Property Lending Glossary

Terminology, terms and jargon explained

A

Acquisition Costs – Costs associated with securing ownership of property such as agent commissions, professional fees and stamp duty.

Amortisation – Reductions in the capital value of the loan.

Arrangement Fee – Fee paid to the lender for the arrangement of a loan.

B

Bridging Finance – A type of finance used most often on a short term basis to secure the purchase of a property.

C

Charge – A form of security taken by a lender over a property, as security for a loan. A charge can prevent the owner of the property from selling the property without the lender’s permission, and can be redeemed by the lender to transfer ownership.

Contingency – An amount of money set aside to cover unforeseen costs.

Commercial Mortgage – A loan secured against commercial investment property.

Commitment Fee – Fee paid to a lender, ahead of a formal credit committee approval, to cover the abortive costs of a credit-backed loan not being taken forwards.

Comparables – Properties that have recently sold and have similar attributes (such as size, location and amenities) to the property under consideration.

Construction Cost – The cost of building a property to practical completion.

Corporate Guarantee – A legal agreement where a company other than the borrowing entity is fully or partially liable for the liabilities of the borrowing entity.

Covenant – A promise in a formal debt agreement that certain activities will or will not be carried out or that certain thresholds will be met.

Credit Check – A type of reference which checks the credit history, employment reference and provides a report on the financial status of an individual or company.

Credit History – Details of the financial payment history of a person or company.

Cross-collateralisation – When a lender uses more than one asset as security for a single loan.

Cure Rights – The pre-agreed ability for a borrower to carry out an action or actions which remedy a breach of a covenant in a legal agreement.

D

Debenture – A wide ranging term usually referring to a document providing fixed and floating charges over the assets of a borrower.

Default – The failure to perform an obligation as agreed in a legal agreement.

Development Appraisal – An assessment of a project’s viability that includes investigation into all project aspects and anticipated outcomes.

Development Finance – A loan granted to assist with the development of a property.

Drawdown – A release of funds under a loan agreement, usually to fund a staged payment of a development project.

E

Equity – Cash or equivalent, invested in a project by a borrower.

F

Facility – A loan agreement.

G

GDV (Gross Development Value ) – The estimated end of value of a development, assuming the completed development was sold today.

I

Interest – The ongoing cost of borrowing, usually expressed as an annual rate and calculated monthly.

Interest rate – The basis on which the amount of interest is calculated.

J

JCT (Joint Contracts Tribunal) Contract – A standard form of construction-related contract.

Junior Loan – A form of loan which ranks behind (and is therefore Junior to) a first ranking, “Senior” loan, and as such is repaid after the senior loan is repaid. 

L

Loan to GDV (LTGDV) – A loan metric calculated by dividing the total cash value of the loan by the GDV. Usually used for development finance loans.

Loan to Cost (LTC) – A loan metric calculated by dividing the total cash value of the loan by the total cost of the project.

Loan to Value (LTV) – A loan metric calculated by dividing the total cash value of the loan by the value of the property. Usually used for investment finance loans.

M

Mezzanine Loan – A form of loan which ranks behind senior debt finance, typically is at a higher LTGDV, and carries a higher interest rate.

N

Negative Equity – A situation where the Loan-to-Value is higher than 100%, making the value of the loan greater than the value of the underlying property.

P

Permitted development – Rights granted under the Town and Country Planning Act which comprise works and changes of use that can be carried out without the need for an explicit planning permission, subject to various statutory conditions.

Personal Guarantee – A legal agreement where an individual other than the borrower is fully or partially liable for the liabilities of the borrower.

Property Development Finance – A loan where the proceeds are used to redevelop a property.

S

Senior Loan – A loan which ranks ahead of Junior mezzanine or equity finance, is secured by a first charge and typically carries a lower LTV.

Stretched Senior – A loan which carries many of the characteristics of a senior loan including being secured by a first charge, but is typically at a higher LTV and carries a higher cost of finance.

T

Term – The agreed duration of a loan.

V

Vacant Possession Value – The value of an income producing asset, normally commercial property, if unoccupied. Also known as the ‘Bricks and Mortar’ value.

Valuation – The estimated price of a property, typically as determined by a lender-appointed valuer.