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Economics Glossary

Mortgage Blog: Latest News - 20-12-2024 - - 0 comments
Economics Glossary

Understanding economics terminology can help you make informed financial decisions. We have therefore put together this simple glossary for you.

 

 

A

 

Aggregate Demand

The total demand for goods and services in an economy at a given overall price level and within a specific time period. It includes consumption, investment, government spending, and net exports.

 

Appreciation

An increase in the value of an asset or currency over time. Often driven by market conditions or changes in supply and demand.

 

Amortisation (Loan)

The gradual repayment of a loan. Typically through scheduled instalments over time, which include both principal and interest components.

 

 

B

 

Balance of Payments

A summary of all economic transactions between residents of a country and the rest of the world over a specific period. It includes trade, investment, and financial transfers.

 

Base Rate

The interest rate set by the Bank of England. Serves as a benchmark for other interest rates, including mortgage products.

 

Boom

A period of rapid economic growth and increased activity. Often characterised by rising employment, consumer confidence, and spending.

 

 

C

 

Consumer Price Index (CPI)

A measure of inflation that tracks the average change in prices paid by consumers for a basket of goods and services over time.

 

Capital Gains

The profit made when an asset is sold for more than its original purchase price. Assets include property and investments.

 

Credit Score

An assessment of a borrower’s creditworthiness. Based on their financial history. Lenders use it to determine loan terms or whether to extend credit.

 

 

D

 

Deflation

A decrease in the general price level of goods and services in an economy. Often indicating weaker demand.

 

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded by consumers.

 

Disposable Income

The amount of income left to an individual or household after taxes and essential expenses have been deducted.

 

 

E

 

Equity

The portion of a property’s value that is owned outright by the owner. Calculated as the property’s market value minus any outstanding mortgage.

 

Exchange Rate

The value of one currency expressed in terms of another. For example, the number of pounds needed to buy one euro.

 

Economic Growth

An increase in the output of goods and services in an economy over time. Often measured by the change in Gross Domestic Product (GDP).

 

 

F

 

Fiscal Policy

Government policies on taxation and public spending. Used to influence economic activity.

 

Fixed Interest Rate

An interest rate on a loan or mortgage that remains constant for a set period. Provides certainty over repayment amounts.

 

Free Market

An economic system in which prices are determined by supply and demand. There is minimal government intervention.

 

 

G

 

Gross Domestic Product (GDP)

The total value of all goods and services produced within a country over a specified period. Used to measure economic performance.

 

Gearing

The level of a company or individual’s debt in relation to their equity or assets.

 

Government Bond

A type of investment where you lend money to the government in exchange for regular interest payments. Often seen as a safe option for investors.

 

 

I

 

Inflation

The rate at which the general level of prices for goods and services rises. Erodes purchasing power over time.

 

Interest Rate

The cost of borrowing money or the return on savings. Expressed as a percentage. Central banks often set base interest rates, which influence wider market rates.

 

Investment

The allocation of money or resources to an asset with the expectation of generating a return.

 

 

L

 

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

 

Loan-To-Value (LTV) Ratio

 

The proportion of a property’s value that is financed through a mortgage. Expressed as a percentage. For example, a £200,000 mortgage on a £250,000 home has an LTV of 80%.

 

 

M

 

Monetary Policy

Actions taken by a central bank to influence money supply and achieve economic goals like controlling inflation. For example, adjusting interest rates.

 

Market Value

The price a property or asset would fetch in the open market.

 

Mortgage-Backed Security (MBS)

A security or loan, where mortgage assets are used as collateral.

 

 

R

 

Recession

A period of economic decline lasting at least two consecutive quarters. Typically characterised by reduced GDP, employment, and consumer spending.

 

Remortgaging

The process of switching a mortgage to a new lender or product. Often to secure a better interest rate or release equity.

 

Reserve Bank

Another term for the central bank, such as the Bank of England. Oversees monetary policy and financial stability.

 

 

S

 

Stamp Duty Land Tax (SDLT)

A tax paid on property purchases in England and Northern Ireland. Rates vary based on the property price.

 

Supply Curve

A graphical representation of the relationship between the price of a good or service and the quantity supplied by producers.

 

Subprime Lending

Loans offered to borrowers with lower credit ratings. Often at higher interest rates to offset the increased risk.

 

 

U

 

Unemployment Rate

The percentage of the labour force that is actively seeking work but unable to find employment.

 

Underwriting

The process by which lenders assess the risk of providing a loan or mortgage. Factors such as credit history and income are taken into account.

 

 

W

 

Wealth Effect

The tendency for people to spend more when their perceived wealth increases. For example, when property or stock market values rise.

 

Wage Inflation

An increase in wages across the economy during a specific time period. Can contribute to overall inflation if not matched by productivity growth.

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