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glossary of terms

The glossary below will help you understand commonly used financial words and phrases:

Administration Order
Under an Administration Order the local county court takes over the administration of the debts of a person while an agreed regular amount is repaid. Currently, any debtor with at least one CCJ registered, can make application to the court for an Administration Order. If granted, this provides protection from further action by creditors in respect of any debts listed under the order.

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Arbitration
This is a small claims procedure for debts not exceeding £5,000. Arbitration generally occurs where a summons has been issued and the defendant denies that the debt is owed. In this situation, the Court would set a hearing date and both parties attend an informal procedure.

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Attachment Order
A legal charge against property or assets following a Count Court Judgement. Interest on the debt will continue to accrue until the debt is satisfied.

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Attachment of Earnings Order
An order of the Court which compels the employer of a debtor to deduct payments from the debtor’s salary to satisfy a Judgement.

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APR
Annual Percentage Rate of charge. This is a way of comparing the cost of credit. It is the true rate of interest that is charged on a loan, taking into account the total cost of interest and any other charges, e.g. brokers fees/legal fees.

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Assurance – Level Term
Life assurance that pays out a lump sum if you should die during the term. This is suitable for interest only loans as the amount owed on the loan remains the same throughout the period of the loan.

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Assurance – Term
A life insurance policy that is often linked with a mortgage or loan. The premium goes towards insuring your life, and will pay off the loan in the event of your death.

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Bankruptcy
There are generally two forms of Bankruptcy, Voluntary where you petition the Court for your own Bankruptcy or Compulsory, where a Creditor applies to the Court to make you Bankrupt. In order to be adjudged Bankrupt you must be deemed insolvent, that is, unable to pay your bills as and when they fall due.

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Bailiff
A County Court Bailiff is an officer of the County Court and is instructed by the Court to carry out the orders of the Court, following a County Court Judgement. The Bailiff has the power to seize goods and possessions in satisfaction of a CCJ and is instructed under a Warrant of Execution.

A Certified Bailiff is a private Bailiff that is instructed by landlords, solicitors and local councils

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Broker – Mortgage/Finance
An intermediary who finds and places customers who need a loan or mortgage with the lender most suitable to provide it. The broker normally carries out all administration and paperwork to do with processing the loan.

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Cashback
Type of loan where the borrower is given back a sum of money (usually a percentage of the loan). Commonly used by mortgage lenders as an incentive to promote their products.

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CCJ
County Court Judgement. A court order against a debtor to pay money owed. Details of the CCJ are usually entered on the Register of County Court Judgements. Most entries stay on the Register for six years. Once Judgement has been made against you, the creditor can then ask the court to recover the debt in various ways, including the use of an attachment of earnings order and Bailiffs.

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Consumer Credit Act
The CCA was enacted in 1975 and regulates consumer credit and consumer hire agreements for amounts up to £25,000. The CCA lays down rules covering the form and content of agreements, credit advertising, the method of calculating the Annual Percentage Rate ( APR ) and the procedures to be adopted in the event of a default, termination, or early settlement. The Act also requires that all traders who make regulated agreements obtain licenses from the Office of Fair Trading. In December 2003, the government published a White Paper which proposes a range of legislative changes to reform and modernize the consumer credit market.

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Credit file
Every adult has a credit file, maintained by a Credit Reference Agency. Adverse credit details are recorded on credit files, such as defaults, bad payment history or CCJs. Most lenders will automatically do a credit search on applicants by contacting the major reference agencies: Experian Limited or Equifax Limited.

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Default
The failure to pay or lateness of payment of a sum due by a specific date or time. Defaults are not recorded on the public register but are registered with credit reference agencies.

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Discounted Rate
A discounted rate gives you a reduction of, for example, 2% off the standard variable rate ( SVR ) for a specific period of a mortgage. So, during this period should the SVR rise or fall, you will still qualify for the discount and therefore pay a lower rate.

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Early Settlement
You have the right to settle your loan before the end of the term and are entitled to a rebate of some of the interest charges.

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Endowment – Life
A specific type of life insurance policy that can be linked with a mortgage or loan. A percentage of the premium goes toward insuring your life, and will pay off the loan in the event of your death. The rest is invested and will pay a lump sum at the end of the term. However, the lump sum is not guaranteed to pay off the original loan. There are different types of endowments: for example, “with profits”; “unit linked”; and “unitised with profits”. See Royal Sun Alliance.

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Fixed Rate Mortgage
The rate is fixed for a specific number of months or years, so you know exactly what your payments will be over that period. Following this period, the rate will usually return to the lender’s standard variable rate.

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Freehold property
This is when you own the property and the land it is on.

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IFA
Independent Financial Advisor. IFAs are not tied to a particular insurance company and have to provide “best advice” across the market place. In the future, they will only be able to charge fees and not commission.

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Individual Voluntary Arrangement
An IVA is a proposal to creditors to pay off a proportion of the debts that are owed to them. The idea is that creditors will receive a more beneficial payment than would be likely in the event that the individual becomes Bankrupt. In order for the IVA to become binding, it must be accepted by 75% (in value) of the creditors.

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Interest Only Loan or mortgage
The monthly repayment covers only the interest element of the loan leaving the capital outstanding at the end of the loan term. You finally pay off the loan using the proceeds of a separate investment plan, such as an ISA , endowment or personal pension.

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ISA
Individual Savings Account. This is a tax-free way to own either shares, a cash savings account or life assurance.

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Lender
The actual company that provides the finance to meet with a request for a loan or mortgage.

Loan – Secured
The equity in the property is used as security against the loan not being repaid.

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Loan – Unsecured
The credit rating or financial position of the applicant is such that no security for the loan is required.

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LTV
Loan To Value. This is the size of the loan or mortgage as a percentage of the value of the property or price being paid for the property, e.g. a property valued at £60,000 with a mortgage of £54,000 would have an LTV of 90%.

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MCRI
Mortgage Code Register of Intermediaries. A register kept by the Council of Mortgage Lenders of the names of all mortgage brokers that subscribe to the Mortgage Code.

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M IG
Mortgage Indemnity Guarantee or sometimes called Mortgage Guarantee Insurance. An insurance policy designed to make good any shortfall between the amount owed on a mortgage and the value of the mortgaged property. Provides a benefit to the lender in the event of repossession resulting from non-payment.

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Mortgage
A loan to purchase a home where the property is used as security in the event of non-payment of the mortgage.

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Negative Equity
This is where the amount owed on a mortgage exceeds the value of the property.

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Payment Protection Insurance
Policies can vary from lender to lender. Normally PPI offers protection against sickness, accident and redundancy for a limited period of time. When policies are sold alongside a loan, the premium must be shown separately. Stand alone policies can be bought through brokers or directly with insurers and normally offer better value than policies sold alongside loan agreements.

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Rate – Capped
Usually a rate for a set number of months/years where the interest rate can go up and down but there is a maximum (capped) interest rate which it cannot go above.

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Rate – Variable
A rate of interest which may vary up or down during the period of a loan.

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Re-Mortgage
If you would like to extend or improve your home re-mortgaging can help. Also if you wish to release capital in your home for a car, a holiday, consolidate any existing loans you already have to reduce your monthly outgoings, then re-mortgaging may be the answer.

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Repayment Mortgage
With a repayment mortgage you pay part interest and part capital repayments to the lender each month and in this way the capital that you borrowed is reduced until the loan is repaid.

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RTB
A term associated with legislation that gives council house tenants the “Right to Buy” their homes.

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Security Address
When taking a secured loan or mortgage, the security address is the address of the property which is being offered as collateral for the loan. Where property is offered as security in this way, lenders are generally prepared to offer more flexible terms and lower interest rates.

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Self-Certified
Lenders that operate this type of scheme allow the applicant to confirm how much they earn by “Self-certifying” their income. Schemes are available to self-employed applicants. There is no need for full 3 years audited accounts to be provided.

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Stamp Duty
Stamp duty is essentially a charge on certain documents, not transactions. From 1 st December 2003 , Stamp Duty Land Tax (SDLT) replaces stamp duty for land transactions. For land transactions and lease premiums, rates are charged on the whole consideration as follows:

  • Up to £60,000 nil
  • £60,001 to £250,000 1%
  • £250,001 to £500,000 3%
  • More than £500,000 4%

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Status
The credit-worthiness or otherwise of a potential borrower.

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Statutory Demand
A formal demand made by a creditor to a debtor for repayment of a debt. Upon service of a Statutory Demand, the debtor has 21 days in which to repay the debt or come to a satisfactory arrangement to pay the debt, to the creditor. If this is not done within the stated time, the debtor can be made Bankrupt.

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Structural Survey
A detailed survey of the structure of a building carried out by a Structural Engineer or Chartered Building Surveyor. Surveyors are liable for negligence. A structural survey is normally commissioned by a property purchaser before “exchanging contracts” on the purchase.

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Summons
A Court document which sets out the claim of a creditor and which gives a specific time in which a debtor must either pay, admit or deny that the debt is owed.

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Term
Period of a loan expressed in months or years.

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Underwriting
The process by which the ability of a prospective borrower to repay a loan is assessed (this is also the name of the department that undertakes this work). The process takes into account various factors including employment history, financial status, previous credit history and current earnings.

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Valuation
A brief check of the property for the secured or mortgage lender to determine how much it is worth and whether it is suitable security. The borrower usually pays the cost and receives a copy of the report.

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Variable rate
The interest rate the lender charges can go up and down, with your interest payments changing accordingly.

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Apply now for an unsecured cash loan for that special purpose.

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