Topic 3: Borrowing products Flashcards
Bank rate
Interest rates that bank of England use when it lends money to banks. Financial Services providers use bank rate to set interest rates of their products
Buy-to-let-mortgage
A long-term secured loan taken out by a person who is buying a property with the intention of letting it to tenants.
Consumer durable
A useful product with an expected long life (eg TV or car)
Default
To fail to repay borrowing when the repayment is due
Discount mortage
A variable-rate mortgage that gives the customer a set discount off the provider’s standard variable rate (SVR) for an agreed
period. The rate charged can still rise or fall
Equity
This has two meanings: a) when talking about investments, an equity is another name for the shares of a company quoted on the stock exchange; b) when talking about property, it refers to the difference between the value of a property and the amount of money still outstanding on the mortgage
Fixed-rate mortgage
A mortgage loan whereby the interest rate is fixed for a stated number of years at the beginning of the mortgage. This benefits
the borrower if interest rates rise during the fixed period, but not if they fall
Ijara home purchase plan
A form of Islamic home purchase plan. The provider buys the client’s selected property. The provider then sells the property
to the client for the same price under a promise to purchase agreement, with repayment spread over a term of up to 25
years. The provider is the registered owner of the property during the repayment term. The client occupies the property under a lease during the payment term, paying a monthly
amount that combines capital repayment and rent for the lease. The monthly payment is fixed for 12 months at a time and is
then reviewed to allow for adjustments to the rental element as appropriate; these adjustments will usually reflect changes in
external interest rates
Interest only mortgage
A mortgage loan whereby the monthly repayment covers only the interest on the whole amount borrowed for the whole
mortgage period. At the end of the mortgage period, the borrower still owes the full amount borrowed and must repay this capital sum in one payment
Islamic home finance
Methods of buying a home that are compliant with Sharia law, which forbids Muslims from paying or receiving interest. There are two main types: Ijara and Murabaha home purchase plans
Loan forbearance
When a lender does not seek to repossess a property as soon as the borrower misses a few monthly payments, instead allowing
the customer to stop paying or make reduced payments for a set period
Loan to income (LTI)
The ratio of the size of the loan to the income of the customer. It means that the lower someone’s income, the less they can
borrow
Loan to income (LTV)
The ratio of the size of the loan to the value of the property
Loyalty mortgage
A mortgage loan with specific discounts or incentives for a provider’s loyal customers, eg those that keep their current account with the provider for an extended period of time.
Maintenance loan
A loan granted to a full-time student by the not-for-profit Student Loans Company that covers living expenses incurred
during their course
Mis-selling
When an individual or provider is negligent or reckless in selling a product to an unsuitable customer, and/or misrepresenting
the contract.
Mortgage
A loan taken out to pay for a property, usually over a long term such as 25 years.
Murabaha home purchase plan
A form of Islamic home purchase plan. The provider buys the property at an agreed price and then sells it immediately to the client at a higher price. The exact price depends on the repayment term, which can be up to 15 years. The higher price charged to the purchaser reflects the profit element for the
provider. A first payment, typically of around 20% of the property value, is usually required and the client will then make monthly fixed payments to the provider during the term. As the property has been transferred to the client, the property isregistered in their name rather than that of the provider
Negative equity
The situation where a mortgage loan is bigger than the value of the property.
Office of Fair Trading
The government department that monitored how businesses compete with each other. It was abolished in April 2014 and its responsibilities shared between the Financial Conduct Authority and the Competition and Markets Authority
Offset mortgage
A mortgage loan whereby the interest that would have been earned on the borrower’s savings and current accounts is set
against the interest owing on the mortgage. The borrower either makes a lower monthly repayment or continues to pay the same
amount each month but reduces the number of years of the mortgage term.
Overdraft
A facility that allows an account holder to withdraw more money than they actually have in their account.
Pandemic
A pandemic is where an infectious disease spreads rapidly to many people across a large region
PAYE
Pay as you earn – the term used to describe the deduction of income tax from employees’ pay by their employer. The deduction is made each time the employee is paid. The
employer then pays the tax deducted to HMRC.
