Additional Voluntary Contributions
Extra payments paid to top up benefits under a company pension scheme. People who choose to pay AVCs get tax relief on their contributions.
Adverse Credit
A term used to describe applicants with a poor credit history.
Annual Percentage Rate (APR)
This helps you compare the cost of different mortgage deals.
Annuity
An investment that produces a guaranteed lifetime income. People with personal pensions are obliged to use much of their pension fund to buy an annuity.
Arrangement Fee
Lenders sometimes charge a fee to cover the work involved in setting up your mortgage or for certain mortgage rates.
Bank of
This is also known as the Bank of England's repo rate.
Bare (Absolute) Trusts
With a bare trust you name the beneficiaries at outset and these can’t be changed. The assets, both income and capital, are immediately owned and can be taken by the beneficiary at age 18 (16 in
Beneficiary
The person who receives money or other assets from a benefactor. For example, if you receive an insurance payout or inheritance on someone's death – you are the beneficiary. The person who took out the insurance premium or owned the assets is the benefactor.
Buildings Insurance
Protection for your property against hazards such as fire, flood and subsidence.
Buildings Survey
This is a technical report and will give you a comprehensive account of the condition of the property, describing any structural or other defects.
Capital and Interest Mortgage
A repayment mortgage. Your monthly payments gradually pay off the money you've borrowed, and also cover interest on the amount outstanding.
Capital Gains Tax (CGT)
The tax paid on profits from selling investments such as shares. Applies over a set level for each year.
Capped Rate
Your interest rate won't go above a certain level during the capped rate period. This means that you will get the benefit rate reductions and whilst knowing that your rate won't go above the cap.
Cashback
Money offered as an incentive to take a mortgage product.
CAT Standard
Charges, easy Access and decent Terms - to help people identify mortgages which meet minimum government standards.
Central Bank
A country's principal monetary authority which prints, issues and manages that nation's currency.
Codicil
A codicil is a document that amends, rather than replaces, a previously executed will.
Contents Insurance
Protection for your personal possessions.
Contracted In
This describes a member of an occupational or personal pension scheme who is also a member of SERPS (or the scheme itself).
Contracted Out
This describes a member of an occupational or personal pension scheme who is not a member of SERPS (or the scheme itself).
Contributions
Amounts of money placed into a fund.
Conveyancer
A legal expert who deals with the conveyancing of land.
Conveyancing
The legal process involved in buying and selling a property or land.
Credit Scoring
Lenders will use this technique to assess the suitability of your application.
Current Account Mortgage (Offset Mortgage)
A linked mortgage account and current account. Any positive balance in the current account is deducted from the mortgage balance reducing the amount you owe. This is called offsetting and will reduce the interest charged on your mortgage.
Daily Interest
With this method of calculating mortgage interest, it is charged on the amount of mortgage outstanding from day to day. This means lenders take into account any changes in the amount you owe on a day-to-day basis.
Defined Benefit
Also known as Money Purchase – A pension with a payout that is dependant on the amount saved rather than a person’s salary at retirement.
Deflation
Deflation is a reduction in the prices of goods and services, and the value of wages, which results from the slowing down of a nation's economic activity. Deflation is the opposite of inflation and usually occurs during a recession. It is measured by the Consumer Price Index.
Deposit
Your initial contribution towards the purchase of your new home.
Disbursements
All the various costs itemised on your conveyancer's invoice.
Discharge Fee
You have to pay this to most lenders for releasing their hold over a property once you've paid off your loan.
Discounted Rate
This means interest is charged at the variable base rate that applies to the mortgage, less a discount for a set period. Your monthly payment, will vary whenever the variable base rate changes, but will remain below the variable base rate during the discounted rate period.
Discretionary Trusts
Here the trustees decide what happens to the income throughout the lifetime of the trust and how it is paid out. There is usually a wide range of beneficiaries, but no specific beneficiary has the right to income from the trust.
Dividend
The payout from shares. Expressed in pennies. Most shares pay an interim and final dividend.
Domcile
The place where a person legally resides.
Donee
Individual or organisation that receives a grant. Also called a grantee.
Donor
Individual or organisation that makes a grant. Also called a grantor.
Early Repayment Charge
This is a penalty charged on mortgages when the loan is repaid within a set period.
Endowment
A repayment vehicle associated with interest only mortgages.
Equity
The difference between the amount you owe on your mortgage and the value of your property.
Estate
Strictly, an interest in land, but generally used to mean the total (land, chattels, investments, etc.) owned by an individual.
Exchange of Contracts
Once you have exchanged contracts you are both legally bound to the transaction. Dealt with normally by a phone call between the solicitors.
Exchange Rate
The exchange rate is also known as the foreign-exchange rate, forex rate or FX rate. It is the rates between two currencies that specifies how much one currency is worth in terms of the other.
Exclusive Mortgage
A mortgage only available to intermediaries through a specific packager, in conjunction with a Lender who provides the funding.
Execution Only
Selling or buying shares thorough a broker who gives no advice, but merely executes your instructions.
Executor
The person who is nominated in a legal will to execute the instructions of the will for the benefit of its beneficiaries.
Financial Services Authority (FSA)
The
Final Salary
A pension where the amount you get is worked out on the basis of how much you earn in the last (or last few years) of service and your length of service.
Fixed Rate
A guaranteed rate of interest that will not change over a fixed period of time.
Flotation
When a company decides to allow its shares to be bought and sold by anyone through the stock exchange.
Freehold
A form of legal title to land which means you are the absolute owner of the property and the land it's on.
Full Status
This term describes borrowers who can evidence their income.
Fund Manager
The expert running a unit trust, investment trust or pension fund who decided what shares, bonds or gilts the fund should buy or sell.
Further Advance
When you borrow additional funds against the value of your home without completing a re-mortgage and changing your existing product rate and terms.
Futures and Options
High-risk financial products that allow people to sell something that they do not actually own in the hope of profiting from rising or falling markets.
Gazumping
This is when a prospective purchaser has an offer for a property accepted and then another potential buyer puts in a higher offer for the same property and the seller accepts the higher.
Gifts
A transfer of an asset such as property or money etc from one person to another where no payment of any kind is given by the receiving person to the donor. Transfers of this kind may be subject to inheritance tax if the value is above a certain amount and to capital gains tax in certain circumstances.
Guarantor
Someone (i.e. Parents/Guardian) who guarantees to repay your mortgage if you can't borrow enough to buy the home you want.
Gilts
Bonds issued by the British Government. Regarded as being the safest of all investments.
Higher Lending Charge or Mortgage Indemnity Guarantee
An insurance policy that the lender will set up if you borrow more than a set percentage of the property value to protect the lender.
Homebuyer's Survey & Valuation Report
A property survey that should reveal any major faults in the property.
Income Tax
This is tax you pay on the income you earn each year above a certain amount. As well as your salary, income tax is also charged on interest and dividends you receive. The amount of tax you pay depends on the amount of money you earn and on your allowances.
Index Linked
An investment, such as some gilts or National Saving certificates, where the return rises in line with inflation. Company pensions must also be index-linked to some extent.
Inflation
The amount in percentage terms by which prices rise or fall year on year. In the
Inheritance Tax (IHT)
Inheritance Tax is the tax that is paid on your 'estate'. Broadly speaking this is everything you own at the time of your death, less what you owe. It's also sometimes payable on assets you may have given away during your lifetime.
Initial Charge
When you buy a unit trust, around 5 per cent of your stake goes in charges.Interest-Only Mortgage
You only pay interest to your lender throughout the mortgage term and your mortgage balance doesn't reduce.
Intestate
Dying without having made a Will. If a
Interest in Possesion Trusts
With this type of trust, the beneficiaries have a right to all the income from the trust, but not necessarily the capital. Sometimes, a different beneficiary will get the capital – say on the death of the income beneficiary. They’re often set up under the terms of a will to allow a spouse to benefit from the income during their lifetime but with the capital being owned by their children. The capital is distributed on the remaining parent’s death.
Investment Bond
In investment issued by an insurance company. It does essentially the same thing as a unit trust but carries higher charges.
Investment Income
The portion of a company's or an individual's income which is derived from its investments, including interest and dividends on stocks and bonds.
ISA
Individual Savings Account. A tax efficient savings account.
Key Facts Illustration (KFI)
The KFI is a mortgage quotation detailing all of the costs and payments for the mortgage you are applying for.
Leasehold
The land on which the property is built is owned by someone known as the freeholder and whilst living in the property you will will be required to pay them a small amount of rent each year. When purchasing the property, you are actually purchasing a lease giving you rights over the property for a set number of years. Leases are most commonly found in association with flats.
Libor Linked Mortgage
This is a variable mortgage that is linked to the London Inter-Bank Offered Rate. The Libor rate is set independently every 3 months.
Life Assurance
A form of insurance by which someone's life is insured.
Loan to Value (LTV)
Loan to value is the proportion of the value/price of the property, that you borrow on a mortgage.
Money Purchase
A form of pension where your final pension depends on stock market performance. All personal pension plans operate this way.
Mortgage Deed
A legal document confirming a mortgage on a property.
Mortgage Offer
Issued by a lender follwing their approval to lend and confirming how much they will lend including the terms and conditions for the mortgage.
Mortgage Term
The amount of time which the bank has agreed to lend you the money for.
Negative Equity
The amount of money outstanding on your mortgage is greater than the value of your property.
Overdraft
When the amount of money withdrawn from a bank account is greater than the amount actually available in the account the excess is known as an 'overdraft' and the account is said to be 'overdrawn'. If agreed in advance by the bank this is essentially a form of loan facility. If not agreed in advance by the bank penal charges may be incurred.
Overpayments
You pay more than your normal monthly payment to pay off your mortgage earlier.
Payment
The faciltiy to stop making mortgage payments altogether for a limited period which is agreed with the lender.
PEP
Tax-free savings product introduced to encourage investment in shares. Now superseded by the Individual Savings Account (ISA).
Personal Pension
A pension scheme that is personal to you and portable between jobs. Ideal for the self-employed and those without a company pension scheme. A poor choice for those who could join a company scheme.
Portability
A portable mortgage is one that can be transferred to another property. Early repayment charges may apply if a smaller loan is required for the new property.
Premium Bonds
Premium Bonds are like a safe Government-backed lottery. Each bond is entered into a monthly prize draw, the size of which is based on current interest rates. Prizes are tax free.
Potentially Exempt Transfer (PET)
Outright gifts to another individual made during a person's lifetime are known as Potentially Exempt Transfers or PETs. They are taxable if the person dies within seven years, but have the potential to become exempt from tax once the donor survives seven years.
Probate
The process by which the Will of someone who dies while living in
Re-mortgaging
The arrangement of a new mortgage on your home, with a different lender.
Redemption Penalties
With some mortgages you have to pay a redemption penalty, if you pay off some or all of your mortgage, or you transfer to a different mortgage product within a certain timescale.
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.
Reversionary Bonus
The annual bonus added to a with profits endowment or pension plan. Once added it cannot be taken away.
Right to Buy (RTB)
This is when a tenant living in a council-owned property purchases it at a discount.
Second Charge Mortgage
A loan that is secured on your property as well as the main mortgage.
Securitisation
A way of raising money without going to the banks or issuing more shares. Bonds are sold backed by the value of assets over which the original owners continue to keep control.
Self Build
This is a mortgage for property under construction. The loan is paid out in stages as the property is completed.
SERPS (S2P)
The State Earnings Related Pension Scheme was a top-up pension in addition to the basic state pension. It mainly benefits low paid workers who are not in a company pension scheme. It is now known as the State Second Pension, or S2P.
Settlement
In the context of trusts, a settlement is a deed (also called a trust instrument) whereby real estate, land, or other property is given by a settlor into trust so that the beneficiary only has the limited right to the property (for example during their life), but usually has no right to transfer the land to another or leave it in their own will.
Settlor
A settlor is a person who sets up a trust or makes a settlement by means of property.
Shared Ownership
This is a scheme operated by a Housing Association where the borrower owns part of a property, and pays the mortgage on this, while a Housing Association owns the rest of the property, and the borrower pays rent on this.
Shares
Shares are issued by a company to raise money. Unlike bonds, which are a straightforward loan, shares give you ownership of part of the company. Most shares are listed on a stock exchange, which makes them easy to buy and sell, although dealing costs may be expensive, which is another attraction of investing in a unit trust as the costs are shared with lots of others.
SIPP
Self-invested personal pensions or Sipps allow investors to choose their own investments for their pension savings.
Stakeholder Pension
The name given to the new personal pension, which will be introduced by the government in two years' time. The details are not yet finalised, but it promises to be one of the biggest shake-ups of the pensions industry for years.
A tax which home buyers must pay on properties above a government set figure.
Structural Survey
A structural engineers report on the condition of a property.
Sum Assured
The amount of money that an individual, or couple is insured for.
Taper Relief
A valuable reduction in capital gains tax payable on the disposal of assets, related to the qualifying period of ownership of the asset.
Tax Efficient
An investment that is designed to take advantages of tax breaks.
Tax Relief
The system of exemptions and deductions on income and expenditure whereby the Tax Inspector can identify taxable income.
TESSA
Tax-Exempt Special Savings Accounts (TESSAs) are five-year savings accounts that do not incur tax charges on the interest paid. It has not been possible to open a new TESSA account since April 1999. However, TESSAs in existence before that date can continue up to the end of their 5-year term.
Testate
A term signifying one who has made a valid Will.
Tracker Rate
Tracker rates mortgages are linked to the Bank of England base rate, the interest rate applicable and subsequently the amount charged each month fluctuate in line with this.
Transfer Value
The figure you get if you move your accrued pension rights from one company scheme to another or to a personal pension. By law this has to be fair to you.
Trust
A legal arrangement whereby assets are held by one or more appointed persons (trustees) for the benefit of others (beneficiaries). Normally a trust is established by a legal document known as a Deed but a trust may be established by other means. Use of a trust can be an effective way of reducing one's liability for tax. This is a complex area of law and specialist legal advice should normally be sought by anyone dealing with a trust.
Trustee
A trustee is a person appointed to manage and safeguard the assets of a trust. The trustee is the legal owner of the trust property.
Trust Deed
A legal document which establishes and governs the operation of a trust.
Unit Trust
A pool of money from small savers that is used to buy shares. This limits risk for the savers since their money goes into a balanced spread of investments, chosen by a professional fund manager.
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.
Variable Base Rate
The variable base rate is the basic rate of interest charged on a mortgage and altered by the lender.
Will
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his or her estate and provides for the transfer of his or her property at death.
With-Profits
A way of smoothing the return on a life insurance or pension plan. The company keeps back some of the profits in good years to top them up in the bad ones.
