionals on equal footing (we hope). Whether you're trying to; figure out the difference between a freehold or a leasehold; understand what Stamp Duty means for your budget; or are grappling with the concept of gazumping… we've got you covered.
Remember, at Urban Village Homes, we're here to support you every step of the way. This guide is just one element of our commitment to making your home-buying experience as smooth as can be.
So, let's get started with some of the key terms you'll encounter in today's property landscape:
Key Property Ownership Terms
Freehold
In the world of property ownership, 'freehold' is a term you'll encounter frequently. When you purchase a freehold property, you're not just buying the building – you're acquiring both the structure and the land it sits on. This type of ownership grants you full rights and responsibilities for the property and its grounds.
Leasehold
Contrast this with 'leasehold', a form of ownership particularly common in the London flat market. According to GOV.UK, 36.1% of properties in London are leasehold making up the highest proportion in the country. As a leaseholder, you own the property for a fixed period but not the land beneath it. Once it expires, ownership returns to the freeholder. This arrangement comes with its own set of considerations, including the potential ground rent and service charges you’ll have to pay to the freeholder.
As a first-time buyer, it’s well worth paying particular attention to whether the property you have your eye on is a leasehold. If the lease is long, it shouldn’t be a deterrent, however, a short lease on the other hand might come with the cost of extending it, and those costs can run into several thousand pounds.
Legislative Insight: Leaseholds
At present, there are several changes afoot surrounding leaseholds. The Leasehold and Freehold Reform Act 2024 has become law, though it isn’t expected to take effect until 2025 or 2026. Key reforms include reducing the cost of extending leases, increasing the standard lease extension from 50 years for houses and 90 years for flats, to up to 990 years, and offering greater transparency for leaseholders over service charges. For more information, the HomeOwners Alliance has a lot of really helpful and up to date insight.
Share of Freehold
A middle ground between freehold and leasehold is the 'share of freehold'. This arrangement allows you to own a share of the freehold along with other leaseholders in the building, often providing greater control over the property's management and maintenance. Unlike leaseholds, a Share of Freehold is free from ground rent charges and lease extensions are often more straightforward and less expensive.
Shared Ownership
Shared ownership is a scheme that can help first-time buyers get onto the property ladder, which is especially helpful in pricier areas such as London. Here's a quick rundown:
- You buy a share of a property (typically 25-75%) and pay rent on the rest.
- You'll need a mortgage for your share and pay rent to a housing association for the remainder.
- Eligibility usually requires household income of £80,000 or less (£90,000 in London).
- 'Staircasing' allows you to buy larger shares over time.
Shared ownership can be a stepping stone to full ownership, but it's important to understand the long-term implications before committing. For a more comprehensive overview you can read MoneySavingExpert’s guide.
Key Financial Terms
Stamp Duty Land Tax (SDLT)
In the realm of property finance, 'Stamp Duty Land Tax' or SDLT is a term you’re probably already aware of. Mostly because it’s a significant up front sum (tax) that comes with the purchase of any property or land over a certain price in England and Northern Ireland. However, its definition and its intricacies is a different matter entirely.
Since September 2022 there have been reduced rates on Stamp Duty across all thresholds. This has also permitted first-time buyers the benefit of higher thresholds before the tax becomes payable, meaning a potential saving of thousands on your first property purchase. However, the rates are set to revert back on 31 March 2025, and any further updates on this have not yet been announced.
Here are the current rates for home movers (home movers are those that are not first-time buyers and who will own only one home):
- Up to £250,000: 0%
- £250,001 to £925,000: 5%
- £925,001 to £1.5 million: 10%
- Over £1.5 million: 12%
You pay 3% on top of these rates if you own another residential property.
For first-time buyers between September 2022 and 31st March 2025 the government increased the threshold in order to make homeownership more accessible. The rates are as follows:
- Up to £425,000: 0%
- £425,001 to £625,000: 5%
You would only pay the 5% on the amount above £425,001. So, let’s say your property costs £520,000. You would pay 5% on £94,999 (the amount over £425,001). Making your SDLT £4,749.95.
Properties above £625,000 do not qualify for relief and are subject to the standard SDLT rates as seen above.
To be certain at the time of which you are looking to purchase a property you can use an online stamp duty calculator such as the one you can find one on the GOV.UK website.
First Homes Scheme
When the Help to Buy scheme ended in 2023, it was somewhat replaced by a new First Homes scheme that offers discounts to first-time buyers and key workers on newly built properties. It also extends to homes you purchase through an estate agent, permitting that home was previously purchased via the scheme. There are a few things you need to do to assess your eligibility and it’s also worth keeping in mind that as the scheme is relatively new, the most likely avenue of securing a home via the First Homes scheme is through a property developer.
Lifetime ISA (LISA)
With Help to Buy ISAs closed to new applicants, a 'Lifetime ISA' is an alternative savings account that is designed to help first-time buyers save for a deposit.
Lifetime ISA key points:
- Alternative scheme for first-time buyers introduced in 2017.
- The government adds 25% bonus to savings, up to £1,000 per year.
- Can be used for first property purchase up to a value of £450,000 or retirement.
Help to Buy ISA key points:
- 25% government bonus on savings (max £3,000 per year from £12,000 of savings).
- You can contribute up to £200 per month to your scheme until November 2029. After this point, you have until November 2030 to claim the bonus accrued to put toward a house purchase.
- To be eligible, the property price limit for when you purchase is £450,000 in London and £250,000 elsewhere.
Mortgage
A 'mortgage' is one of the most central things to your property purchase – it's a loan secured against the property to help you buy it. You'll repay this with interest over an agreed period. Recent changes to affordability assessments may impact how much you can borrow, so it's essential to understand the current lending landscape.
There are different types of mortgages - a fixed-rate mortgage is largely the most popular choice, particularly with first-time buyers. A fixed-rate mortgage maintains your monthly repayments at a set rate for a set number of years, up to 5. Although in some cases, it can be longer. MoneySavingExpert has a great guide on the different types of
mortgages for first-time buyers alongside the latest mortgage rates and offers provided by different lenders.
Loan-to-Value (LTV)
'Loan-to-Value' or LTV is a term you'll encounter when discussing mortgages. It represents the size of your mortgage as a percentage of the property's value.
A lower LTV typically results in better mortgage rates. Recent market changes have seen some lenders offering higher LTV products, potentially opening up opportunities for buyers with smaller deposits.
Mortgage, Decision or Agreement in Principle (AIP)
A mortgage in principle, decision in principle, or agreement in principle are pretty much all terms for the same thing. This is a certificate from a lender stating how much they're likely to lend you based on some initial background checks.
Conveyancing
Conveyancing is the legal process of transferring property ownership from the seller to the buyer. The process is undertaken by a legal professional such as a solicitor.
Additional Property Market Terms
We’ve kept these straightforward, as a quick overview. These terms are crucial for when the time comes to discuss surveys and valuations, and what you need to navigate negotiations.
Solicitor: When you appoint a property solicitor or conveyancing solicitor, they will handle the necessary legal checks, due diligence and property searches required for informed property purchases (on the buying side). They will also provide legal guidance, handle the process such as the contracts as well as the exchange of money on the completion date.
Asking Price: The price at which a property is marketed.
Guide Price: An indication of the seller's minimum acceptable price.
Chain: A sequence of linked house purchases, where the buyer of one property is the seller of another. A break in the chain can cause delays or collapse of multiple transactions.
Chain-Free: A property sale where the seller isn't buying another property, reducing the risk of delays or fall-throughs.
Gazumping: When a seller accepts a higher offer from another buyer after already accepting your offer.
Gazundering: When a buyer lowers their offer just before the exchange of contracts.
Under Offer: A property where an offer has been made and accepted, but contracts haven't yet been exchanged.
Vendor: Another word widely used in place of ‘seller’.
Exchange of Contracts: The point at which the sale becomes legally binding for both you as the buyer and the seller.
Completion: The final stage of the sale, when money is transferred and you get the keys to your new home.
EPC (Energy Performance Certificate): A rating that shows how energy-efficient a property is, from A (most efficient) to G (least efficient). The more energy-efficient your property is, the better the investment. However, it’s not to say you couldn’t make upgrades to improve its energy-efficiency post-purchase.
Land Registry: A government-maintained database that records the ownership of properties and land in England and Wales. This becomes important when reviewing official documents related a property and to find out key information such as a property’s boundaries, potential planning restrictions and/or any rights of access.
Valuation Survey: A basic survey carried out by your mortgage lender to ensure the property is worth the amount they're lending.
House Survey: An inspection of a property’s health condition conducted by a surveyor, appointed at the buyer’s choosing (do due diligence here). They will inspect the property and compile a report summarising any potential repairs, issues, or risks you should be aware of after you make your offer but before contracts are exchanged, so that you have all the required information you need about the property’s structural soundness in order to make an informed decision on your purchase.
Understanding these terms will help you approach your first property purchase and the associated processes with more ease. If you’re looking for an estate agent you can rely on to guide you through the process - whether it’s your first-time, third time or you want to sell up - Urban Village Homes are armed with local knowledge of the London market, have decades of experience and are committed to providing dedicated support at every step. Just give our team a call: 020 3519 9121.