3. Mortgage Regulation

Question 1

What is a mortgage?

Answer 1

A loan in which the lender uses an asset as security for the loan.

Assets are not just property, they can be share portfolios.

Question 2

True or false, all house purchase mortgages are secured via a legal charge?

Answer 2

True

Question 3

What rights does having a legal charge over a property give the lender?

Answer 3

The right to repossession if repayments are not made

Question 4

How does securing the mortgage with a legal charge over the property benefit the borrower as well as the lender?

Answer 4

It is lower risk for lender, so they are able to offer lower interest rates than unsecured lending.

Question 5

Which type of loan has higher rates? First charge or second charge? Why?

Answer 5

Second charge. Because it is higher risk as the lender is not guaranteed to get full amount back if borrower defaults as first charge lender gets priority

Question 6

What types of home finance does MCOB contain regulations for? (5)

Answer 6

1. Mortgages
2. Bridging loans
3. Life time & second charge mortgages
4. Home reversion plans
5. Home purchase plans (aka Islamic mortgages)

Question 7

Which new category of mortgage was created by the EU Mortgage Credit Directive (MCD)? Which other two categories had new rules added to them?

Answer 7

CBTL was new category

New rules for:
1. BTL
2. Second Charge - inc introduction of back book loans

Question 8

What is a back book loan?

Answer 8

A second charge mortgage entered into before MCD regs came into effect in March 2016 but are still affected by them.

Most categories are not affected by this, just second charge loans

Question 9

What features does a mortgage contract need to have to be regulated at all (reg or mcd reg)? (2)

Answer 9

1. Lending has to be to individuals or trustees
2. secured on 40% residential dwelling

Question 10

When did mortgages begin to be regulated at all?

Answer 10

October 31st 2004, FSA took mortgages into its remit

Question 11

What types of mortgage are ‘Regulated’ mortgages? (3)

Answer 11

1. All mortgages entered into prior to 21st March 2016
2. Further advances taken on mortgages established prior to 21st March 2016 (FA does not require a new contract)
3. Lifetime mortgages - exempt from MCD rules

Question 12

What types of mortgage are ‘MCD regulated’?

Answer 12

1. Any mortgages or remortgages entered into on or after 21st March 2016 which are subject to new MCD rules

i.e. most residential mortgages, other than those which are MCD exempt

Question 13

Other than regulated and MCD regulated mortgage, which 3