3. Mortgage Regulation Flashcards
What is a legal charge?
A legal charge gives the lender certain rights over the property while the mortgage is outstanding. These include the right to take possession of the property (subject to court sanction) if the borrower fails to make payments or repair the mortgage as agreed.
Why are lenders prepared to offer mortgages at lower rates with a legal charge than unsecured loans?
Because of the security provided by the legal charge
What is a mortgage?
An arrangement where an asset is used by the lender as security for a loan. In the case of house purchase, the loan is secured on a property through a legal charge.
Who regulates the marketing and sale of mortgages and home finance?
The financial conduct authority (FCA) - since April 2013
Why was the EU mortgage credit directive (MCD) implemented?
To set minimum regulatory requirements in member states for credit agreements relating to residential property. The directive also aims to provide A platform for a cross-border European mortgage market
Which types of home finance are regulated?
Regulated mortgages // MCD regulated mortgages // lifetime mortgages // Home revision plans // Home finance plans // consumer buy to let
What is a lifetime mortgage?
Enables older homeowners over a certain age to release some of the equity in their property. The lender agrees to advance a percentage of the property value on a first-charge basis.
The mortgage is repaid when the homeowner moves, goes into residential care or dies.
What is a retirement interest-only mortgage?
New regulatory category of interest-only mortgage introduced by the FCA in March 2018, due to demand from borrowers unable to repay, or finding difficulty in repaying, interest only mortgages at the end of the term.
Lenders are permitted to arrange mortgages on an interest only basis for borrowers over an age specified by the lender. Affordability can be assessed on an interest only basis, with no requirement to account for a repayment vehicle. 
What is a home purchase plan?
An arrangement where:
- One person, the provider, buys qualifying interest in land
- an individual or trustees, the Home purchaser, are obliged to buy the interest from the provider during or at the end of a specified period
- The home purchaser, a related person, A beneficiary of a trust or a person related to a beneficiary is/ are entitled to occupy at least 40% of the land as, or in connection with, a dwelling
What is the difference between a home purchase plan and a regulated mortgage?
Home purchase plans involve the provider buying the property and then selling it to the ultimate owner via a special agreement, either through regular payments of capital, or a single payment at the end of a specified term.
With a conventional mortgage the property buyer uses money borrowed from the lender to buy the property in their own name, and is usually required to pay interest on the outstanding loan
Describe the two ways in which Islamic home finance plans work
(1) provider buys the property at a certain price (2) buyer agrees to buy it for a higher price and make repayments over a set term (3) The difference represents the provider’s fair profit
(1) provider buys and sells the property at the same price (2) buyer makes regular capital repayments, plus reviewable rent payments (3) The rent represents the provider’s fair profit
What is a home reversion plan?
1) the provider buys the property from the owner. (The provider may buy the whole property or a portion of it. The provider buys it at a significant discount to its market value).
2) The former owner continues to live in the property. (The reversion occupier, i.e. the former owner, is on a lifetime lease)
3)  on change of circumstances, the provider sells the property. (When the reversion occupier moves, goes into care or dies, the provider sells the property and keeps the sale proceeds, or a portion equal to its part of the property)
What is the FCA definition of a buy to let mortgage?
It is the same as that for a regulated mortgage, except that the property cannot be occupied as a dwelling by the borrower or a related person at any time, and will be occupied as a dwelling on the basis of a rental agreement
What is a consumer buy to let mortgage?
A consumer buy to let mortgage contract is one which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower. Individuals who require CBTL mortgages are often refrree to as “accidental landlords”.
Those who already own buy to let properties as a business would not normally be treated as CBTL borrowers if they acquired a property in the circumstances “accidental landlords” do
What is business (prefessional) buy to let?
A business buy to let mortgage is arranged to purchase or fund a property that is intended solely to be rented out as part of a business. These mortgages are outside FCA regulation. 
The lender can also accept that a BTL mortgage is for business purposes if the borrower signed a declaration, which the lender has no reason to believe is untrue. The declaration should state that the loan is wholly or predominantly for business purposes, and that the borrower understands this means they will forgo the protection offered by the CBTL regime
