NEW PODCAST: I tried to sell a property at auction – this is what happened
NEW PODCAST: I tried to sell a property at auction – this is what happened
Weekly data-led tips, local hotspots, and what actually moves the market.
Property investment comes with its own language, and half of it seems designed to confuse rather than clarify. We’ve organised this glossary in a way that makes sense for someone who’s trying to get their head around property investment, starting with the crucial calculations and working through to the regulatory requirements that’ll keep you out of trouble.
Gross yield: This is your starting point – the annual rent divided by what you paid for the property, expressed as a percentage. So if you’re getting £10,000 a year in rent from a £200,000 property, that’s a 5% gross yield. It’s crude and doesn’t account for any of your actual costs, but it’s useful for quick comparisons when you’re scrolling through Rightmove at 11pm wondering if that studio flat in Slough is actually a bargain.
Net yield: This is your annual profit (rent minus all your costs) divided by the purchase price. It’s a much more realistic figure than gross yield because it actually accounts for the inconvenient fact that owning property isn’t free. Between insurance, maintenance, letting agent fees, and everything else, those costs can be substantial, and if they eat up £7,000 of your £10,000 rent, your shiny 5% gross yield suddenly becomes a rather less impressive 1.5% net yield. Ouch.
Return on investment (ROI): This is the number that tells you what’s happening to your money. It’s your annual profit divided by the cash you’ve actually put in, not the total purchase price. Some people call it Return on Cash (ROC) or Return on Capital Employed (ROCE), depending on who you’re talking to and how fancy they want to sound.
Why does this matter? If you put down a £50,000 deposit on that £200,000 property and make £3,000 annual profit, your ROI is 6%. That’s a lot more meaningful than looking at the net yield of 1.5%, because it reflects what’s actually happening to your cash – the money that could otherwise be earning returns elsewhere. This allows you to directly compare not just different properties with each other, but also property against other assets you could invest in.
Cash-on-cash return: Essentially the same as ROI – it’s your annual pre-tax cash flow divided by the total cash you’ve invested. It’s a different name for the same concept. The property world loves multiple names for the same thing, apparently.
Total return: Total return combines your rental profit with any increase in the property’s value. So if you make £3,000 from rent and the property goes up by £10,000 in value, that’s a £13,000 total return on your £50,000 cash investment – a rather tasty 26%.
While this sounds great, remember that capital growth isn’t guaranteed, you can’t spend it until you sell (or remortgage), and property prices can go down as well as up.
Loan-to-value (LTV): Simply put, it’s the percentage of the property’s value that you’re borrowing. If you’re buying a £200,000 property with a £150,000 mortgage, that’s 75% LTV. Lower LTV usually means better mortgage rates and less risk for the lender, but it also means more of your cash tied up in one property rather than spread across multiple investments.
Interest-only mortgage: You only pay the interest each month, not touching the capital. This is popular with buy-to-let investors because it keeps monthly payments low and maximises cash flow. You WILL need to pay back the capital eventually though – unfortunately, it doesn’t magically disappear.
Repayment mortgage: A traditional approach where your monthly payments cover both interest and a chunk of the capital. It’s less popular for buy-to-let because the payments are higher and eat into your cash flow, but you’re gradually paying off the debt, which some people find reassuring.
Leveraging: It’s a fancy word for using the bank’s money to buy property (with a mortgage). It can amplify your returns beautifully when things go well, but it also amplifies your risks when they don’t, so use it wisely, not greedily.
Mortgage stress testing: Lenders don’t just check if you can afford the mortgage at today’s rates – they also test whether you could still afford it if rates went up. This usually involves calculating affordability at a higher rate (often 5.5%, or the lender’s standard variable rate plus a buffer) and is why you might not be able to borrow as much as the theoretical maximum loan-to-value.
Product transfer: When you switch to a new mortgage deal with your existing lender at the end of your current term. It’s often simpler and cheaper than remortgaging to a different lender, though not always the best deal available.
Remortgaging: Switching your mortgage to a different lender, usually to get a better rate or release some equity. With buy-to-let properties, this can be a way to recycle your capital into new investments.
Fixed-rate mortgage: Your interest rate stays the same for a set period (typically 2-5 years) which gives you certainty over your monthly payments – a predictability favoured by more BTL investors. It protects you against rates rising, but you’ll lose out if rates fall.
Variable rate mortgage: Your rate can go up or down. This includes tracker mortgages (which follow the Bank of England base rate) and standard variable rates (which the lender can change whenever they fancy). It’s more unpredictable, but you benefit if rates fall.
Buy-to-let (BTL): The bread and butter of property investment. Buy a property, rent it out, and hopefully make some money along the way. BTL mortgages are different from residential ones and you can expect higher deposits (usually at least 25%), higher interest rates, and stricter lending criteria.
House in multiple occupation (HMO): A property where three or more unrelated people live and share facilities like kitchens or bathrooms. It can generate higher yields because you’re essentially renting out rooms rather than a whole property, but it comes with significantly more regulations, licensing requirements, and generally more hassle. Definitely not for beginners, whatever those weekend property courses might tell you.
Buy-to-Sell / Flip: Buy a property, do it up, sell it for a profit. It sounds easy on the property TV shows, but it isn’t in real life as it requires genuine skill, hard work, good project management, and a fair bit of luck with the market timing.
Let-to-Buy: When you rent out your current home instead of selling it, usually to buy a new place to live in. This typically involves switching your existing residential mortgage to a buy-to-let one. It can be a way to get started in property investment if you can’t afford a separate deposit, though you’ll need your lender’s permission first.
Freehold: You own the property and the land it sits on. Simple, clean ownership with no ground rent, service charges, or anyone else having a say in what you do with your property (within planning laws, obviously). This is what most houses are.
Leasehold: You own the property but not the land underneath it. This is common with flats and a small number of new-build houses. The lease gradually runs down over time, and you might pay ground rent and service charges to whoever owns the freehold. Short leases (under 80 years) can significantly impact the property’s value and mortgageability, so be aware of this.
Title Deeds: The legal documents that prove you own the property. These days they’re usually electronic and held by the Land Registry, which is rather less romantic than having a dusty scroll in your safe, but considerably more practical.
Stamp Duty Land Tax (SDLT): The government’s cut when you buy property in England and Northern Ireland (it’s called LBTT in Scotland and LTT in Wales). The rates vary depending on the price and whether it’s your first property or an additional one. If you own a property already (including your own home) then buy another one, you’ll pay an extra 5% on top of the standard rates. Always budget for this from the start.
Capital Gains Tax (CGT): Tax on any profit when you sell an investment property. Companies will pay Corporation Tax on the profit from sales instead.
Section 24: The tax change that restricted landlords from fully deducting mortgage interest from rental income for tax purposes. Instead, you get a basic rate tax credit. It hit highly leveraged landlords particularly hard and is one reason why many people now use limited companies for property investment. If you’re thinking of using leverage, make sure you understand how this affects you.
Assured Shorthold Tenancy (AST): The standard tenancy agreement in England and Wales. Usually starts with a fixed term of six to twelve months, then often becomes a rolling periodic tenancy. It gives landlords a clear legal route to regain possession of their property when needed, assuming they follow the correct procedures.
Energy Performance Certificate (EPC): Rates how energy-efficient your property is from A (excellent) to G (terrible). You need one to sell or rent out a property, and a grade of at least E is currently needed. This is planned to increase to a C in future, so factor any necessary improvements into your calculations now.
Council Tax: The local tax on residential properties. Your tenants usually pay this directly to the council, but make sure your tenancy agreement is absolutely clear about this responsibility. If they don’t pay it and disappear, you could end up liable for it.
Right to Rent: The legal requirement to check that your tenants have the right to live in the UK before you rent to them. You need to see and copy acceptable documents, and there are penalties if you get it wrong.
Selective Licensing: Some councils require landlords to get a licence for each rental property in certain areas, even if it’s not an HMO. The licensing comes with conditions about property standards and management practices, plus a fee you must pay. Check with the local council before you buy because licensing isn’t overly onerous, but there are big penalties for not having one when you should.
Article 4 Direction: A planning tool that local councils can use to remove certain permitted development rights in specific areas. Most commonly, this means you need planning permission to convert a family home into an HMO, when normally you wouldn’t. If you’re planning any conversions or changes of use, check whether an Article 4 Direction applies to your area first. Getting caught out can be expensive and stressful.
Weekly data-led tips, local hotspots, and what actually moves the market.
