Glossary

Accident, Sickness and Unemployment (ASU) - also known as Mortgage Payment Protection Insurance (MPPI)

Tax-free replacement income to cover the monthly mortgage payments and other regular outgoings, in the event of ill-health or unemployment, usually for up to one year.

Added To Loan

Added to loan relates to the costs borrowers face when arranging a mortgage. Often these are added to the mortgage amount being borrowed, hence the term. The costs may include items such as mortgage indemnity fees and/or arrangement fees and/or administration fees as examples.

Advance

Any loan itself is the "advance", known as such because the lender is lending you, the borrower, the money in advance of repayment.

Adverse Credit

A bad credit record, such as CCJ's, repossession orders, IVA's or arrears.

AEA

The Annual Exempt Amount is the yearly allowance for Capital Gains Tax.

AER

The Annual Equivalent Rate is the figure that helps with comparisons of one financial product with another, and is generally quoted on interest paid on savings and investments. It shows what the rate would be if interest was paid just once a year.

Allowances

These are concessions from the Inland Revenue which can be used to reduce your taxable income. Your Personal allowance is an amount of income that is tax free. Personal allowances for 2007 - 2008: under 65yrs - £5,225, 65yrs-74yrs - £7,550, 75yrs+ - £7,690

Annuity

This is an insurance policy that provides a regular income in exchange for your pension fund, or a lump sum to a Life Company. It is advisable not to automatically accept the annuity offered by your existing company, as you have the legal right to take it to another Life Company who may well offer a better rate.

APR  

All lenders are required by law to tell you what their APR - Annual Percentage Rate - is before you sign an agreement. The rate quoted on loans and credit cards maybe the monthly or annual rate of interest you pay, but the APR figure calculates the total amount of interest that will be paid over the whole term of the loan, so the lower it is the better for the borrower.

Arrangement Fee

Arrangement fee’s may be used by some lenders as an alternative term to an administration fee. Whilst some lenders may charge a simple administration fee the arrangement fee can be charged to cover not only administration but also the cost of reserving of funds for fixed rate and/or discounted rate mortgage for example.

Arrears

When loan payments have not been paid on time and/or not made at the correct amount, borrowers are said to be in arrears. Borrowers with a history of arrears will find it harder to source finance with their current lender or a new lender in the future.

Audit

An official examination of accounts by a qualified accountant external to the company.

Banker's Draft

This is a cheque made out to the creditor by the debtor's bank, it is drawn on the banks funds rather than the debtor's and is considered more secure than a personal cheque as it can't usually 'bounce'. Beware, however, as the frequency of forged drafts has increased in recent years and there are many scams designed to separate the unwary from their goods/money.

Bank of England

The Bank of England's Monetary Policy Committee sets the interest rates to achieve the Treasury's inflation target. The BOE is also responsible for the regulation of the banking industry.

Base Rate

This is the lowest rate at which a lender will charge interest. The Bank of England's Monetary Committee sets the rate.

Bridging Loan

This is a short-term loan to cover what will eventually be covered by long-term finance. Sometimes a Bridging-loan is required by purchaser of a property who hasn’t yet sold their original house.

Cancellation Period

The Consumer Credit Act provides a period of time after signing a contract during which customers are entitled to cancel their purchase of some financial products, in certain circumstances.

Cash Flow

The amount of cash that flows in and out of a business. The company is 'cash positive' if more money comes in, and ' cash negative' if more cash goes out.

CCJ's

A County Court Judgement is issued for failure to pay an outstanding debt. This will go on file and subsequently affect your credit rating. Bailiffs can be used to enforce payment of CCJs.

Child Tax Credit

This is generally available to families with children who have a gross income of under £58,000 a year. Families with an income close to the threshold only receive a minimal amount. CTC is paid to families with children regardless of whether the parents are employed.

Cooling Off Period

The 14 days a new policyholder has during which they can cancel an insurance/assurance policy.

Covertible Term Assurance (CTA)

Level term life cover with the built in option to convert the policy into something different, such as a Whole of life policy, at a later stage.

CPI

The Chancellor of the Exchequer now bases the UK inflation target on the Consumer Price Index (CPI). The Consumer Price Index differs from the RPI in that it excludes housing costs. The CPI inflation target is set at 2 per cent.

Credit Crunch

Credit Crunch is a term used to describe a sudden reduction in the general availability of Loans or Credit, or a sudden increase in the cost of obtaining Loans from Banks, Building Societys or other Lending Institutions.

Credit Rating

A points rating used by banks, mortgage companies and other financial institutions that offer loans. An individual or company is assessed for credit worthiness and risk. Your credit report is compiled by credit reference agencies using public records, such as: the electoral roll, court judgments and bankruptcies and also information from other lenders and financial institutions. If you are declined credit the lender should inform you the main reason for this. If the decision was based upon a bad credit report, you should obtain the name and address of the Credit Reference Agency they used. You have the right to view the information contained in your credit report to make sure it is accurate.

Credit Reference Agency

These are the agencies that compile credit records of consumers and releases the information to companies offering credit terms, such as Equifax or Experian. You are legally entitled to a copy of your Statutory Credit Report by post for a fee of £2 : Equifax, Plc. Credit File Advice Centre PO Box 1140 Bradford BD1 5US or Experian Consumer Help Service, PO Box 8000, Nottingham NG80 7WF.

Critical Illness Cover (CIC)

Pays out on diagnosis of a specified condition during the policy term, often regardless of the level or speed of recovery.

Debt Consolidation

Debt consolidation loans combine all your outstanding debts into one loan in order to obtain more manageable monthly payments. Consolidating can eliminate the high interest charges on credit cards debts.

Debt Management Plan (DMP)

A Debt Management Plan (DMP) enables you to make reduced repayments to your creditors over a number of years. A debt management company will negotiate the payments with your creditors on your behalf.

KeyFacts Document

Standard documents that all authorised lenders and brokers must give you to explain their services and details about the mortgage you're interested in.

Decreasing Term Assurance (DTA)

Decreasing life cover is similar to MPA, although this cover decreases at a flat, fixed rate each year as opposed to matching a mortgage, which typically decreases more slowly in the early years.

Family Income Benefit (FIB)

Instead of paying out a lump sum, this type of cover provides a tax free annual income until the end of the term specified at outset.

Fixed Rate

The interest rate is fixed for a specific period.

Flexible Loan

The lender gives you a credit limit which allows you to then decide how much you need to borrow, when you want to borrow it, and how much you repay each month. You will probably pay a higher rate of interest than with a regular fixed rate loan. However, the interest with a flexible loan is calculated daily on the outstanding balance, so if you make an over-payment you will immediately reduce the overall amount you pay.

Gross Income

Your income before any deductions have been made, particularly tax.

Guaranteed and Reviewable Premiums

Guaranteed rates will stay the same throughout the term of the policy. Reviewable rates can be reviewed at the insurer's discretion (usually after the first five years).

Guarantor

A person who agrees to guarantee the debts of another. If the borrower fails to make his/her payments then the guarantor will be obliged to make those repayments.

Hire Purchase

The buyer pays an initial deposit and takes possession of the goods. After all the instalments are paid over a specified period the ownership passes to the purchaser.

Home Income Plan

This allows homeowners, especially the elderly, to release the equity that they have in their home without having to sell it. There are two types of Home Income:
Reversion - the property is sold to an insurance company, but the owner remains in residence and is paid an income. When the owner dies, the life insurance company takes over the property. Annuity - a mortgage, or re-mortgage is secured on the property. The proceeds are used to purchase an annuity to produce an income. With annuities the older you are then the higher the income you can achieve, so home income plans are more appropriate for people in their 70's.

Income Protection (IP)

Tax-free replacement income in the event of ill health until you either return to work, retire, the policy term expires, or death.

Increasing Term Assurance (ITA)

The cover increases every year without the need for a medical. Not as popular as Level Term, but it should be as people may require additional cover in line with increases in their income and inflation.

Indexation

Policies can be linked to inflation where premiums and benefits increase annually.

Inflation

The general rise in prices across the economy over a year.

Inheritance Tax

A tax payable by your heirs on any gifts in the seven years before death, and on the value of assets when he or she dies – this is exempt between a husband and wife, or to charity. This applies to any amount over £300,000 in the tax year 2007/2008. The Iheritance Tax rate is 40%.

Interest Rate

The percentage rate at which interest is charged on a loan, or paid out on savings. The rate will vary according to the base rate and the type of loan or savings plan.

Interest-only Mortgage

A mortgage where you only pay the interest charges of the loan each month. This means you are not reducing the loan amount (or capital) itself, and this will need to be repaid in some other way.

ISA

An indiidual savings account – allows UK residents over 18years old to save up to £7,000 in each tax year without paying extra income tax.

IVA

An Independant Voluntary Agreement is a formal arrangement between you and your creditors - set up by a licensed insolvency practitioner - whereby you agree to make reduced payments towards the total amount of your debt, in order to pay off a percentage of what you owe.

Level Term Assurance (LTA)

Life cover that pays out a fixed lump sum if a person dies within the specified period of the policy.

Liabilities

The debts of a person or company.

Life Assurance

This pays out a lump sum when the policyholder dies and is advised to protect large commitments, such as a house mortgage.

Loan

An advance of money from a lender to a borrower over a set period of time. The borrower is obliged to repay the Loan, usually monthly, with interest. There are many different loan options suitable for varying circumstances: Secured, Unsecured, Debt Consolidation, Bridging, Flexible, etc.

Loan-to-Value

The percentage of money you want to borrow compared to the cost of the property.

Mortgage

A loan which is secured against your property.

Mortgage Broker

A mortgage broker helps you understand the various mortgage types and deals available to them. A mortgage broker may recommend a mortgage for you or they may provide you with information to enable you to make your own choice.

Mortgage Deed

A mortgage Deed is the important legal document by which a property owner grants security for repayment of a loan.  Your mortgage deed must be witnessed and it must be registered with the Land Registry.  A mortage can also be referred to as a legal charge or in scotland will be called a standard security.  When you repay your mortgage or secured loan, the Mortgage (Legal Charge/Standard Security) will be removed from the property register.

Mortgage Protection Assurance (MPA)

Life Cover where the lump sum reduces in line with the outstanding mortgage balance over time.

Net Interest

The interest on your savings after tax at basic rate has been deducted.

Offset

To set one amount against another, such as a repayment against a debt. Offset mortgages set your current account balance and savings against your borrowing. This can pay your mortgage off faster and reduce your interest payments.

Personal Loan

A loan from a lender to a borower for personal use, such as the purchase of a car, holiday, home improvements, etc. A Personal Loan can be Unsecured or Secured.

Register

A list of firms that are regulated by the FSA  to carry out financial services in the UK. You can check online to see whether a firm is regulated by the FSA by login on to www.fsa.gov.uk.

Remortgaging

The process of changing your mortgage for a different one, without moving home.

Renewable Term Assurance (RTA)

Typically short term cover that can be renewed, without medical underwriting, every 5 - 10 years.

Repayment Mortgage

A mortgage that pays off both the home loan and the interest at the same time. Make all the payments and the mortgage will be fully repaid.

RPI

The Retail price index is an index of the average price of consumer goods and services used to measure the rate of inflation. This differs from the CPI in that it includes housing costs, such as: council tax, mortgage interest payments, house depreciation, buildings insurance, etc.

Secured Loan

This loan is secured on your property by the lender. This ensures the lender is minimising the risk of losing the money, and as a result is able to offer a Secured Loan at a lower APR than an Unsecured Loan A Secured Loan is also easier to obtain even with a bad credit history, such as arrears or county court judgements.
With secured loans you should be aware that your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.

Self Assessment

All taxpayers are obliged by law to maintain records of all income and capital gains, and need to complete a self assessment if you are: self-employed, a company director, a business partner, an employee with 'complicated' tax affairs, such as capital gains or you pay the higher tax rate, etc.

Stamp Duty

A tax which home buyers must pay on properties above a government set figure.

Standard Variable Rate Mortgage

A loan at the lender's normal mortgage rate - ie without any discounts or deals.

Student Loan

Student loans in the UK are publicly financed by the government body - Student Loans Company, and are provided to help students with their living costs whilst studying in higher education. The student is required to start repaying the loan from the April after graduation, and when their gross income exceeds the threshold salary level of £15,000. The interest rate on the loan is linked to the rate of inflation, and is adjusted annually in line with the Retail Prices Index (RPI). From September 2006 to 31 August 2007 the rate is 2.4%. The loans are repaid through the tax system known as Income-Contingent Repayment (ICR) which adjusts payments to the Loans Company according to the gross income of the payee.

Survey

A report on the condition of the property you are planning to buy.

SVR

The Standard Variable Rate is the interest rate the lender charges which fluctuates with the changes in the base rate – this affects your interest payments accordingly.

Term

The length of your mortgage.

Term Assurance

This is a life assurance policy taken out for a specified period, after which it then lapses.

Terminal Illness Benefit (TIB)

Not to be confused with CI, this benefit simply allows those who are diagnosed with less than 12 months to live to claim early on a life insurance policy. The benefit is often included with life cover at no extra cost.

Trust

A trust is important if, on your death, you wish the proceeds of your life insurance to be paid to your dependants in a straightforward manner.

Tracker Mortgage

A mortgage with an interest rate that is usually linked to a particular rate that is set independently from the lender and moves up or down with it.

Total and Permanent Disability (TPD)

Most critical illness policies will offer TPD, which covers any illnesses and medical conditions not listed, where there is no long term prospect of recovery.

Unit Trusts

Investment funds that are managed portfolios; they are usually shares, but can also include cash, bonds and gilts.

Unsecured Loan

An Unsecured Loan costs more in repayments than a Secured Loan, but does not carry the risks to your home if you unable to keep up repayments.

Waiver of Premium

Covers the cost of premiums during periods of ill health and/or unemployment.

Working Tax Credit

A payment of in-work credits to those with low-incomes, and can include childcare costs. Families are eligible for the childcare tax credit if the parent/ parents work for at least 16 hours a week. WTC is also for non-parents as well.

Whole of Life (WOL)

Open ended life cover. Available either with an investment element or as a more expensive guaranteed rate, non-investment contract.

Valuation

A brief inspection, for the benefit of your lender, of the home you hope to buy. This is to make sure they are not lending more than the property is worth and that the property is suitable security for the mortgage, but this will not tell you if it is a good or bad buy. For your own peace of mind, you may want your own survey.