TERMINOLOGY EXPLAINED
Glossary of Terms
Mortgage Glossary
Affordability Check
An assessment lenders use to determine whether you can comfortably afford your mortgage. It considers income, outgoings, credit history and future rate increases.
Agreement in Principle (AIP)
A document from a lender confirming how much they may be willing to lend, based on an initial assessment. Often required when making an offer on a property.
Arrangement Fee
A lender’s fee for setting up a mortgage. It can sometimes be added to the loan or paid upfront.
Base Rate
The Bank of England’s benchmark interest rate. Tracker mortgages usually move in line with this.
Booking Fee
A non-refundable fee charged by some lenders to secure a specific product or rate.
Buy to Let (BTL)
A mortgage designed for purchasing a property you intend to rent out. Assessed mainly on predicted rental income.
Capital
The amount of money you borrow (excluding interest) to purchase a property.
Capital Repayment Mortgage
A mortgage where each monthly payment reduces both the loan amount and the interest owed.
Conveyancing
The legal process of transferring property ownership from seller to buyer.
Deposit
The initial lump sum you put towards the property. Usually 5–25% depending on the mortgage type.
Discounted Variable Rate
A rate set below a lender’s standard variable rate (SVR) for a fixed period.
Early Repayment Charge (ERC)
A fee some lenders charge if you repay your mortgage early or switch before the end of a fixed or tracker term.
Equity
The difference between your property’s value and the mortgage balance you still owe.
Equity Release
A way for homeowners aged 55+ to release money from their home without moving. Includes lifetime mortgages and home reversion plans.
Fixed Rate Mortgage
Your interest rate remains the same for a set period, providing certainty over monthly payments.
Guarantor
Someone who agrees to cover your mortgage payments if you can’t. Less common today but used in specific cases.
Help to Buy / Affordable Housing Schemes
Government or housing association schemes that help first time buyers or those with lower incomes get on the property ladder.
Home Reversion Plan
A type of equity release where you sell a portion of your home to a provider in exchange for a lump sum or income.
Interest Only Mortgage
You pay only the interest each month. The full loan amount is repaid at the end of the term using an approved repayment strategy.
Lifetime Mortgage
A form of equity release that allows homeowners aged 55+ to borrow against their home with no required monthly payments.
Loan-to-Value (LTV)
The percentage of the property’s value that you borrow. A lower LTV often gives access to better rates.
Ltd Company Buy to Let
Buy to let property purchased through a limited company (often an SPV). Popular with landlords seeking tax-efficient structuring.
Mortgage Term
The length of time over which you repay your mortgage, typically 25–40 years.
Overpayments
Extra payments made towards your mortgage. Many lenders allow a percentage of overpayments each year without penalty.
Porting
Moving your existing mortgage to a new property when you move home. Useful if you’re tied into a rate.
Redemption
The process of fully repaying your mortgage.
Remortgage
Switching your mortgage to a new lender or new product — often to secure a better rate or release equity.
Repayment Vehicle
For interest-only mortgages, this is the plan for repaying the loan at the end (e.g., investments, property sale or savings).
Shared Ownership
A scheme that allows you to buy a percentage of a property (often 25–75%) and pay rent on the remaining share.
Stamp Duty Land Tax (SDLT)
A tax paid when purchasing a property over a certain value.
Standard Variable Rate (SVR)
A lender’s default rate after an introductory deal ends. Can be higher and varies at the lender’s discretion.
Stress Test
A lender’s assessment of whether you could still afford payments if interest rates rise.
Tracker Mortgage
A mortgage where the interest rate follows the Bank of England base rate plus a set margin.
Valuation Survey
A lender’s check to ensure the property is worth the amount being borrowed.
Pensions Glossary
Defined Contribution (DC) Pension
A pension where you build up a pot based on what you and/or your employer pay in, plus investment growth.
Defined Benefit (DB) Pension
A pension that pays a guaranteed income in retirement, usually based on salary and length of service.
Annual Allowance
The maximum you can contribute to pensions each tax year while still receiving tax relief.
Lifetime Allowance (LTA – historic note)
Previously the cap on how much you could build in pensions before tax charges applied. Abolished from April 2024, but transitional rules still apply.
Lump Sum Allowance
The Lump Sum Allowance (LSA) is the maximum total tax free cash you can take from all your UK pension savings over your lifetime. It covers the tax free part of pension commencement lump sums and some serious ill health lump sums. Any amount taken above this allowance is subject to income tax.
Pension Drawdown
A flexible way of taking income from your pension pot while the remainder stays invested.
Annuity
A product that converts your pension pot into a guaranteed income for life or a fixed term.
Tax-Free Lump Sum (PCLS)
Usually up to 25% of your pension pot can be taken tax free when you begin withdrawals.
State Pension
A regular payment from the government once you reach State Pension age, based on your National Insurance record.
Death Benefits
Payments made from your pension to beneficiaries if you pass away.
Investments Glossary
Assets
Things you invest in (such as shares, bonds, or property) with the aim of growing your money over time.
Asset Allocation
How your money is split between different types of investments (e.g., shares vs. bonds). A key driver of long term returns.
Attitude to Risk
How comfortable you are with investment ups and downs. This helps determine a suitable investment strategy.
Bonds (Fixed Income)
Loans to governments or companies that typically pay a fixed level of interest.
Capacity for Loss
Your financial ability to cope with a fall in the value of your investments without it affecting your essential needs or long term plans. It reflects what you can afford to lose, not how you feel about risk.
Capital Gains
Profit made when you sell an investment for more than you paid.
Cashflow Planning
Forecasting future income and spending to ensure your finances support your goals.
Diversification
Spreading investments across different assets to reduce risk.
ESG Investing
Investing that considers environmental, social, and governance factors alongside financial returns.
Funds
Investment products that pool your money with other investors and are managed by a professional fund manager.
Inflation
The rising cost of living over time, which reduces the purchasing power of money.
ISA (Individual Savings Account)
A tax efficient savings or investment account where returns are free from UK income and capital gains tax.
Protection Glossary
Accelerated Critical Illness Cover
A type of policy where a critical illness claim reduces (or fully uses) the life insurance sum assured, as both benefits are linked.
Beneficiary
A person or organisation who receives the money from an insurance policy if a claim is made.
Business Loan Protection
Insurance designed to repay business loans, overdrafts or director loan accounts if a key person dies or becomes critically ill.
Critical Illness Cover
Insurance that pays a tax free lump sum if you are diagnosed with a serious illness listed in the policy (e.g., cancer, heart attack, stroke).
Decreasing Term Assurance
Life cover where the sum assured reduces over time, typically aligned to a repayment mortgage.
Deferred Period
The waiting time between being unable to work and an income protection policy starting to pay out (e.g., 4, 8, 13 or 26 weeks).
Family Income Benefit (FIB)
A type of life insurance that pays a regular income to your loved ones instead of a lump sum.
Guaranteed Premiums
Premiums that stay the same throughout the entire policy term, unless you make changes to the cover.
Income Protection
Insurance that pays a monthly income if you are unable to work due to illness or injury, often until you return to work or reach retirement age.
Increasing Cover
A policy where the sum assured rises each year (usually in line with inflation) to maintain the real value of the benefit.
Indexation
The process of linking the level of cover and often the premiums to inflation (such as RPI or CPI), helping maintain purchasing power over time.
Key Person Insurance
Business protection that compensates a company for the financial loss caused by the death or critical illness of a key employee or director.
Level Term Assurance
A life policy where the cover amount stays the same throughout the term.
Life Insurance / Life Assurance
A policy that pays out a lump sum if you die during the policy term. Used to protect family finances, mortgages, or business continuity.
Life of Another Policy
A policy taken out by one individual on the life of another (often used for business owners or partners).
Partnership Protection
A type of business protection ensuring remaining partners can buy the share of a partner who dies or becomes critically ill.
Policy Term
The length of time the insurance policy runs for.
Pre Existing Condition
A medical condition you already had before taking out a policy. It may affect underwriting or exclusions.
Relevant Life Plan
A tax efficient life insurance policy paid by a business for an employee or director. Premiums are often allowable as a business expense and benefits are paid via trust.
Replacement Income Benefit
Another name for income protection provides regular payments if you cannot work due to illness or injury.
Reviewable Premiums
Premiums that can change during the policy term, depending on the insurer’s review (often every 5–10 years).
Shareholder Protection
Business insurance that provides funds to allow surviving shareholders to buy the shares of a deceased or critically ill business owner.
Sum Assured
The amount paid out by an insurance policy if a claim is made.
Terminal Illness Cover
Included with most life policies, it pays the life insurance sum early if you’re diagnosed with an illness expected to result in death within 12 months.
Trust (Insurance Trust)
A legal arrangement that allows the policy payout to go directly to your chosen beneficiaries — often quicker and outside of your estate for inheritance tax purposes.
Underwriting
The insurer’s assessment of your application, which may include medical questions, GP reports, lifestyle analysis and risk based pricing.
Waiver of Premium
An optional add on that allows the insurer to pay your premiums if you cannot work due to illness or injury.