|Glossary of Financial Terms
Accident, Sickness and Unemployment Insurance Cover (ASU)
This is an insurance policy that helps meet the mortgage repayments should a borrower have an accident suffer long-term illness or be made redundant. See Insurance
(note for Hento - possible Link). It is wise to think about insurance when
taking out a loan or mortgage but, in our opinion, these policies are very expensive
when provided by the lender (because brokers earn a lot of commission from them) and
for this reason we don't get involved with them.
A professional person who prepares and audits accounts for a business being a sole
trader, partnership or limited company and offers professional business advice or other
professional services. The main accountancy qualifications, in public practice, are
the Chartered Association of Certified Accountants Institute of Chartered Accountants
in England and Wales, the Institute of Chartered Accountants in Scotland (Hento, these
could be links). Note from Mark Bracegirdle - Naturally, I am biased towards my own professional body being the Chartered Association of Certified Accountants but anyone qualified to the standards of these three institutes should say a lot about integrity and professionalism. Accountants find themselves in many varied roles like, in my case, finance intermediation. There aren't
many of us in this type of role so when using a finance intermediary you may want to
ask what makes them qualified to do the job.
Accountant's Letter see also Self-Declaration of Income (note for Hento - possible Link).
A person who is self-employed may not have up to date accounts to prove his income
when it comes to getting a loan or a mortgage. Some lenders will allow what is called
a self-certification of income but may have limits in terms of income or loan size
over which an Accountant's Letter might be requested. Essentially, this asks for confirmation
that the applicant is self-employed, solvent and that there is no reason why the proposed
mortgage payment cannot be made (though we get away with all manner of things with
one lender we use)..
These are documents relating to the financial results of a business including a profit and loss account showing the financial results for a given accounting period and a balance sheet which shows the state of affairs of a business at a given accounting period end . Accounts are usually prepared on an annual basis for submission to the taxman or Companies House where a business is a limited company. Accounts can also be prepared more frequently to provide the management of a business with information about how a business is performing. These are known as management accounts. See also Budgets, Forecasts and Projections (note for Hento - possible Link)
When lending exceeds a certain Loan to Value, lenders might ask for additional security.
What a good broker or intermediary will do is look for angles how to provide a solution
to a customer's enquiry and this may be by suggesting using alternative or additional
security. This may actually reduce interest rates if done in the right way.
Adverse Credit or poor credit or bad credit
This term describes a situation where someone might have incurred county court judgment or judgments, missed payments on other debt or defaulted on other debt. It also applies to those people who unfortunately have gone bankrupt see Bankruptcy or entered into an Individual Voluntary Arrangement or in the case of a company a Corporate Voluntary Arrangement. Someone who has these type of challenges is likely to be described as having an adverse credit history. There are likely to be less lenders willing to lend to this type of borrower as they are often seen as being of higher risk. In our opinion this is complete nonsense, of course, which is why if you have adverse credit we will talk to you all day long. Other names for this type of situation are Non Status, Sub Prime or Non Conforming.
Agricultural Loan, Loan for Agriculture, Loans for Agriculture
More commonly described as an Agricultural Mortgage, Mortgage for Agriculture, Agricultural Remortgage or Remortgage for Agriculture being a loan secured by a first charge over property in England, Wales, Scotland or Northern Ireland. In some cases a loan may be secured by way of a second charge over this type of property. This is a longer term type of loan usually over ten to thirty five years with fixed and discounted rates available arranged on a capital and interest or interest only basis. This type of loan may be used for the purchase of a farm, or the purchase of farms, purchase of land, the purchase of buildings and the refinance of these type of properties to provide capital for any legal purposes but typically to diversify, develop, repay other expensive debt, repay a bank overdraft, reduce outgoings or to buy other assets such as cattle or equipment.
Agricultural Restriction (also referred to as an Agricultural Tie)
This is a term used to describe a condition imposed by a Planning Authority when granting
planning consent for the building of usually a dwelling. Usually the application is
for an agricultural worker's dwelling. A typical wording might be "the occupation of the dwelling shall be limited to a person solely or mainly employed or last employed in the locality in agriculture as defined in section 290(i) of the Town and Country Planning Act 1971, or in forestry, or a widow or widower of such a person (including and dependents of such a person, residing with them)." The
effect of such a restriction is to limit the number of persons who are entitled to
occupy the property and therefore this limits the market to which the property may
be sold. See our article on this subject. (note
for Hento - possible Link)
Where a payment due in respect of any form of credit is missed these are arrears. However, with most of the lenders we deal with the only missed payments taken into account and which will affect the terms offered will be arrears on any other mortgages or secured loans. The only exception to this is where an applicant currently lives in a rented property where arrears of rent will also have an impact on the terms offered. Where you think you are about to miss any payment it is important that you contact the lender just as soon as possible. There is no substitute for talking to your creditors if you cannot meet a payment.
Annual Percentage Rate (APR)
The yardstick by which you can compare the cost of one finance deal with another. This is the true cost of borrowing, in percentage terms and takes into account the cost of obtaining the credit. It is usually higher than the charging rate of interest because it takes into account the total cost of your borrowing over the full term of the loan. You should always bear in mind that the way in which a lender charges its interest has an impact on this. For example, the APR for a lender charging interest in advance will be higher than a lender charging interest in arrears. See also Interest Rate
This is finance used for the purchase or lease of plant and equipment, machinery or
vehicles. Other names for this are Lease purchase finance, Hire purchase, or leasing.
With most purchase type agreements, the credit provider will retain ownership of the
goods until and option to purchase fee has been paid at the end of any agreement, though
the Consumer Credit Agreement 1974 affords certain rights to those agreements where
the credit involved is £25,000 or less. There are two types of lease arrangements one being an Operating lease and a Finance lease. We don't
think it appropriate to totally bore readers with a dissertation on the differences
between these arrangements because accountants have been wrangling over the issues
involved for years particularly about when an asset should or should not appear on
a balance sheet, known as being capitalised. One important term is sale and lease back
which is where an asset is sold to a credit provider and then leased back to the previous
owner. This arrangement allows cash to be raised whilst retaining the right to continue
to use the asset concerned.
This is a document that shows the state of affairs of a business at any given point
of time though usually at the year end. The first section lists the businesses assets.
Fixed Assets can be either tangible or intangible assets. Tangible Fixed Assets are
real things such as buildings, land, plant, machinery equipment and vehicles. Intangible
Fixed Assets are not real things but are things that have a value to a business such
as goodwill or brand names. Intangible Fixed Assets are usually found only in the Balance
Sheets of large companies and where the item has been purchased. For example, when
Nestles bought Rowntrees, that was an established brand name that was likely to have
been paid for as part of the price paid for the whole company and this may have been
recognised as an Intangible Fixed Asset in Nestles Balance Sheet. After Fixed Assets
is a section for long-term investments and then a section called Current Assets. These
are real things but which do not have a long life or that are in a constant state of
change. These will include short-term investments, stock and work-in-progress, debtors
(money owed to the business) and money on deposit in the bank or in the cash tin. From
the total figure for Current Assets a figure for Current Liabilities will need to be
deducted. These are actually called Creditors - amounts falling due within twelve months and the term includes trade creditors, Her Majesty's
Revenue and Customs, amounts falling due under loans and finance agreements and any
other liability due within twelve months. An important inclusion here is the bank overdraft
because this figure will be included in this category because it is repayable on demand.
See BankOverdraft.. This total figure is taken away from the total
figure for Current Assets to arrive at a figure called Net Current Assets or if the
figure is the other way round Excess of Net Current Liabilities. There is then a section
for any liabilities that are due after twelve months which includes that part of any
loans that are not due in the next year. The one side of the Balance Sheet is then
calculated by adding Fixed Assets plus Investments plus Net Current Assets (or minus
Net Current Liabilities) and minus Amounts Due after One Years The other total to balance
is the Capital and profit and loss accounts.. In a business, which is not limited,
the capital account is the total of the opening Capital Account balance plus profit
for the year or less loss for the year, plus any money the proprietors have put in
less what they have taken out. In a limited company the Capital Accounts will include
Share Capital (that is the money the Shareholders have invested) plus reserves (such
as payments for share capital over face value known as share premium account and revaluation
reserves where for example a building is revalued and is worth more than was paid for
it) and the balance of profit and loss accounts. The total, in a company's accounts, is known as Shareholders' funds
because if the company was wpund up, at that Balance Sheet date, that sum would be
repaid to what are called Ordinary Shareholders. All this may be a little difficult
to grasp so to make it easy if you come across a Balance Sheet where there are Net
Current Liabilites then the business could be in a spot of bovver.
This is the standard rate of interest charged by banks which is set by the Bank of
England's monetary committee each month. Commercial mortgage interest rates are usually 1-2% higher than the current 'Base Rate'.
A fee charged by lenders to secure mortgage funds. Especially common on special deals such as fixed or capped rates. This fee is usually paid up front, although the lender might allow it to be added to the loan.
An authorised intermediary who sources and places commercial mortgage deals for clients. A broker can take care of all the paperwork for you and deal with the lender on your behalf, although a broker fee might be charged.
This is a fee paid to a mortgage or finance intermediary for the service of arranging the mortgage or loan. This will generally be a percentage of the mortgage loan required, typically 1.5-3%, but might be higher for more difficult cases. A flat fee may be charged where a loan is under a certain size. The level of fee will take into account the fact that a broker is only paid if he successfully obtains an acceptable source of funds for the customer. No broker should charge fees up front if he is capable of doing the job properly. The fee will also normally include additional work required with regards to many different issues such as dealing with title or planning issues, adverse credit issues, negotiation with creditors and the like..
Budgets, Forecasts and Projections
The insurance of your property against damage or loss as a result of fire, flood and other accidental damage. This is seperate to Contents Insurance
Capital & Interest
This is another name for a Repayment Mortgage. The capital is the original loan, which is repaid monthly over a fixed period. Interest is also charged. At the end of the mortgage term, providing all the payments due have been made, you are guaranteed to have repaid your mortgage in full.
Capital Gains Tax
This is a tax - currently up to 40% - on any profit you make on an investment, over and above a certain level set by the Chancellor of the Exchequer.
A rate of mortgage interest that has an upper limit.
The properties linked in a buying and selling process.
This is a loan used to buy a commercial premises. The property itself is used as security to protect the lender from non-payment.
A commercial remortgage is a new mortgage loan that's agreed on commercial premises without actually moving. The existing mortgage is paid off and a new loan for a higher amount, taken out. This can either be with the existing lender or a new one. Surplus funds from new loan can be used for improvements or debt consolidation.
This is the final stage of the conveyancing process, when legal ownership of a property transfers from one person to another.
An insurance policy that has to be taken out as a condition of obtaining a mortgage.
The insurance of belongings within your property.
This is the term used to describe the legal process of buying and selling
property and involves the transfer of the title deed from one owner to another.
The fee charged by your solicitor to deal with the legal paperwork involved with transferring property ownership.
County Court Judgement (CCJ)
This is a judgement made in a County Court for non-payment of a debt. If a CCJ isn't settled within 30 days of the judgement, it will appear on the credit register for the next six years.
Companies that take out a mortgage for commercial purposes can sometimes establish a credit line with their lender for future lending purposes.
When you apply for a mortgage, the lender will assess your application and award 'points' depending on your answers. The total number of points you are awarded is known as the 'credit score'. Those with low credit scores may be refused credit terms.
A lender can request a report from one or more of the main Credit Reference Agencies in the UK. This will detail your recent credit applications. It will also show whether you have missed payments and highlight other credit concerns.
A person or company that is owed money.
Using one new loan to pay off other debts. A remortgage is often used for this purpose, as the interest rates charged on mortgages are generally much lower than other forms of debt.
A person or company that owes money to a creditor.
A lender can normally tell you if you are likely to be successful in applying for a loan by giving you
a 'decision-in- principle'. This is not a formal mortgage offer.
Failing to make repayments is known as 'defaulting'.
When buying a property, a deposit will normally have to be paid in advance towards the total cost. Generally, this is 10% of the purchase price.
Fees charged by a solicitor to cover costs working on your behalf. An exmple might be Local Authority Searches.
An administration fee sometimes charged by mortgage lenders to close your mortgage account.
Discount Purchase Price
Price of a property that has been reduced below the open-market value. An example of this might be a Right to Buy.
Discount RateA rate of mortgage interest which is marked down, or 'discounted', at a rate below the lender's Standard Variable Rate (SVR). An example might be a 2% discount for 12 months.
Early Repayment Charge (ERC)
This might apply if the mortgage is repaid before the end of the term.
This is the difference between what is owed on the mortgage and what the value of the property stands at on the open market. If the property is worth less than is owed, this is called 'Negative Equity'.
This is a person who has an open-ended contract of employment and has income tax and national insurance contributions deducted from their salary.
The condition of an individual's employment - i.e. employed, self-employed, unemployed.
A type of long-term savings policy sometimes used to help repay an 'Interest Only' mortgage. An endowment policy aims to build up a cash sum large enough to repay the loan at the end of the mortgage term. It will also include life insurance to help repay the loan should the policyholder die before completion of the term.
Exchange (of contracts)A type of long-term savings policy sometimes used to help repay an 'Interest Only' mortgage. An endowment policy aims to build up a cash sum large enough to repay the loan at the end of the mortgage term. It will also include life insurance to help repay the loan should the policyholder die before completion of the term.
This is one of the final stages of a property purchase process, normally about 1-2 weeks before completion, when all the conveyancing is finalised, a mortgage offer is in place, the deposit is paid and a completion date has been set. When contracts have been exchanged, it is a legally obligation to buy the property and you could be sued for failing to complete.
This is another form of borrowing for companies. A commercial loan can be secured against the value of any outstanding invoices, rather than a property. It's also known as 'invoice discounting'.
A method of securing the main mortgage, whereby a lender has first call on any funds available from the sale of the property, with any equity passed back to the borrower (less any deductions for charges).
Someone buying a property for the first time who doesn't have a property to sell. A First Time Buyer is usually the first person in a house buying 'chain'.
A rate of mortgage interest which is set, or 'fixed', at a certain level for a given period of time.
When you apply for credit, the lender will do a credit check with a Credit Reference Agency. This check will be recorded on your credit record, leaving a mark or 'footprint' for other companies to see.
If you own a freehold property, you are the outright owner of the property and associated land.
Full Structural Survey
This is the highest level of property inspection you can get. If a surveyor misses something in a Full Structural Survey that later becomes a problem, you can take legal action against the firm to recover any costs incurred.