UK Glossary

A planning rule used by local councils to remove the permitted development right to convert a single-family home into an HMO. In Article 4 zones you must apply for full planning permission before converting. Always check the local council's planning portal before purchasing a property for HMO conversion.

UK lenders require a mortgage valuation to confirm the property is worth the loan amount. Separate from a building survey, which assesses structural condition. Three survey levels: RICS Condition Report (basic), HomeBuyer Report (mid-range), Building Survey (full structural).

A specialist mortgage for properties purchased as rental investments. BTL mortgages typically require a minimum 25% deposit, are stress-tested against rental income via the ICR, and carry higher rates than residential mortgages. Most are interest-only, maximising monthly cashflow.

Short-term secured finance used to bridge a gap — typically to purchase before selling another property, or to fund a refurbishment before refinancing onto a BTL mortgage. Monthly interest of 0.5–1.5% makes these expensive; intended for 3–18 month terms.

Annual cashflow as a percentage of total cash invested — deposit plus all purchase costs including SDLT. Unlike yield, it accounts for financing and measures how efficiently your actual cash generates returns. Experienced UK investors typically target 10–15%+.

Tax on profit when selling a property that is not your primary residence. From April 2024: 18% for basic-rate taxpayers and 24% for higher-rate taxpayers on residential property. The annual CGT exempt amount was reduced to £3,000 from April 2024.

The legal process of transferring property ownership. Handled by a solicitor or licensed conveyancer. Involves searches (local authority, drainage, environmental), reviewing contracts, exchanging contracts, and completing the transfer. In England and Wales, the sale is not legally binding until exchange of contracts.

A certificate rating a property's energy efficiency from A (most efficient) to G (least efficient). Required for all rental properties. Current minimum for new tenancies is E — landlords cannot let properties rated F or G. The government proposes raising the minimum to C for new tenancies by 2028.

The point at which the purchase becomes legally binding. Both parties sign identical contracts and a deposit (typically 10%) is transferred to the seller's solicitor. Neither party can withdraw without significant financial penalty after exchange. Completion (key handover) usually follows 1–4 weeks later.

Buying a property, refurbishing it, and selling for a profit. HMRC classifies regular flipping as a trading activity — profits are taxed as Income Tax (up to 45%), not CGT. The 70% rule: your maximum purchase price should be 70% of the After-Repair Value minus refurbishment costs.

Freehold means you own the property and land outright. Leasehold means you own the property for a fixed term while the freeholder owns the land. Most flats in England and Wales are leasehold. Properties with fewer than 80 years remaining on the lease can be difficult to mortgage and sell.

Annual rental income as a percentage of purchase price before deducting any expenses. A quick screening metric. In the UK, a gross yield of 5–8% is considered good. Northern cities (Liverpool, Manchester, Nottingham, Sheffield) frequently achieve 7–10%. London typically sits at 3–4%.

Ground rent is a payment by a leaseholder to the freeholder for use of the land. The Leasehold Reform Act 2022 capped ground rent at a peppercorn (zero) for new residential leases. Service charge is a separate payment for maintenance of communal areas — can range from £500 to £5,000+ per year for flats.

A property let to three or more unrelated tenants who share facilities. A mandatory HMO licence is required for properties let to five or more unrelated people. Operating without a required licence carries fines of up to £30,000 per offence and potential rent repayment orders.

The lender's affordability test for BTL mortgages. Annual rent must cover a minimum multiple of the annual mortgage interest. Failing this test means the mortgage is declined regardless of personal income. Required under PRA SS13/16 rules.

A mortgage where monthly payments cover only the interest — the capital balance stays unchanged throughout the term. The loan must be repaid in full at the end (usually via sale of the property). Most BTL mortgages are interest-only, maximising monthly cashflow but building no equity through repayments.

The Scottish equivalent of SDLT, charged on property purchases in Scotland. Different bands and thresholds apply. An Additional Dwelling Supplement (ADS) of 8% applies to additional residential properties in Scotland — the equivalent of the BTL surcharge in England.

The ratio of the mortgage loan to the property value. Determines the interest rate tier — lower LTV means better rates. BTL lenders typically require a maximum 75% LTV (25% deposit). Below 60% LTV usually attracts the best rates.

The Welsh equivalent of SDLT, charged on property purchases in Wales. Different bands and thresholds apply. A Higher Residential Rates surcharge applies to additional properties in Wales. Always check the Welsh Revenue Authority for current rates.

Annual rental income after all operating expenses as a percentage of purchase price. More meaningful than gross yield for investment decisions. UK net yields typically run 2–3 percentage points below gross — that gap is letting agent fees, maintenance, insurance, and void allowance.

The financial comparison between renting and buying over a given horizon. In the UK, if you plan to stay under 5 years, renting is usually more cost-effective due to SDLT and transaction costs. Over 10 years, buying almost always wins as mortgage payments stay fixed while rents rise.

Since April 2020, individual landlords cannot deduct mortgage interest as a business expense against rental income. Instead they receive a 20% basic-rate tax credit. For 40% taxpayers, this means paying 20% tax on income that went to the bank. Limited companies are exempt — mortgage interest remains fully deductible.

Tax charged on property purchases in England and Northern Ireland, collected by HMRC within 14 days of completion. Applied in bands — you pay each rate only on the portion within that band. A 5% surcharge applies to all buy-to-let and second-home purchases (increased from 3% in October 2024).

Under PRA SS13/16, lenders must stress-test BTL applications at a minimum rate of 5.5% (or the pay rate + 2% if higher). The ICR must still be met at this stressed rate. Even if your actual rate is 4.5%, the ICR is calculated at 5.5% for affordability purposes.

The period when a rental property is empty between tenancies, generating no income but still incurring mortgage, insurance, and utility costs. A prudent BTL analysis assumes 2–4 weeks of voids per year. High-demand areas may have fewer; student lets often have predictable summer voids.

Replaced the old 10% Wear and Tear Allowance in April 2016. Landlords of furnished properties can now only deduct the actual cost of replacing domestic items (furniture, appliances, kitchenware) — not an automatic percentage of rental income. Covers like-for-like replacement only, not upgrades.

For refurbishment or development projects, yield on cost measures annual rent as a percentage of total project cost — purchase plus all works, finance costs, legal fees, and SDLT. More relevant than market yield for forced-appreciation strategies where value is added through refurbishment.