Glossary

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Glossary

Accident, sickness and unemployment cover

Cover that pays a monthly amount of cash for a limited period if you can’t work or are made redundant.

AVC
Additional Voluntary Contributions – the contributions you pay as a member of an Occupational Pension Scheme, to that scheme, over and above the normal contribution level in order to purchase additional retirement benefits.

Acceptance letter
An offer of life assurance that sets out the terms.

Accidental Death Benefit
Can be added to some life insurance policies and provides payment of an additional benefit in the case of death resulting from an accident.

ADD
Accidental Death and Dismemberment – loss of life or limbs through accident.

Accrual rate
Rate at which pension benefits grow within an Occupational Pension Scheme for each year in service. Usually expressed as a fraction of final salary.

Act of God
An accident or event, which happens due to natural causes such as storm which no one could foresee.

Additional Borrowing
The extra money you can borrow on top of what you’ve already borrowed.

Annual Percentage Rate
This rate takes into account all the costs, interest charges and arrangement fees and allows you to compare credit facilities on a like for like basis.

Annuity
This is a series of regular payments that you receive for the rest of your life, in exchange for a lump sum /pension fund that you have built up over your working life.

APR
The Annual Percentage Rate. This rate takes into account all the costs, interest charges and arrangement fees and allows you to compare credit facilities on a like for like basis.

Arrangement fee
A charge made by some lenders for arranging your credit facilities.

Arrears
When mortgage payments have not been paid on time and/or are not made at the correct amount, borrowers are said to be in arrears.

Base rate
Interest rate set by the Bank of England, used to determine borrowing and savings rates across the UK.

Basic State Pension
The standard pension that people over the retirement age receive (subject to National Insurance contribution conditions). It is a fixed amount, not connected to earnings.

Benefits
The money payable to a claimant, assignee, or beneficiary under the terms of an insurance policy.

Bridging Loan
If a house purchase involves the sale of one property and the purchase of another it’s normally best if the two deals happen at exactly the same time. If this is not possible and the purchase of the second property happens before the sale of the first is completed then another loan may be needed. This additional loan is a called a ‘bridging loan’ and bridges the gap between the two house transactions.

Broker
An agent who brings two parties together, enabling them to enter into a contract to which he is not a principal.

Building Society
A financial institution owned by its members (rather than by shareholders) which pays interest on deposits and lends money on the security of property to enable members to buy their own homes.

Buildings insurance
An insurance policy which covers the cost of rebuilding or repairing the structure of the property.

Buildings and contents insurance
A combined insurance policy which covers both the cost of rebuilding or repairing the structure of the property and also includes cover for damage/loss to the property contents.

Buy-to-let
This is when you buy a property to rent it out rather than live in.

Capital
When investing, this is your original investment. When borrowing, this is the amount of debt, excluding interest.

Capital and Interest Mortgage
Also known as a repayment mortgage.

Capped-rate mortgage
Whatever happens to the Bank of England base rates, the interest rate you are charged on this type of mortgage will never rise above a certain cap during a set period.

CCA
Consumer Credit Act – UK legislation which sets the rules for the way in which banks and other lenders lend money to members of the public.

CCJ
County-Court Judgement (England and Wales) – awarded against you if you are summoned to court over a debt and either don’t turn up or lose the case.

Certificated share
A share for which you receive a share certificate and which gives you the right to vote at annual general meetings.

CML
Council of Mortgage Lenders – a trade organisation made up of most of the major banks and building societies.

Commission
An amount paid by a financial institution to an intermediary for the placing of business.

Consolidation Loan
A loan taken out to pay off all your debts.

Contents insurance
Insurance cover for the contents of your home, which can include cover against loss or damage of some personal possessions outside the home.

Contract
A legally enforceable agreement between two parties

Consumer Credit Act
UK legislation which sets the rules for the way in which banks and other lenders lend money to members of the public.

Cooling Off Period
A period allowed in certain circumstances when a person who has entered into a contract (for example, an insurance policy or a personal loan) may cancel it without incurring any penalty.

County Court Judgement
(England and Wales) Often known as a CCJ. Awarded against you if you are summoned to court over a debt and either don’t turn up or lose the case.

Cover
Protection provided by an insurance policy.

Cover Note
A temporary certificate confirming that an insurance policy is in force.

Credit
Allows you to buy goods and services before you pay for them.

Credit search
A check the lender makes with a specialist company to find out whether you have any County Court Judgements or a record of not paying loans, credit-card bills etc.

Credit rating
A score awarded to you by lenders to indicate whether you are creditworthy or not.

Critical illness cover
Pays out a guaranteed cash sum sum if you’re diagnosed with one of the critical illnesses covered by the plan

Death Benefit
A life insurance payment made upon the death of an insured person.

Deposit Account
An account with a bank or building society, which pays a variable rate of interest. You may get a higher rate of interest if you choose an account which doesn’t give you instant access to your money.

Depreciation
The decrease in value of property (for example, your house) or some other asset (for example, your car) over a period of time due to natural wear and tear through regular use, or obsolescence.

Disability
Physical or mental condition that prevents a person from undertaking ‘normal’ duties of a job or the ordinary activities of life.

Disclosure
The duty of any person applying for an insurance policy to tell the insurer all relevant information affecting the policy that they are applying for.

Discounted-rate mortgage
Gives you a set percentage off you mortgage lender’s standard variable rate for a set period of time.

Endowment mortgage
A type of mortgage where your payments cover the interest cost only. You need to take out an Endowment Policy to pay off the loan at the end of its term.

Endowment policy
A type of long-term investment plan (usually investing in the stock market), which also includes life insurance cover so that if you die during the plan, your successors get a guaranteed payout. Often used to repay mortgages at the end of their term. The final payout is usually not guaranteed

Equity Release
A type of remortgage where you already own your home outright, and use the value of your home as security to borrow money.

Financial Ombudsman Service
Independent body to decide complaints relating to banking, investments and insurance.

Financial Services Authority (FSA)
The single regulatory authority for the UK financial services industry, setting the rules for how financial companies operate and looking out for the public’s interests.

Fixed-rate mortgage
The interest rate you pay on your mortgage is fixed at a set interest rate, usually for a set period.

Flexible loan
A loan that allows you to borrow up to an agreed amount, so that you can increase or decrease the loan depending on how much money you need from time to time.

Flexible mortgage
A mortgage that allows you to borrow up to an agreed amount, so that you can increase or decrease the mortgage depending on your circumstances, or sometimes temporarily stop making payments altogether.

Fixed Rate
Where the interest rate is fixed for a set period.

FSA
The single regulatory authority for the UK financial services industry, setting the rules for how financial companies operate and looking out for the public’s interests.
General Insurance Standards Council
Monitor and enforce standards on sales and provision of advice on general insurance.

Guaranteed growth bonds
Fixed term investments, typically between 3 and 5 years, where you invest a lump sum and are guaranteed either a minimum amount of money at the end of the period, or that you won’t lose the original amount you invested.

Health Insurance
Insurance to provide financial protection in case of sickness or accidental injury.

Hedging
A strategy used to protect against risks involved in investments.

High-lending fee (mortgage indemnity guarantee)
An extra charge made by lenders on loans that are more than 90% of the value of a property.

Home insurance
Insurance to cover your home. There are usually 2 types of cover: property insurance, to cover the value of your building (the ‘bricks and mortar’) and contents insurance, to cover the value of the things you have in your home (furniture, TV, clothes, etc).

HP
Hire purchase – a type of credit whereby you ‘hire’ the item you are buying for a fixed period, during which time you pay for the item in monthly instalments, plus interest.

Illustration
An estimation of the returns you might get from an investment, based on specified growth rates and taking into account any extra charges or fees which you might have to pay.

In Arrears
Money which you owe but have not paid in time

Income protection policy
A type of insurance policy which pays out if your income is reduced or stopped because of redundancy, sickness or accident.

Indemnity policy
Home contents insurance that only covers you for the second-hand value of you possessions.

IFA
Independent Financial Adviser – an independent expert who is authorised to sell or advise on the policies offered by insurance companies, as well as other financial service providers, such as banks and building societies.

Individual Savings Account
A type of savings or investment account which is exempt from income and capital gains tax. You can use it to save cash or to invest in stocks and shares.

Insurance Premium Tax
Tax imposed on most insurance policy premiums (it does not apply to life insurance policies).

Intermediary
A person or organisation that offers advice and arranges policies for clients.

Interest
The charge made for borrowing a sum of money.

Interest-free Credit
A type of credit offered by stores where you pay for your purchases in equal instalments over a set period of time, usually 6 to 12 months, and on which no interest is added.

Interest-only mortgage
You pay only the interest on your mortgage, but also put money into an investment scheme to pay off the whole mortgage at the end of its term.

ISA
Individual Savings Account – A type of savings or investment account which is exempt from income and capital gains tax. You can use it to save cash or to invest in stocks and shares.

Key Person Insurance
Insurance designed to protect a business against the loss of income resulting from the disability or death of an employee in a key position, on whom the operation and viability of a company depends

Lease
A contract by which the owner of property (which can be a building, a car, an item of machinery, etc) allows another person to use it, in return for rent being paid

Leasehold
If you buy a property that is leasehold it means that you own the property but not the land the property is on.

Lender
The person or institution (most usually a bank or building society) that lends you money

Liability
A debt

Life Insurance
A type of insurance which pays out a lump sum to your dependants if you die.

LTV
Loan to Value – the amount of a mortgage expressed as a percentage of the value of the property’s value or what you pay for the property.

Lump Sum
An amount of money, paid in one single amount – as opposed to receiving or paying the money in instalments.

Maxi ISA
A tax-free savings account in which you can invest up to £7,000 each year tax-free. You can invest either the full amount in stocks and shares or up to £3,000 in cash savings and up to £1,000 in life insurance investments.

Mini ISA
A tax-free savings account that allows you to invest up to £3,000 each year in cash savings or stocks and shares or up to £1,000 in life insurance investments. You can have one of each type of mini ISA in each tax year.

Mortgage
A loan to buy a property There are different types of mortgage, such as ‘buy to let’, where you borrow money to buy a property you will let out to tenants. Almost all mortgages are partly secured on the value of the property, and can be for varying lengths of time.

Mortgage indemnity insurance
A payment to a mortgage lender so they can take out insurance if you are borrowing more than a certain percentage of the value of your home.

Mortgage payment protection
Pays your mortgage for a limited period if you can’t work or are made redundant.

Mortgage valuation
A valuation, carried out by your mortgage lender, of the property that you want to buy.

National Savings
Tax-free savings accounts run by the Government.

Negative Equity
When your house is worth less than your mortgage because the value of the property has fallen.

Non-status Mortgage
Mortgages offered by lenders without any proof of previous mortgage history, proof of income. The usual maximum loan to value is around 70%.

Occupational Pension Scheme
A pension scheme set up by an employer for its employees.

Offset mortgage
Offset or all in one mortgages allow you to offset the balance of your mortgage, and any other borrowings you have, against any money you have in a savings and/or current account that is held with the same lender. All your borrowings and savings may be combined in one account.

Ombudsman
An independent official to whom grievances can be aired, free of charge.

Overdraft
When you owe money to your bank through your current account

Partial Disability
A disability that is less than total (according to the particular definition relating to the contract in question) but still sufficient to hamper you in your job.

PAYE
Pay-As-You-Earn – where your employer takes income tax off your salary or wages before you get it, and pays it direct to the Inland Revenue on your behalf.

Payment Holiday
A feature offered by some mortgages that allow you to miss monthly payments on your mortgage.

Payment protection
A type of insurance to cover your monthly repayments on a credit card or loan should you lose your job or be too ill to work.

Pension Scheme
A way of saving for your retirement

Pension Transfer
If you want to transfer your pension from one management company to another, or from one employer to another

Pensioner
A person who has retired and receives an income from a pension scheme.

Permanent Total Disability
Disability from which you are unlikely to recover at any time in the future.

Permanent health insurance
Provides an income, until retirement if necessary, if you can’t work because of sickness or disability.

Personal Loan
A loan which you take out as an individual, with a fixed interest rate and a fixed number of repayments.

Redemption penalty
The amount of money you will be charged if you wish to switch lender or pay off part of your mortgage during, and sometimes after, an initial cheap-rate period.

Refinancing
The process of repaying some or all of the loan capital of a firm by obtaining fresh loans, usually at a lower rate of interest.

Remortgage
This is when you switch your mortgage from your current lender to another one. You take out a new mortgage to repay your current one. You may be able to get a better rate that saves you money.

Repayment mortgage
A mortgage with which you repay part of the debt each month, plus interest on the amount of loan outstanding.

Repossession
This is when a borrower fails to pay back their loan in accordance with the terms and conditions of their loan and the lender takes legal ownership of the property.

Secured loan
A loan for which you put up an asset, such as your home, as security; if you do not keep up you repayments, the lender can sell your home to get their money back.

Standard variable rate
The mortgage interest rate charged by most lenders, which varies in line with rises and falls in the Bank of England base rate.

Title Deed
This is the legal document that not only identifies the owner of a property but also other details about the property and the land it is built upon.

Total Borrowing
The total amount you’ve actually borrowed on your account.

Total Disability
The inability to do your job or manage aspects of your normal day-to-day life.

Tracker mortgage
Tracks movements in the Bank of England base rate so that you benefit quickly from a fall in interest rates.

Unit Linked Endowment
A fixed term savings plan with an element of life cover. Your savings go into an underlying fund of investments like shares and the eventual return you get depends on the performance of these investments.

Unsecured loan
A loan for which you don’t have to put up an asset, such as your home, as security that the loan will be repaid.

Valuation
Carried out by a professional surveyor to establish how much a property is worth and whether it is suitable to lend a mortgage on.

This Financial Glossary is provided for assistance only. If you are in any doubt about a financial term, you should seek independent financial advice.