LEGAL QUERIES SOLVED

Esteema Capital Partner

knowledge Bank

Esteema Capital Partner

What is KYC and AML?

KYC stands for “Know Your Customer” (or sometimes “Know Your Client”).

It is a standard process that banks, financial institutions, and many businesses follow to:

Verify the identity of a customer (to ensure they are who they claim to be).
Understand the nature of their activities (to check if the business relationship is legitimate).
Assess potential risks of illegal activities like money laundering, fraud, or financing terrorism.

Typical KYC requirements:

Proof of Identity – passport, driving license, national ID card, PAN card (in India), etc.
Proof of Address – utility bills, bank statements, rental agreements, etc.
Photograph – for matching and record purposes.

Why KYC is important:

Helps prevent money laundering and terrorist financing.
Protects businesses from being used for fraudulent activities.
Builds trust and compliance with legal and regulatory frameworks.

👉 In short, KYC is like a background check to ensure both the safety of financial systems and the legitimacy of customers.

Would you like me to also explain the difference between KYC and AML (Anti-Money Laundering), since they’re often linked?

🔑 KYC (Know Your Customer)

What it is: A process of verifying a customer’s identity before or during a business relationship.
Purpose: To make sure the customer is genuine and not impersonating someone else.
Focus: Collecting and verifying documents like passport, ID, proof of address, and understanding the customer’s profile (e.g., source of income, type of business).
When done: At onboarding (account opening, investment, loan, etc.) and updated periodically.

🔑 AML (Anti-Money Laundering)

What it is: A broader set of laws, regulations, and procedures that financial institutions follow to prevent criminals from disguising illegal money as legitimate funds.
Purpose: To detect and stop money laundering, terrorism financing, and other financial crimes.
Focus: Monitoring transactions, identifying suspicious activities, reporting to regulators (like FIU in India, FCA in UK, FinCEN in US).
When done: Continuously — after onboarding, during all transactions and throughout the customer relationship.

✅ Key Difference

KYC is a part of AML.
Think of it like this:
KYC = Who are you? (identity check)
AML = What are you doing with your money, and does it look suspicious? (activity check)

👉 KYC is the first step; AML is the ongoing system.

Would you like me to give you a real estate example of how KYC and AML are applied? That might connect better with your interests.

🏢 KYC in Real Estate

When you buy a property (say in London or Dubai), the estate agent, solicitor, or developer must check:

Your passport or driver’s licence (proof of identity).
A utility bill / bank statement (proof of address).
Sometimes, source of funds (e.g., payslips, business income, inheritance documents).

👉 This ensures the buyer is a real person with a legitimate background.

💸 AML in Real Estate

After KYC, they must also ensure that the money used to buy the property isn’t “dirty money.”
This means:

Checking if the funds come from legitimate sources (salary, business profits, investments, etc.).
Monitoring for red flags (e.g., a £5M property paid in cash by someone with no income history).
Reporting suspicious transactions to regulators (like FCA in the UK, FIU in India, FinCEN in the US).

👉 This prevents money laundering where criminals might try to clean illegal money by buying property and later selling it.

🔑 Example

KYC: Mr. A wants to buy a £2M flat in London. The solicitor checks his passport, address, and verifies that he runs a tech company.
AML: The solicitor asks: “Where is the £2M coming from?” Mr. A shows audited company accounts and bank transfers. If instead the money came via offshore shell companies with no clear trail, the solicitor may need to file a Suspicious Activity Report (SAR).

✅ In short:

KYC = identity check (front gate).
AML = money flow check (entire journey).

Would you like me to also show you the top red flags that trigger AML checks in real estate deals? That’s something buyers, sellers, and lenders all keep an eye on.

🚩 Red Flags in Real Estate AML

Unusual Payment Methods
- Large cash payments for property.
- Use of cryptocurrency without a clear paper trail.
- Payment through complex layers of accounts.
Unclear Source of Funds
- Buyer can’t prove where the money comes from.
- Income or wealth doesn’t match the property value.
- Funds routed through tax havens / offshore shell companies.
Over- or Under-Valuation
- Property sold way above or below market value (can be a way to move money).
- Back-to-back sales within a short period at different prices.
Politically Exposed Persons (PEPs)
- Buyers/sellers who are government officials or linked to them — higher risk of corruption proceeds.
Complex Ownership Structures
- Multiple holding companies, trusts, or nominees hiding the real owner (beneficial owner).
- Frequent changes in ownership just before a sale.
Geographic Risk
- Money coming from or going to high-risk countries (sanctioned or known for corruption).
Transaction Behaviour
- Buyer seems unusually uninterested in property details (location, price, inspection).
- Quick full payments without negotiation.
- Frequent early repayments of mortgages (used to “clean” money).
Third-Party Payments
- Someone other than the buyer paying for the property without a clear relationship.

🔑 Example

A buyer wants to purchase a £5M house in London via a BVI offshore company, paying cash, and cannot show audited accounts or tax records → 🚩 High AML risk.
Another buyer pays £500k for a flat using mortgage + salary savings, with payslips and bank history → ✅ Low AML risk.

👉 In practice: KYC verifies the person; AML checks if the deal makes sense financially and legally.

Would you like me to create a simple checklist (step-by-step) for property buyers to ensure they don’t get flagged under AML?

🏡 AML Compliance Checklist for Property Buyers

✅ 1. Identity Documents Ready (KYC Stage)

Valid passport / driver’s licence / national ID.
Recent proof of address (utility bill or bank statement, usually <3 months old).
Recent passport-size photo (sometimes required).

✅ 2. Source of Funds Evidence

Prepare documents to clearly show where the money is coming from:

Salary / Employment → payslips, tax returns, employment contract.
Business Profits → audited accounts, company registration, tax filings.
Investments → portfolio statements, bank sale records.
Inheritance / Gifts → will, probate documents, or signed gift deed + donor’s bank proof.
Property Sale Proceeds → completion statement + bank receipt from earlier sale.

👉 Rule of thumb: If you can’t explain it, regulators will flag it.

✅ 3. Bank Transaction Trail

Use traceable bank transfers (avoid large cash deposits).
Keep a clear chain of funds from source → your account → solicitor’s client account.

✅ 4. Ownership Transparency (if using entities)

If buying via a company, trust, or offshore entity, prepare:
- Certificate of incorporation.
- Shareholder register.
- Documents showing the ultimate beneficial owner (UBO).
Some countries (like UK) require disclosure of Persons of Significant Control (PSC).

✅ 5. Avoid High-Risk Patterns

Don’t over/under-value the deal artificially.
Don’t use complex or unnecessary middlemen (shell firms, unknown lenders).
Avoid payments from third parties unrelated to the deal.

✅ 6. Stay Ready for Extra Checks

If you’re a Politically Exposed Person (PEP) (e.g., senior govt official or linked), expect enhanced due diligence.
Be prepared for questions if funds come from high-risk jurisdictions (offshore tax havens, sanctioned countries).

✅ 7. Work with Trusted Professionals

Choose solicitors, estate agents, and banks with strong compliance practices — they help keep the deal “clean.”
Always sign and keep copies of AML declarations.

🚀 Quick Example

If you’re buying a £1M flat in London:

Show passport + UK bank statement.
Provide 3 years’ payslips & tax returns (if from salary).
Bank transfer £1M via your UK bank into solicitor’s client account.
Solicitor files AML compliance — ✅ smooth process.

If instead you bring £1M in cash, or through a Panama shell company with no documents — 🚩 transaction likely blocked or reported.

Would you like me to also make a seller’s AML checklist (since sellers also get checked, especially for “dirty money being taken out”)?

🏠 AML Compliance Checklist for Property Sellers

✅ 1. Identity Documents (KYC Stage)

Valid passport / driver’s licence / national ID.
Recent proof of address (utility bill, bank statement, council tax bill).

✅ 2. Proof of Ownership

Original title deed / land registry extract.
If mortgaged → mortgage statement.
If inherited → probate documents, will, or succession certificate.

✅ 3. Source of Property Acquisition

You may need to show how you obtained the property:

Purchase → old sale agreement + bank statement showing payment.
Gift → gift deed + donor’s ownership proof.
Inheritance → probate documents / succession records.

👉 Regulators want to know how you got the property in the first place.

✅ 4. Transaction Trail for Sale Proceeds

Ensure sale money goes into your own bank account (not third parties).
Avoid cash transactions — insist on bank transfer via solicitor’s client account.
Keep records of funds received.

✅ 5. Ownership Structures (if using company/trust)

Provide incorporation documents + shareholder register.
Disclose the Ultimate Beneficial Owner (UBO).
UK example → Register of Overseas Entities (ROE) is mandatory if offshore company owns UK property.

✅ 6. Avoid Red Flags

Don’t agree to undervalue/overvalue on paper (buyers/sellers sometimes try to save tax or hide funds).
Don’t let a buyer push for unusually fast completion in cash.
Avoid routing funds through unrelated third parties.

✅ 7. Be Ready for Enhanced Checks

If you’re a Politically Exposed Person (PEP) or linked to one → expect more questions.
If the property was bought with offshore money years ago → you may be asked for historical records.

🚀 Example

Seller owns a flat bought in 2012 for £400k with a mortgage.
Now sells for £700k. Provides: passport, proof of address, old sale deed, mortgage discharge, bank account details.
Buyer transfers funds → solicitor checks trail → ✅ smooth, compliant transaction.

If instead seller insists on taking £700k in cash in a suitcase, or directs buyer to pay into an unrelated offshore account → 🚩 flagged as suspicious, likely blocked.

👉 Big picture:

Buyer AML check = where is the money coming from?
Seller AML check = where did the property come from, and where is the money going?

Would you like me to also create a side-by-side table comparing Buyer vs Seller AML requirements? That way you’ll have a quick reference for both sides of a deal.

🏡 AML in Real Estate: Buyer vs Seller Checklist

Stage	Buyer AML Requirements	Seller AML Requirements
Identity (KYC)	Passport / Driver’s licence / National ID Proof of address (utility bill, bank statement) Photo (sometimes)	Passport / Driver’s licence / National ID Proof of address (utility bill, bank statement)
Source of Funds / Property	Evidence of how purchase money is earned: – Salary: payslips, tax returns – Business: accounts, filings – Investments: portfolio, bank records – Inheritance/gifts: probate, deed, donor proof	Evidence of how property was acquired: – Purchase: old deed + payment record – Gift: gift deed + donor proof – Inheritance: probate/succession docs
Money Flow	Show clean bank transaction trail into solicitor’s client account Avoid large cash deposits or unexplained third-party transfers	Ensure sale proceeds go directly into seller’s own bank account Avoid cash or unrelated third-party accounts
Ownership Structures	If buying via company/trust: incorporation docs, shareholder register, Ultimate Beneficial Owner (UBO) disclosure	If selling via company/trust: incorporation docs, shareholder register, UBO disclosure (e.g., UK Register of Overseas Entities)
Red Flags	– Cash or crypto payments – Over/under-valuation – Offshore shell layers – Buyer disinterested in property	– Insisting on cash sale – Asking to understate/overstate price – Offshore ownership with unclear records – Requesting unusual payment routes
Enhanced Due Diligence	If Politically Exposed Person (PEP) or funds from high-risk jurisdictions → deeper checks, possible reporting	If PEP or offshore ownership involved → deeper checks, possible reporting
Key Question	Where is your money coming from?	Where did your property (and now sale proceeds) come from, and where is the money going?

✅ Summary:

Buyer’s AML = prove the legitimacy of the money used to purchase.
Seller’s AML = prove the legitimacy of the property ownership and sale proceeds.

Would you like me to also add a lender’s AML perspective (banks providing mortgages), since they do their own parallel checks in most property deals?

🏦 AML in Real Estate: Lender’s Checklist

Stage	What the Lender Checks (AML/KYC)	Why It Matters
Borrower Identity	Passport / driver’s licence / proof of address.	To confirm borrower is genuine, not a fraudster or sanctioned person.
Source of Deposit (Equity)	Evidence of how the buyer’s down payment is funded: payslips, tax returns, bank statements, inheritance docs, etc.	Ensures borrower isn’t injecting “dirty money” as their contribution.
Affordability & Income Verification	Salary slips, employment contracts, audited business accounts, rental income proofs.	Confirms the borrower has legal income to service the mortgage.
Property Valuation	Independent valuation to ensure purchase price matches market value.	Detects over- or under-valued transactions that may be used for laundering.
Repayment Ability	Bank statements, credit reports, existing liabilities, debt ratios.	Prevents misuse of loans where repayments don’t align with borrower’s real financial profile.
Transaction Trail	All funds (deposit + loan) must pass via traceable bank channels into solicitor’s client account.	Blocks cash-based or offshore routing attempts.
Ownership Transparency	If borrower is a company/trust: incorporation docs, shareholder register, Ultimate Beneficial Owner (UBO) details.	Ensures bank knows exactly who controls the borrower entity.
Red Flags	– Borrower unwilling to provide documents. – Large unexplained cash deposits. – Foreign buyer with no income in property country. – Offshore structures with no clear rationale.	These can trigger Suspicious Activity Reports (SARs) and deal rejection.
Ongoing Monitoring	Banks monitor borrower’s account activity and mortgage payments post-loan.	Ensures no unusual early repayments, third-party transfers, or suspicious patterns.

🔑 Example

Clean case: Borrower buys £1M flat, puts £200k deposit from salary savings, £800k loan. Provides 3 years’ payslips + tax returns → ✅ mortgage approved.
Red flag case: Borrower offers £200k “cash” deposit with no bank record, insists mortgage repayments will come from “a family friend abroad” → 🚩 bank likely refuses & may report.

✅ So now you have all 3 sides of AML in real estate:

Buyer → Where is the money coming from?
Seller → Where did the property & proceeds come from?
Lender → Can the borrower legally afford & repay, and is the deal clean?

Would you like me to put all three (Buyer, Seller, Lender) into a single comparison table so you can see the full AML picture at a glance?

🏡 AML in Real Estate: Buyer vs Seller vs Lender

Stage	Buyer (Purchaser)	Seller (Vendor)	Lender (Bank / Mortgage Provider)
Identity (KYC)	Passport, proof of address, photo ID.	Passport, proof of address.	Borrower’s passport, proof of address, credit checks.
Source Evidence	Must prove source of purchase funds: salary, business, inheritance, investments, sale proceeds.	Must prove how property was acquired: purchase deed, inheritance/gift docs, past payment trail.	Must prove deposit source + borrower income (salary, business accounts, tax filings).
Money Flow	Funds via traceable bank transfers → solicitor’s client account. No large unexplained cash.	Proceeds paid into seller’s own account, not third parties. No cash receipts.	Deposit + loan disbursed only via banking system into solicitor’s client account. No cash handling.
Ownership Transparency	If using company/trust: incorporation docs + UBO disclosure.	If selling via entity: incorporation docs + UBO disclosure (e.g., UK ROE).	If borrower is entity: company docs, shareholder register, UBO disclosure.
Valuation Check	Should match market price; unusual over/undervaluation triggers questions.	Sale price must be realistic; undervaluing or overinflating is suspicious.	Independent property valuation required before loan approval.
Red Flags	– Cash/crypto payments – Offshore shell layers – Buyer uninterested in property – Price manipulation	– Insisting on cash – Offshore ownership with unclear history – Requesting under-/overstated sale price – Payment to unrelated accounts	– Unexplained deposit source – Borrower refuses docs – Early lump-sum repayments – Foreign buyer with no local income
Enhanced Due Diligence	If PEP or funds from high-risk country → extra checks.	If PEP or offshore structure → extra checks.	If borrower/guarantor is PEP or funds from high-risk country → enhanced monitoring.
Key Question	Where is your money coming from?	Where did the property & sale proceeds come from?	Can you legally afford & repay this loan, and is the deal clean?

✅ Summary at a glance:

Buyer → Scrutinised for funding source legitimacy.
Seller → Scrutinised for ownership legitimacy & clean exit of funds.
Lender → Scrutinised for loan risk, repayment ability & deal integrity.

Would you like me to now create a visual flowchart showing how AML checks happen step by step between Buyer → Seller → Lender → Regulators, so you can see the whole transaction chain?

Here’s the flowchart of AML in a property transaction:

Buyer → provides identity + source of funds.
Seller → provides ownership + property documents.
Lender → provides loan funds + checks borrower income.
Solicitor/Agent → central hub that verifies both sides, ensures funds flow correctly, and reports suspicious activity.
Regulators → receive reports (SARs) if anything looks suspicious.

👉 This shows how all parties interact under AML to keep property transactions clean.

Would you like me to also add the money flow (deposit, mortgage, purchase price, sale proceeds) on this diagram so you can see the financial movement step-by-step?

Here’s the enhanced flowchart showing both AML checks and money flow in a property deal:

Buyer → Solicitor/Agent: Provides ID, source of funds, and deposit.
Lender → Solicitor/Agent: Releases mortgage funds once cleared.
Solicitor/Agent → Seller: Pays sale proceeds after AML checks.
Solicitor/Agent → Buyer: Transfers title/ownership.
Solicitor/Agent → Regulators: Files SAR (Suspicious Activity Report) if red flags appear.

👉 This captures both the compliance side and the money movement in one chain.

Would you like me to also prepare a step-by-step narrative (bullet points) of a real-world property deal showing how AML fits into each stage (from offer to completion)?

🏡 Property Deal Timeline with AML Steps

1️⃣ Offer & Acceptance

Buyer makes an offer → Seller accepts.
AML Trigger: Both parties must prepare to provide ID and proof of funds/ownership.

2️⃣ Instruction of Solicitors / Agents

Buyer and Seller appoint solicitors or licensed conveyancers.
AML Trigger: Solicitors immediately request KYC documents (passport, proof of address).

3️⃣ Buyer’s AML Checks

Buyer provides:
- Passport/ID + proof of address.
- Evidence of deposit & full purchase funds (salary, inheritance, business, etc.).
Solicitor checks: Is the money legitimate and traceable?

4️⃣ Seller’s AML Checks

Seller provides:
- Passport/ID + proof of address.
- Title deeds, past sale agreement, mortgage statement, or probate documents.
Solicitor checks: Was the property legitimately acquired?

5️⃣ Lender’s AML & Mortgage Approval

If using a mortgage:
- Bank verifies borrower’s income, deposit source, affordability.
- Independent property valuation ordered.
AML Trigger: Bank ensures deposit isn’t “dirty money” and repayments are affordable.

6️⃣ Exchange of Contracts

Buyer pays the deposit into solicitor’s client account (traceable transfer only).
Solicitor confirms AML compliance completed for both parties.

7️⃣ Completion Day

Lender transfers mortgage funds → solicitor’s client account.
Buyer’s solicitor combines deposit + mortgage funds.
Seller receives sale proceeds into their verified bank account.
AML Trigger: Solicitor double-checks transaction trail before releasing funds.

8️⃣ Title Transfer

Solicitor registers new ownership with the Land Registry (or equivalent).
Seller’s mortgage (if any) is repaid from the proceeds.
Buyer becomes the legal owner.

9️⃣ Reporting to Regulators

If any red flags arise (cash payments, offshore structures, unexplained funds), solicitor files a Suspicious Activity Report (SAR) with regulators (e.g., FCA/UK NCA, FinCEN in US, FIU in India).
Transaction may be paused until cleared.

✅ Summary:

AML checks happen at 3 key points:
1. Before exchange (identity + funds verification).
2. Before completion (money flow checks).
3. If suspicious (SAR reporting).

Financial Vocabulary

Business Finance & Mortgage Jargon Buster

Acid Test

This test measures a company’s ability to pay its short-term debts. It looks at current assets (although not inventory/stock), which are items that can quickly be converted into cash. Also referred to as the Quick Ratio.

Administration Order

This refers to a legal procedure that is designed to rescue insolvent companies, allowing them to continue running their business while being operated by an administrator.

Annuity

This is a fixed amount of money paid to an individual each year. An example of this would be a contract sold by an insurance company, which provides payments to the holder at specified intervals, usually as a way of ensuring a steady cash flow during retirement.

Annual Equivalent Rate (AER)

The AER refers to the official interest rate for savings accounts, and allows you to compare products easily. It shows what you would get over a year if you put money into your account and left it there. The ‘gross rate’ is the interest actually paid.

AML/CFT

Anti-Money Laundering and Countering the Financing of Terrorism.

Annual Percentage Rate (APR)

This refers to the overall cost of debt, i.e. the cost of the borrowing together with any associated fees, such as an arrangement fee. This varies between lenders.

The term was originally created by the banks. Although it’s widely recognised, Capify is unable to use it and that’s simply because our finance isn’t offered over an annual period. Instead, we charge a factor rate; a term exclusively used in business finance rather than commercial finance. The factor rate we offer is based on your individual business circumstances.

Approval in Principle

Following some basic financial checks, a lender will make a temporary offer of a mortgage loan so you know how much you can afford to borrow when looking at properties. This is subject to a successful, full application later on.

APR

So you can compare financial products like-for-like, an APR offers an annualised percentage that is standardised and shows you the true cost of borrowing.

Arrears

If a borrower fails to meet their contractual mortgage payment in full then the account will fall into arrears by the amount due that has not been paid.

Asking price

The price the vendor states when starting negotiations for the sale of their property.

Assets

Anything owned by the company which has a monetary value; e.g., ‘fixed’ assets like buildings, plant and machinery, vehicles (these are not assets if rented and not owned) and potentially including intangibles like trademarks and brand names, and ‘current’ assets, such as stock, debtors, and cash.

Asset turnover

A measure of operational efficiency – shows how much revenue is produced per £ of assets available to the business. If a company generates a high number of sales from its assets, then it has low asset turnover.

BACS

(Formerly Bankers’ Automated Clearing Services) This is the system allowing you to pay your bills and transfer money electronically, for example, direct debits.

Balance

This is the amount of money you have in your bank account at a given time, or alternatively, the amount you owe on your credit card. The bank or card provider will send you statements at regular intervals showing your current balance, or you can access this information if you have an online banking facility.

Balance Sheet

The Balance Sheet is one of the three essential measurement reports for the performance and health of a company, along with the Profit and Loss Account and the Cashflow Statement.

The Balance Sheet is a ‘snapshot’ in time of a company’s financial position. It shows what a company owns, and what they owe out. The three main elements of a balance sheet include Assets, Liabilities, and Owner’s/Shareholders Equity.

The equation is Assets = Liabilities + Owner’s Equity.

For every change on one side of the balance sheet, there must be a corresponding change on the other side – it must always balance, hence the name.

Base rate

Lenders use this rate, set by the Bank of England, as a basis for setting some tracker rates, usually by adding a few percent on top.

Budget

In a financial planning context, the word budget means an amount of money that is planned to spend on a particular activity or resource. This is typically over a trading year, although budgets apply to shorter and longer periods, and may refer to costs allocated to projects of flexible timescales.

Buy-to-let mortgage

A mortgage product for people who would like to invest in residential property to let out as a rental.

Business Loan

A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest.

Capify offers small business loans, which are designed to provide much-needed working capital. Business loan customers repay on a little and often basis, usually daily or weekly to help with cash flow management. They don’t have to worry about a large monthly repayment on a fixed date each month.

Capify loans are available from £5,000 to over £500,000.

Capital Employed

The value of all resources available to the company, typically including share capital, retained profits and reserves, long-term loans, and deferred taxation.

Capital employed comprises fixed assets, investments, and the net investment in working capital (current assets less current liabilities). In other words: the total long-term funds invested in or lent to the business and used by it to carry out operations.

Cashback

You may be offered a lump sum as part of your mortgage product, providing you with ‘cash’ to cover additional costs, such as decorating. This is typically paid upon completion of your mortgage.

Cashflow

The movement of cash in and out of a business from day-to-day direct trading and other non-trading or indirect effects, such as capital expenditure, tax, and dividend payments.

Cash Flow Statement

The cash flow statement shows the movement and availability of cash through and to the business over a given period, certainly for a trading year, and often also monthly and cumulatively.

The availability of cash in a company is necessary to meet payments to suppliers, staff, and other creditors, it’s essential for any business to survive. Therefore, reliable forecasting and reporting of cash movement and availability are crucial.

CHAPS

This stands for Clearing House Automated Payment System and is the automated system that you can use to make a same-day payment within the UK. There is normally a charge for using this service, so it is primarily used for high-value payments.

Compound Interest

This is when you earn additional interest on interest. Referring to savings, this means that any interest you earn is added to your original deposit, and then this larger amount continues to earn you even more interest. If referring to a loan, it means you will be charged interest, not only on the amount borrowed but also on any interest outstanding at that point in time.

Conveyancing

When a solicitor or licenced conveyancer handles a range of legal paperwork as part of your mortgage application, such as transfer of property deeds.

Cost of debt ratio

Despite the different variations used for this term (cost of debt, cost of debt ratio, average cost of debt ratio, etc) the term normally and simply refers to the interest expense over a given period as a percentage of the average outstanding debt over the same period, i.e., cost of interest divided by average outstanding debt.

Cost of Goods Sold (COGS)

The directly attributable costs of products or services sold, (usually materials, labour, and direct production costs). Sales less COGS = gross profit. Effectively the same as cost of sales (COS) see below for fuller explanation.

Cost of sales (COS)

Commonly arrived at via the formula: opening stock + stock purchased – closing stock.

Cost of sales is the value, at cost, of the goods or services sold during the period in question, usually the financial year, as shown in a Profit and Loss Account (P&L).

County Court Judgement

This is a legal decision handed down by county courts for debts to be repaid in England and Wales. Judgments are made available to credit reference agencies to help them assess credit-worthiness of individuals.

Credit

This term can be used in different ways. It can refer to money being paid into your account, or if your account is ‘in credit’, that the balance in your account is positive rather than negative. It can also refer to a contractual agreement in which you as the borrower receive money to pay for goods or services now and agree to repay the lender at a later date.

Credit rating

In order to get a clear picture of how you have managed your finances in the past, a lender will determine your credit rating by accessing information held at one or more Credit Reference Agencies. This is used, along with existing personal data held by the lender (for existing customers) and information from your application, to determine your credit rating against the lender’s own, internal credit assessment systems and influences their decision to grant the mortgage.

CRM

Client Relationship Manager.

Current assets

Cash and anything that is expected to be converted into cash within twelve months of the balance sheet date.

Current ratio

The relationship between current assets and current liabilities indicates the liquidity of a business, i.e. its ability to meet its short-term obligations. Also referred to as the Liquidity Ratio.

Current liabilities

Money owed by the business that is generally due for payment within 12 months of the balance sheet date. Examples: creditors, bank overdraft, taxation.

Customer Due Diligence (CDD)

This refers to the steps a financial services business is required to carry out, in order to identify and verify the identity of the parties to a relationship, and to obtain information on the purpose and intended nature of each business relationship.

Default

Failure to meet the legal obligations (or conditions) of a loan, usually from missed payments.

Depreciation

The distribution of the cost of a (usually large) capital item over an agreed period, (based on life expectancy or obsolescence), for example, a piece of equipment costing £10k having a life of five years might be depreciated over five years at a cost of £2k per year.

Dividend

A dividend is a payment made per share, to a company’s shareholders by a company, based on the profits of the year, but not necessarily all of the profits, arrived at by the directors and voted at the company’s annual general meeting.

A company can choose to pay a dividend from reserves following a loss-making year, and conversely, a company can choose to pay no dividend after a profit-making year, depending on what is believed to be in the best interests of the company.

Early repayment charge (ERC)

Certain mortgage products have an initial period during which a lender will agree to fix or provide a discounted interest rate. Your lender will usually charge you an Early Repayment Charge if you decide to pay off your loan before that period has finished. This may also be charged if a lump sum over a pre-agreed percentage of the loan is paid off during the initial period.

EBT

Earnings Before Taxes

EBIT

Earnings Before Interest and Taxes

EBIAT

Earnings Before Interest After Taxes

EBITD

Earnings Before Interest, Taxes, and Depreciation

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization.

Equity

The equity amount in your property is calculated as your home’s value, less the amount you owe your lender for your mortgage loan.

European Union Savings Directive (EUSD)

This has been in force in the UK since 1 July 2005, and its aim is to allow the Member States of the European Union and certain other countries to collect and exchange information about payments of savings income in the form of interest.

FCA

Financial Conduct Authority (formerly FSA – Financial Services Authority).

Fixed Assets

Assets used by the business rather than for sale or conversion into cash, e.g., fixtures and fittings, equipment, buildings.

Fixed Cost

A cost that does not vary with changing sales or production volumes, e.g., building lease costs, permanent staff wages, rates, depreciation of capital items.

Financial Services Compensation Scheme (FSCS)

This is UK’s deposit compensation scheme, which can pay compensation to consumers if a financial services firm is unable, or is likely to be unable, to pay claims against it.

Fixed-Rate

This is where the interest rate and payment remain the same for the length of time you have a financial product, for example, a mortgage or a loan. This will be agreed upon prior to signing up for the product.

Fixed-Term Account

This is a deposit that is held at a financial institution for an agreed fixed term, ranging anywhere from say a month to several years. Because the term is fixed, you will only be able to withdraw your money after the term has ended, or by giving an agreed period of notice. Your bank may allow you to withdraw your money early, but each bank’s requirements will be different in this regard, and you are likely to incur a fee or penalty for doing so.

Forex / FX

Foreign Exchange.

Freehold

This describes where you own not only the building but the land upon which it stands

Gearing

The ratio of debt to equity, usually the relationship between long-term borrowings and shareholders’ funds.

Gross Profit

Sales less cost of goods or services sold. Also referred to as gross profit margin, or gross profit, and often abbreviated to simply ‘margin’. See also ‘net profit’.

Guarantor

This is a person who guarantees to pay off another individual’s debt, should the borrower find that they cannot pay it.

Help to buy

The Government is supporting home ownership by helping people to become homeowners where it is affordable over the long term.

HMRC

HM Revenue and Customs – the UK’s tax authority.

Home Buy Schemes

Government-led schemes, such as Help to Buy, aim to help people who have smaller deposits to buy their own home – through equity loans or mortgage guarantees, for instance.

IBAN

International Bank Account Number.

IFA

This stands for ‘Independent Financial Adviser’.

Initial public offering (IPO)

An Initial Public Offering is the first sale of privately-owned equity (stock or shares) in a company via the issue of shares to the public and other investing institutions. In other words, an IPO is the first sale of stock by a private company to the public.

Interest

If you are saving money, this refers to the amount earned from the bank on your deposit. If you are borrowing money, this refers to the fee charged by the lender for the use of the money.

Interest Rate

This is the percentage that is paid to you by the bank in interest on savings or the percentage you pay if you have taken out a loan. Unlike banks, Capify charges a fixed fee, which means no matter how much interest rates increase by, they never charge customers extra money on top of their contract.

International Money Order (IMO)

This is a written order for the payment of a sum of money to a named individual, which is usually issued and payable at a bank or post office.

ISA

This stands for ‘Individual Savings Account’. These are available to UK residents only and are a form of tax-free savings account.

Joint Account

This is an account that you can open in the name of more than one person; usually a close relative or business partner. You will be asked to agree when opening the account whether each person is to be able to withdraw funds independently, or if they will require the consent of the other before doing so.

Know your customer (KYC)

This is the process by which a financial services business will verify the identity of its clients.

Leasehold

A scenario often seen with flats in England and Wales, where you own the property but not the land it stands on. Instead, you purchase a leasehold, for a long period of time.

Letters of Credit

These letters are used mainly by exporters and importers. Usually, the importing companies’ bank will send a letter to the exporter’s bank in order to safeguard the contract. Typically, the letter will state that the seller will receive their money on time and for the correct amount.

A letter of credit is a guarantee from the issuing bank to the seller that if compliant documents are presented by the seller to the buyer’s bank, then the buyer’s bank will pay the seller the amount due.

Letters of Guarantee

While a letter of credit essentially guarantees payment to the exporter, a letter of guarantee provides a safeguard that other aspects of the supplier’s or customer’s obligations will be met.

The supplier’s or customer’s bank is effectively giving a direct guarantee on behalf of the supplier or customer that the supplier’s or customer’s obligations will be met, and in the event of the supplier’s or customer’s failure to meet obligations to the other party then the bank undertakes the responsibility for those obligations.

Liabilities

A general term for what the business owes. It’s usually an obligation between one person/business to another, to say that an amount of money is to be paid. There’s a short term/current liabilities (will be paid within 12 months) and long term liabilities (will be paid back in more than 12 months).

Liquidation

This is when a company is brought to an end, either on a compulsory or voluntary basis.

Liquidity Ratio

Indicates the company’s ability to pay its short-term debts, by measuring the relationship between current assets (i.e. those which can be turned into cash) against the short-term debt value. (current assets/current liabilities) Also referred to as the Current Ratio.

Loan

A sum of money which is borrowed for a set period of time, and which is paid back to the lender, together with an agreed amount of interest.

Loan to value (LTV)

Describes the percentage rate to show the ratio between the value of a loan compared to the value of the property. Interest rates will typically vary by the LTV at the point of application.

Merchant Cash Advance

A Merchant Cash Advance (or MCA), sometimes called a Business Cash Advance, is a short-term funding option that works with the seasonal flow of your business. It’s a fantastic option for businesses that accept credit and debit card payments from their customers.

Capify’s Merchant Cash Advance allows businesses to raise upwards of £3,500, with the daily repayments designed to not impact cash flow, making it a flexible finance option.

Mortgage Payment Protection Insurance

An insurance product designed to cover your mortgage payments should you be unable to pay due to unemployment, accident or illness

Negative Equity

When the value of your mortgage loan exceeds your property’s value.

Net Assets (also called total net assets)

Total assets (fixed and current) less current liabilities and long-term liabilities that have not been capitalised (e.g., short-term loans).

Net Current Assets

Current Assets less Current Liabilities.

Net present value (NPV)

NPV is essentially a measurement of all future cashflow (revenues minus costs, also referred to as net benefits) that will be derived from a particular investment (whether in the form of a project.

Net profit

Net profit normally refers to profit after deduction of all operating expenses, notably after deduction of fixed costs or fixed overheads. Net profit normally refers to the profit figure before deduction of corporation tax, in which case the term is often extended to ‘net profit before tax’ or PBT.

Offset Mortgage

A mortgage product that links to savings or current accounts you have with the same lender, allowing you to reduce the amount of your loan that you pay interest on by the amount you have in your other accounts (by ‘offsetting’ the balances).

Overhead

An expense that cannot be attributed to any one single part of the company’s activities.

Portability

A product which can be moved to a new property if you move is ‘portable’. If your new home is more valuable, you can make up the difference with a separate loan.

Product fee

A fee charged to the borrower by the lender for arranging your mortgage product.

Quick Ratio

Same as the Acid Test. The relationship between current assets (stock isn’t included) readily convertible into cash and current liabilities. A sterner test of liquidity.

Rebuild cost

Your buildings insurer needs to know how much it would cost to rebuild your property from the ground up should the worst happen, so it can calculate your premium.

Remortgage

A new mortgage application for your existing property, with the same or a new lender.

Renunciation

This is a process under which an application may be made to the Royal Court for a declaration of insolvency. The process has the potential for the debtor eventually to be discharged from his liabilities after the realisation and distribution of his assets.

Reserves

Reserves are usually taken from a business’s profits and set aside for many different purposes; sometimes emergencies, but also to pay for bonuses, repairs, and maintenance, new assets, etc.

Restricted Funds

These are funds used by an organisation that are restricted or earmarked by a donor for a specific purpose, which can be extremely specific or quite broad, e.g., endowment or pensions investment; research (in the case of donations to a charity or research organisation); or a particular project with agreed terms of reference and outputs such as to meet the criteria or terms of the donation or award or grant.

Return on Capital Employed (ROCE)

A fundamental financial performance measure. A percentage figure representing profit before interest against the money that is invested in the business. (profit before interest and tax, divided by capital employed, x 100 to produce percentage figure).

Return on investment (ROI)

Return on investment is a measurement that will show the amount gained or lost on an investment, in comparison to the amount which was invested. This can be used as a fundamental financial and business performance measure.

Searches

As part of your mortgage application, your solicitor will check with organisations such as local authorities for any information which impacts your property – planning proposals are an example.

Shared ownership

Borrowers may be able to share a mortgage with another party, such as a housing association, then pay rent to the association to cover its share of the mortgage.

Simple interest

In contrast to compound interest, simple interest is interest paid on the original deposit only.

Share Capital

This is the money that is paid into the company by shareholders. In return for their investment, they’ll receive a share of the business.

Shareholders’ Funds

Shareholders’ funds refer to the amount of equity in a company that is owned by the shareholders.

Stamp duty

A tax you must pay to the Government if you buy a property valued at more than a certain amount. The tax rate increases as the property value increases.

Term

The period during which you agree to pay back your mortgage.

Tracker mortgage

A mortgage product with a shifting interest rate that ‘moves’, typically in line with the Bank of England’s base rate or the lender’s SVR, so it can go up as well as down.

Valuation

Your lender will commission a surveyor firm to produce this report to ensure the property has been correctly valued before offering you a mortgage. This is used to assess the correct LTV, required to provide the correct mortgage product(s) available and assist with the assessment of the mortgage application.

Variable Cost

A cost that varies with sales or operational volumes, e.g. materials, fuel, commission payments.

Variable-Rate

This is where the interest rates and therefore payments on deposits or loans, such as mortgages, change as a result of external factors, for example, a change in the base rate set by the Bank of England.

Working Capital

Working capital is the difference between current assets (cash, purchased stock) compared to current liabilities (the money owed out). This gives a short term indicator of the financial health of a business. To thrive and grow, a business should have significant working capital. This means that the amount owned is more than the amount owed.