Glossary

Banks

Companies owned by shareholders, whose main business activities are borrowing money and lending it to individuals and business, and offering bank account services.

Broker

A financial intermediary who arranges financial products for customers.

Building societies

Mutual organisations – meaning that they are owned by their customers – whose main business is offering savings accounts and mortgages. Other financial products like current accounts are offered too by the larger societies.

Compounding (of interest)

The process of receiving interest on previous interest earned (on savings accounts) or paying interest on previous interest paid (on loans).

Council Tax

An annual tax levied by local authorities based on the value of the property they are living in.

County Court Judgment (CCJ)

A court order made in England, Wales and Northern Ireland against those who fail to repay money owed by them. See also Decree.

Debt

Borrowed money.

Decree

A court order made in Scotland against those who fail to repay money owed by them. See also County Court Judgment (CCJ).

Discounted rate

A reduction in the normal interest rate for a defined period at the start of a loan or mortgage. This is used to make the early repayments more affordable and hence make the product attractive to borrowers.

Early repayment charges

A charge that your lender will make if you leave your mortgage before the allotted term. This usually applies to fixed rate mortgages but can be a feature of tracker mortgages too.

Financial Conduct Authority (FCA)

The UK financial services regulatory body that has responsibility for consumer protection.

Fixed rate

Where the interest charged on a loan or mortgage is fixed for the entire life of the product or for a defined initial period.

Interest rate

The charge on the amount of money borrowed (or paid on the amount of money in savings). This is usually expressed as a percentage (%) amount for each year (or ‘per annum’ or ‘p.a.’) e.g. 3 % p.a.

Monetary policy

The use of interest rates and control of the money supply to assist in the management of the economy and, in particular, the rate of price inflation.

Mortgage

A loan to buy property or land.

Nominal

Not adjusted to take account of price inflation. See Real.

Overdraft

A negative balance on a bank account (or ‘current account’).

Personal debt

Borrowed money owed by individuals and households.

Price inflation

A rise in the general level of retail prices in the economy. Retail prices are those paid by households.

Profits

The surplus of earnings from sales over the costs associated with the goods or services sold.

Real

Adjusted to take account of price inflation. See Nominal.

Rent-to-own

A payment contract for buying household goods. This typically involves monthly payments over a year or few years. During this time the borrower retains the goods, but ownership is only secured when all the payments under the contract have been made.

Secured debt

Debt that is linked to a contractually specified asset (e.g. a property). If the borrower fails to repay the money lent, then the asset can be used by the lender to recover the outstanding debts.

Trillion

One thousand billion.

Unsecured debt

Debt that is not linked to a contractually specified asset (e.g. a property). If the borrower fails to repay the money lent, then the lender has no recourse to the assets that might have been purchased with the borrowed money.