Glossary of Terms

This describes people with a poor credit history who may have had difficulty in keeping up payments on a loan or mortgage in the past. They may also have CCJ's or have been declared bankrupt.  People with adverse credit will find it harder to obtain further credit on normal terms.

This is quoted on interest paid on savings and investments. Interest paid monthly, quarterly or half-yearly represents a higher true rate than the same stated interest rate paid annually. Thus, the AER allows you to compare interest rates across accounts and reflects not just the amount of interest but also how often it is paid. It shows what your interest return would be if the interest was compounded and paid annually instead of monthly (or any other period).

These are issued by credit card companies and operate as standard credit cards but a percentage of purchases made via card usage is donated to a charitable beneficiary by the issuer. A donation may also be made to the beneficiary on issue or first use of the card.

This is the percentage of a payment that is invested once management charges have been deducted.

This charge is deducted from an investment each year and is usually a percentage of your investment.

An annuity provides a guaranteed income for life in return for a lump sum invested. There are two types of annuities; Compulsory Purchase and Purchased Life. Compulsory Purchase annuities are bought with a payment from an employer's pension scheme or personal pension fund. Part of the fund may be paid out as tax-free cash, the remainder must be used to buy an annuity.

This is a company or person that can only advise on products from one single provider.

 Lenders are required by law to quote the APR. Headline mortgage and loan rates do not include arrangement fees you may be charged and also the higher rate of interest that you will eventually be paying. The APR takes into account the interest on a loan over its lifetime plus any additional charges making it easier for you to compare products. In general, the lower the APR the better the deal.

This is a fee you pay to a lender for providing you with a mortgage or loan. They are usually paid on completion and often found with fixed rate, discount or cash back mortgages.

Also called Payment Protection Insurance, this insurance covers mortgage and loan repayments in case of accident, sickness or involuntary unemployment.

This stands for Additional Voluntary Contributions. As a member of an Occupational Pensions Scheme these are payments made above the normal level of contribution to gain additional pension benefits.

Balance transfer rates are the interest rates applied to existing card debt that is being moved from one issuer to another. These rates are normally lower than standard rates and apply to the debt transferred or consolidated for a specified term or until it is repaid in full.

The Bank of England is the central bank of the United Kingdom sometimes known as the ‘lender of last resort’. The BoE is responsible for setting interest rates for the economy as a whole and also issues notes and coins.

A bankers draft is a guaranteed way of receiving money. Unlike a cheque it cannot bounce and will be paid to whoever presents it. The draft is a cheque which is drawn directly on the bank or building society against funds in a bank account. There is usually a fee for obtaining a bankers draft.

Base rate (sometimes called the repo rate) is the interest rate set by the Bank of England which determines borrowing and savings rates.

This stands for British Bankers' Association who are the trade association for British banks.

The price at which you sell shares back on the stock market.

These are issued by large companies and institutions to raise finance and pay interest to the bond holder.

A short term loan that 'bridges' the time period between two property transactions. It is used to cover shortfalls between buying one property and selling another. Major banks and building societies can offer bridging finance. Interest rates are higher than normal mortgage rates.

The Building Societies' Association which is the trade association for British building societies.

Some bank current accounts will allow the customer to go overdrawn up to a small limit without the need to arrange a formal overdraft. Buffer zones will not normally charge for transactions although interest will still be due.

A building society is a mutual organisation owned by its members - its savers and borrowers - and not by shareholders.

A combined insurance policy covering the cost of rebuilding or repairing a property and replacing damaged or stolen contents from within the home.

Business current accounts are available to non-personal customers, for example clubs, charities, and companies. Availability may be restricted by customer type, minimum balance requirements or business turnover.

Buy-to-let mortgages are provided for property purchases or remortgages for investment in the private rental sector. Assessment of borrower affordability can be based on projected rental income and/or earnings, dependent on the lender's individual policy.

This is the original amount invested or borrowed before interest is either added or charged.

Also called a repayment mortgage. This requires the borrower to make payments each month of both interest and capital. To begin with most of the payment will be interest but as the end of the term approaches nearly all payments will represent capital.  At the end of the term the loan will have been repaid.

A capped rate mortgage has a maximum interest rate for a given term. The interest rate  cannot go higher than the agreed capped rate. This enables borrowers to budget better as they will know the maximum amount their monthly repayments could rise to. However, if the standard rate of interest falls below the capped rate, repayments will also fall.

Upon completion of the property purchase, a cash rebate is paid.  The sum is either a percentage of the advance or a fixed sum. While the cashback may be very welcome the mortgage scheme may include a higher interest rate and charges for repaying the loan early.

The all too familiar plastic cards used for withdrawing cash from Automatic Teller Machines (ATMs) - also known as hole in the wall machines and cashpoints.

One of the most fundamental laws in the UK that sets out the rights and responsibilities of lenders an borrowers.

A tax on the increase in the value of an asset since it was purchased. Everyone is allowed a certain level of profit each year before capital gains tax is charged. This amount is reviewed annually in the Budget.

The Clearing House Automatic Payment System enables the electronic transfer of payments between two accounts.

A written order directing a bank to pay money to a named person or company.

The Child Trust Fund became effective on 6 April 2005, for children born on or after 1 September 2002. Children in receipt of Child Benefit receive a sum of £250 in the form of a voucher to be used to open either a cash or equity based account on behalf of the child. Families in receipt of full Child Tax Credit or certain benefits when Child Benefit was first paid will receive a further £250. If an account is not opened within a year, the Inland Revenue will open a Stakeholder account on behalf of the child. Parents, grandparents and friends will be allowed to make additional deposits up to a maximum of £1,200 each year. At age 7 the Government will make a further payment to the account, currently proposed at a minimum of £250, at age 16 the child can begin to make decisions about how the money is managed, and at age 18 the account matures and the child receives the proceeds. No withdrawals are permitted during the 18 year term.

Commercial mortgages are used to purchase a business or a business property such as shops, public houses and farms.

This is an amount paid to a person or company, called an intermediary,  for placing business with a particular provider.

A pension scheme set up by an employer to provide retirement benefits to past and present employees.

The legal moment in time when purchase of a property is complete and you become the new owner.

Compulsory purchase annuities are bought with a payment from an employer's pension scheme or personal pension fund. Part of the fund may be paid out as tax-free cash, the remainder must be used to buy an annuity. The income payments (usually monthly) from this type of annuity are taxed as earned income and are usually paid to the recipient net of basic rate tax. Higher rate taxpayers may be liable for additional tax which at present has to be collected separately.

This is a loan taken out to bring a number of other loans, credit card debts etc together under one roof. With just one regular payment required.

The legal process that enables the ownership of a property to be transferred from the seller to the buyer.

Payable by companies on their profits.

A temporary certificate to show a policy is in force even though the official policy document has not yet been issued.

Credit cards are a form of borrowing used to purchase goods and services, to obtain cash advances and for consolidating debt.

A scoring system that lenders use to assess how much to lend somebody.

A check made by a potential lender to determine whether the financial history of someone including whether they have ever defaulted on any payments, have any CCJs or been made bankrupt.

A lump sum payout if the policyholder is diagnosed with an illness covered by the policy.

These accounts offer a chequebook / cash card/ debit card/ overdraft and allow withdrawals to be made without notice.

A current account mortgage allows you to operate your mortgage borrowing through a current account saving interest as excess money in your bank account will be used to pay some of the mortgage.  You will be required to pay your salary into the account.

An offset mortgage allows you to keep your balances e.g. mortgage, savings, current account etc in separate accounts but all balances are offset against each other thus allowing the possibility of reducing the interest paid and could result in the mortgage being repaid early.

A lump sum paid when the insured life dies.

A sum paid by an employer to beneficiaries if the insured person dies whilst still in their employment.

A debit card allows you to make purchases and withdraw cash by using funds directly from your bank account. These funds are automatically withdrawn from the account. Becoming more and more popular and replacing cash and cheques.

Decreasing Term Assurance indicates that the sum that will be paid on death decreases over the term of the policy. This is commonly used to protect a capital & interest repayment mortgage, where the outstanding balance reduces during the life of the borrowing.

This is a legal document that shows who legally owns a property.

Allows an organisation to take money directly from someone’s bank account.

Gives borrowers a discount off the lender’s standard variable rate for either and initial period or occasionally for the life of the mortgage.

A payment made to shareholders reflecting the performance of the company in the preceding year or half-year.

A fee may be payable if a mortgage is repaid before the end of the term of the mortgage or within a specified initial period. Often included as part of special scheme mortgages such as fixed rates and discounted. These payments can be considerable.

Effective Annual Rate represents the annual cost of a loan or overdraft and takes into account how often interest is charged to the account but does not include any other fees or charges.

An endowment policy is a savings policy which also includes life assurance cover for the policyholder. The policy runs for an agreed term, the minimum term usually being 10 years. A cash sum is paid out at the end of the policy term (on maturity) or in the event of the earlier death of a policyholder a guaranteed sum.

Company stocks and shares.

A type of mortgage that release some extra funds tied up in the value of a property.

Everything that is owned or is owed by someone when they die forms part of their estate and may include money, property, valuables and debts.

The standard monetary unit of the European Union which is used by most member countries except the UK.

A company pension scheme where the amount of benefit is based on final salary enabling a retiring employee to know with certainty what his/her pension will be.

Government regulator that handles complaints about firms giving financial advice and selling financial products.

These accounts offer a fixed rate of interest over a specified period therefore leaving interest paid unaffected by changes in interest rates.

In return for a lump sum, a fixed rate bond pays a fixed rate of interest for a specified term.

A fixed rate mortgage ensures that your monthly repayments will not change for the period of the fixed rate regardless of whether interest rates go up or down in the meantime. This helps with monthly budgeting but will mean paying more than other people if interest rates fall.

A flexible mortgage allows the borrower to make extra payments in order to reduce the amount still owing more quickly. Reduced payments or payment holidays may also be although a buffer built up through overpayments will normally have had to made.

Flexible mortgages may also a loan drawdown facility enabling extra funds to be taken at short notice at a set interest rate.

A freeholder owns both the building and the land that it is built upon.

A government body set up to regulate the UK financial services industry.

The largest 100 companies by value on the London Stock Exchange are included in an index referred to as the FTSE100. This is an average of the share value/ prices and is a good indicator as to the health of the UK economy.

When someone already has a mortgage they may borrow additional money secured on the same property. This is known as a further advance.

Gazumping is when the seller of a property or other asset accepts a higher offer even though they have already accepted a lower offer from another buyer.

A GIB is a short-term life assurance policy guaranteeing a fixed income over a fixed term. The original investment is guaranteed to be repaid in full at the end of the term.

Gilts (also known as Government Stocks) are loans made to the Government and which pay interest over a set term. The government uses the money to help with its spending plans and unexpected shortfalls in revenue.

This is interest earned on savings and investments before tax is deducted.

A guarantor promises to repay a loan or loan repayments in the event the borrower is unable to do it himself.

Helps with medical bills in the event that a person is ill or injured.

When someone wishes to borrow a large amount of money relative to the value of the property, the lender will often charge an additional fee to cover the increased risk associated with the lending. Without this insurance if the property is taken into possession and sells for less than the outstanding debt, the lender would be facing a shortfall. Higher lending charges normally apply for loans in excess of 90% of the property value.