glossary

R85
Inland Revenue form that needs to be completed by non-taxpayers in order to receive payment of gross interest onto their accounts i.e. without basic rate income tax deducted.

Redemption Penalty
An additional charge made by the lender if the mortgage is repaid within a pre-agreed period of time. These have become increasingly common with the growth in fixed rate and heavily discounted products. They are generally imposed to stop borrowers hopping from one lender to another simply to take advantage of the latest heavy discount or cheap fixed rate. Normally expressed as a number of months interest within a set period of years i.e. 6 months interest if redeemed within the first seven years but may also be expressed as a percentage of the mortgage debt i.e. 5% of the mortgage if redeemed within the first seven years. Careful attention should be paid to these penalties as they vary considerably from lender to lender and the lower and shorter the penalty the more attractive the deal.

Real interest rate
The actual amount of increase in the purchasing power of your investment. It is equivalent to the quoted gross rate of interest less any personal income tax liability and less the effects of inflation on your capital.

Redemption penalty
A charge made for paying off a loan, or debt balance, before an agreed date.

Regional Lenders
This refers mainly to the smaller local Building Societies who restrict their lending to within certain regional locations. This could also be applied to a larger number of lenders who will not lend in Scotland or Northern Ireland and if you are looking for a mortgage in either of these areas you should check at an early stage that the lender will lend in these areas.

Remortgage
This is the process by which a mortgage on a property is moved from one lender to another. The new mortgage is used to repay the existing lender and at the same time additional funds may be raised for other purposes. Remortgaging has become an increasingly popular way to take advantage of the competitive deals offered by lenders to attract new business. If a remortgage is being considered then careful attention should be paid to the costs associated with arranging the remortgage as well as the savings to be made on the monthly repayment ( the costs can sometimes erode any savings to be made ). The remortgage calculator on this site highlights costs to take into account when considering a remortgage. A check should also be made with the existing lender to ensure that there are no early redemption charges.

Repayment Mortgage
Also called an Annuity mortgage or Capital and Interest mortgage. With this type of mortgage the monthly repayment includes an element of the capital sum borrowed in addition to the interest charged. In the early years of the mortgage the majority of the monthly repayment consists of interest with only a small part repaying the capital. However, as the debt gradually reduces the element of capital increases and the interest element reduces, so although the monthly repayment stays the same (assuming interest rate remain unaltered) the debt starts to reduce more quickly as the term of the mortgage progresses. On a 25 year term mortgage it would not be unusual to still owe over 50% of the original debt after the first 15 years. Providing the correct monthly repayments are made on their due dates this mortgage will guarantee to repay the total mortgage debt at the end of the mortgage term.

Residential Investment
See Buy to Let.

Retail Price Index
Measurement of the rate at which prices are rising i.e. inflation, calculated monthly by taking a sample of typical household goods and services.

Retention
This relates to monies withheld by lenders until certain mortgage conditions are met. This will normally relate to repairs or improvements to the property that the lender is insisting on.

Self Assessment
Tax system introduced in April 1996 where certain individuals are responsible for working out their own tax liability and reporting to the Inland Revenue. Those affected are typically the self-employed, partners, pensioners and company directors.

Self-Certification
Several lenders will allow borrowers to self certify their income and no further checks on income are made. This type of scheme is useful to the self employed who may not have accounts available or any other person who has difficulty in proving their earned income. The lender will normally make checks on previous credit history and will require a clear credit search in addition to a good previous lenders reference.

Self-employed
This will usually cover anyone who is not paid under PAYE. In addition, for mortgage purposes, most lenders will class controlling directors as self employed or directors with more than a 20% shareholding. If this applies then the lender is likely to ask to see company accounts and to write to the companies external accountant for proof of income.

Smart cards
A new generation of plastic cards similar to debit cards but which will hold more information. The card will contain a computer chip and will be used to create a cashless payment system with enhanced security. The cards are currently being piloted in certain cities around the world .

Stamp duty
This is a tax which is levied on the purchase of property. The tax is paid by purchasers and is currently levied at the following rates, which were announced on March 22nd, 2000 by the Chancellor in his budget speech: 1% of property value £60000 - £250000, 3% of property value £250001 - £500000 and 4% of property value £500001 and above. The appropriate rate is paid on the whole purchase price and not just the excess applying to that band i.e. a purchase price of £350000 will attract £10500 stamp duty, being 3% of £350000. Since 30th November 2001, some disadvantaged areas of the UK became liable to stamp duty exemption. To see if the property you are purchasing is eligible for exemption, or for more information, call the Stamp Taxes Helpline on 0845 603 0135 or visit www.inlandrevenue.gov.uk/so/disadvantaged.htm

Structural Survey
This is the most detailed type of survey report normally undertaken in connection with a House Purchase. If a Structural survey is opted for then the lender will also need to have a mortgage valuation carried out for their own purposes and the borrower will be responsible for both fees. An alternative may be a Home Buyers Report which will cover both the borrower and the lender but advice should be taken from a qualified surveyor who will be able to advise on individual properties and circumstances.

Switch/Delta Card
A debit card which enables the consumer to pay for goods directly from their bank account without the need to carry cash or write out cheques.

Tax-free
Interest earned or credited without any income tax liability and not dependant on the investors tax status.

Tax Return
Annual return supplied by the individual to the Inland Revenue detailing all incomes, from employment, investments, benefits and perks, in addition to allowable expenses. The tax return forms the basis on which the individual's tax liability is calculated.

Tessa
Tax Exempt Special Savings Account . TESSAs were replaced on 5th April 1999 by the new Individual Savings Account (ISA). Existing Tessas can be held for the remainder of their original term.

Term
Length of time for which an account has to be held or for which attracts an agreed amount of interest.

Term Assurance
This is life assurance which pays out the insured sum on the death of the policy holder providing it occurs within the policy term. This is a common method to protect the mortgage in the event of death and to ensure that the mortgage debt is repaid. The most common types of this insurance are Mortgage Protection or Level Term Assurance. Mortgage protection is normally used in connection with a capital and interest mortgage and the level of the insured cover reduces in line with the reduction in the mortgage debt. Level Term assurance is more likely to be used in connection with an interest only mortgage as the level of cover remains constant as does the mortgage debt. With Term Assurance cover there is no pay-out if the policyholder survives the policy term and the policy simply lapses with no value. This factor makes this type of cover relatively inexpensive.

Tied Agent
A company sales person (or direct sales person) who promotes the products of his employer only, the company he or she is 'tied' to. They cannot search the whole market for the best product as an Independent Adviser can. Under the rules of the Financial Services Act they must make their status clear to the interviewee or applicant at the earliest opportunity.

Transfer
Movement of account from one provider to another or from one account to another with the same institution.

Trustee
Person responsible for administering the assets for the benefit of the beneficiaries.

Typical APR
The APR shown is for the company's typical borrower, and so is given as a best example. However due to individual circumstances and requirements the exact interest rate or cost may vary slightly. Specific costs or a quotation should be sought from the provider before commitment is made to the loan or credit agreement.

Unsecured
A loan where no collateral or security is given or charged to the lender. Unsecured lending is viewed as higher risk than secured lending and interest rates are generally higher to reflect this.

Variable rate
Interest rate can be altered by the account provider as and when they deem necessary, usually when general base rates change. This is also the traditional way that mortgages were arranged before the concept of fixed rates. A variable rate will fluctuate up and down to reflect the true cost of borrowing. Some variable rates may be discounted for a period of time (see Discounted Rates).