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Cemap 2&3 Self Testing > 27. Transferring Mortgages > Flashcards

27. Transferring Mortgages Flashcards

1
Q

What are the advantages of transferring your mortgage to a new product with the same lender? (3)

A
  1. faster process
  2. Proportionate Affordability Assessments rather than full affordability checks
  3. No legal fees and often no val fees if there has not been a signficant amount of time since the last mortgage
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2
Q

Which types of customer would be eligible for the lender to carry our proportionate affordability assessments? (3)

A

Those who staying with the same lender, are up to date with their payments and are not looking to borrow any more funds than the amount the existing mortgage is already for.

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3
Q

Is a remortgage carried out by the same or a different lender?

A

Both

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4
Q

Why might someone choose to swicth lenders?

A

to get a better deal/lower interest payments

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5
Q

Are remortgages Regulated or MCD Regulated? What regulations are they subject to?

A

All remortgages are MCD regulated. They are subject to exactly the same regulations as new mortgages - affordability and suitability checks. The one exception being where the borrower qualifies for proportionate affordability checks.

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6
Q

Are new lenders allowed to check with existing mortgage providers whether the information on the application form is true?

A

Yes

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7
Q

Remortgages as a way of consolidating debt can be a good solution for saving money in the short term; however, there are things that need to be considered when choosing this. what are they? (4)

A
  1. Longer term = more interest paid off in long run
    2.Credit impared customer - lender must ensure all loans have been repaid on completion or assume they wont be repaid when doing affordability checks.
  2. The borrower will have reduced equity in the property
  3. If the borrower defaults, their home can be repossessed - not the case with unsecured loans
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8
Q

When remortgaging for a higher amount (perhaps to consolidate debt or for a non property purchase) the LTV will also increase. Why might this have a negative consequence for the customer?

A

Could take them over the Higher Lending Charge Threshold

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9
Q

If a customer who already has a second charge loan remortgages their first charge loan, what happens to the order of priority?

A

The second charge lender becomes the first charge lender if nothing is done. The original lender is unlikely to accept this, so they will either ask for second charge loan to be paid off, or the second charge lender would need to agree to postpone their charge.

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10
Q

What are the possible negative consequences of ending the existing mortgage when remortgaging? (4)

A
  1. ERCs
  2. Admin fees - deed release
  3. Lose loyalty offerings
  4. Lose the relationship with the current lender - if there’s a positive relationship they may allow you to lend outside normal max LTV or be lenient with repayment issues
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11
Q

Define portability.

A

Moving an existing mortgage to a new property without penalty, so long as the loan is for the same amount.

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12
Q

If you choose to exercise portability to move your existing mortgage to a new property, what happens if:
1. You need a greater amount than the original loan
2. You need a lower amount

A
  1. Anything over the original loan will be charged at the lender’s current rate, could be higher
  2. May trigger ERCs
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13
Q

What are the MCOB regulations regarding transferring an existing loan to another product with the same lender?
1. Is a new application required?
2. Do new affordability checks need to be carried out?
3. Will the lender charge an ERC on the existing mortgage?

A
  1. Yes
  2. Not unless there is an increased amount of borrowing in the new loan
  3. Some don’t, some auto charge the ERC which the borrower will have to pay but can often get refunded if the new loan completes
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14
Q

What is the transfer of equity? (2)

A
  1. Joint owner transfers their share into the other owner’s sole name
  2. Sole owner wishes to add someone as a joint borrower
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15
Q

Who must be in agreement for the trasnfer of equity to be able to take place? (3)

A

All owners for unencumbered property. All owners and the lender for mortgaged property. Guarantors for properties with guarantees.

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16
Q

Why might a divorced couple be stuck both owning the same property and unable to transfer equity to one another?

A

The lender has to agree, they may turn the request down if their security is threatened, e.g. the remaining owner does not pass affordability checks

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17
Q

True or false: Transferring equity to your spouse is a good way to escape creditors and ensure your property can’t be repossessed?

A

False. can still be repossessed

18
Q

What documentation does the lender need to provide when they receive a request for transferring equity and to whom? What is the exception to this?

A

A new ESIS should be provided to any new or remaining parties. This must meet pre-application disclosure requirements. The exception is where equity is being transferred due to a death

19
Q

When transferring equity from joint to sole, what should the lender consider in relation to repayment vehicles for I/O mortgages? (2)

A
  1. If the repayment vehicle was assigned to both parties, e.g., joint life policy, it would now need to be assigned to the sole person continuing with the loan
  2. if there were two separate repayment vehicles assigned, one to each individual e.g. ISAs, will just the one be suffient? Half of the funds will now be gone.
20
Q

What three special considerations regarding affordability should the lender make when dealing with a transfer of equity?

A
  1. Can those remaining or added to the mortgage afford repayments?
  2. For any existing borrowers, have their circumstances changed since the initial application?
  3. For divorce cases, will they be in receipt of or have to pay maintenance?
21
Q

Does the current property value need to be established for equity transfers? if so, why?

A

yes - because LTV is taken into account for affordability. May need a revaluation

22
Q

What fees and charges may apply to a borrower wishing to transfer equity? (3)

A
  1. Admin fees
  2. Solicitor fees
  3. SDLT
23
Q

What is the document that needs to be submitted by a solicitor in relation to a transfer of equity?

A

The Deed of Transfer

24
Q

When transferring equity to add a joint owner, when would SDLT charges apply if:
1. The joint owners are married
2. The joint owners are unmarried

A
  1. No SDLT
  2. If the transfer is in exchange for a ‘consideration’, which is either:
    - cash payment
    - liability to pay a mortgage
25
Q

When tranferring equity to remove a joint owner, when would SDLT charges apply if:
1. The removal is due to a divorce settlement/arrangements
2. Anything else

A
  1. No SDLT
  2. If the transfer is in exchange for a ‘consideration’, which is either:
    - cash payment
    - liability to pay a mortgage
26
Q

Who is the one who may need to pay SDLT in the following circumstances:
1. Joint to sole
2. Sole to joint

A
  1. The remaining sole borrower
  2. The new joint owner

SDLT is payable by whoever is receiving a new ‘share’

27
Q

Alison owns her house worth £400,000 with a mortgage of £180,000. She will marry Brian in the near future and would like to transfer the house into their joint names. Brian has agreed to pay Alison a cash sum equal to half the equity in the house and will be added to the mortgage. The nil rate threshold is £125,000 and SDLT is charged at 2% above this.

Will Brian be liable for SDLT? If so, how much?

A

Unmarried, so can be laible
Work out cash sum - (£220,000 equity/2) £110,000
Work out new mortgage liability - (£180,000/2) £90,000

Add these together - £200,000

This is £75,000 above nil rate threshold. £75,000 x 2% = £1,500

28
Q

Jeff and Dave are good friends who bought a flat jointly to get on the housing ladder. Dave has accepted a job 100 miles away and would like to buy his own flat nearer to work. The flat he and Jeff owns is worth £180,000 and they have a joint mortgage of £140,000. Jeff has agreed to pay dave £20,000 to buy out his share of the equity and will take over the mortgage in his sole name. The nil rate threshold is £125,000 and SDLT is charged at 2% above this.

Will Jeff be liable for SDLT? If so, how much?

A

Unmarried, potentially liable

Work out the cash sum - £20,000
Work out the mortgage liability gained - £70,000

Add these up - £90,000

This is below the nil rate threshold, so Jeff does not need to pay SDLT

29
Q

Can a lender stop you from redeeming your mortgage early?

A

If you have past the date of redemption, they cannot stop you but they can charge you for it.

30
Q

What is the legal date of redemption? When is this ususally?

A

The earliest date you can redeem the mortgage - often 6 months after the mortgages commences.

31
Q

What is meant by the vacation of a mortgage?

A

When the mortgage is redeemed and the borrower is released from the mortgage

32
Q

What is the difference between ERCs and exit fees?

A

ERCs are only charged if you redeem the mortgage within a certain ‘early’ period, exit fees are charged whenever the mortgage is redeemed at any time in the term.

33
Q

What do mortgage exit fees cover? (4)

A
  1. Deed release fees
  2. Land reg charges
  3. Staff processing
  4. General overhead
34
Q

Can a lender increase their exit fees during the term?

A

Yes - but they must meet FCA’s fairness standards and have a valid reason for the increase

35
Q

Who should you complain to if you believe your mortgage exit fees to be unfair?

A

The financial Ombudsman service

36
Q

What is a “clog on the equity of redemption”?

A

When the courts feel that an unreasonable condition has been imposed to deliberately prevent or discourage someone from paying back their mortgage. If the court identifies a clause like this in the mortgage, they will overrule it.

37
Q

What do borrowers need to consider when making part redemptions? (3)

A
  1. is there a minimum capital repayment?
  2. check whether the repayment will be deducted from the balance immediately or at the end of the tax year.
  3. Decide whether to use the repayment to shorten the term or lower their monthly payments.
38
Q

If after making a part redemption, a borrower does not specify whether they want a shorter term or lower monthly repayments, which will the lender assume they want as a default?

A

lower monthly payments

39
Q

When should an early redemption disclosure be given to a customer?

A

As soon as they express a desire to repay their mortgage before the end of the term

40
Q

What two things should the early redemption disclosure do?

A
  1. Quantify the implications of early repayment
  2. Clearly set out assumptions used to calculate the above charges - these assumptions should be reasonable and justifyable

Cemap 2&3 Self Testing (29 decks)

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