Jargon Buster - Financial Glossary

Negative Equity
Negative equity comes into play when the value of an asset (e.g. your home) falls below the amount of the loan taken out to purchase it. In other words, were you to sell your asset (e.g. your home) you would not receive enough money to enable you to pay off your loan (your mortgage).

For example, had you purchased a property in 1988 at the peak of the 80s housing boom for £150,000 and taken out a £130,000 mortgage, you might have been somewhat upset to find the value of your home falling to £125,000 (as it may well have done by 1995).

If you had taken out an interest only mortgage you would still owe £130,000 but the asset your loan was based on would have been worth £5,000 less - a shortfall you would have had to make up if you wanted to sell the property.

More than a million people found themselves in negative equity in the UK in the early 1990s after being ravaged by a severe housing market recession, which was caused in part by high interest rates between 1989 and 1992.

Net Relevant Earnings
This describes the income that is used to assess the maximum contribution that can be made to a Personal Pension Plan. It includes income which is subject to UK tax under the following headings:

  • Employed Income, (Tax Schedule E), including profit-related pay and taxable benefits. (Not including proceeds from the buying or selling of shares, the right to buy shares, or 'golden handshakes')
  • Income from property which forms part of the income of an office or employment
  • Self-Employed Income, (Tax Schedule D), after deduction of expenses purely relating to that business
  • Income from Patent Rights which can be treated as Earned Income