4. Borrowers and Lenders: Section A - G Flashcards
First time buyers generally present more risk, why is this?
They generally have no profit from previous properties to go towards the mortgage, making this a larger commitment relative to their income.
Why are first time buyers attractive to lenders?
They tend to be young people with increased future earning potential. They will typically trade up in the future potentially forging long term customer relationships.
In what type of mortgage is it difficult to extend the term on when moving house?
Interest only - as the policywould have been geared towards the original term.
What is a bridging loan?
This is where a lender offers help to those taking out a mortgage before the sale of their existing property. This can also help people where there is a gap between sale and completion in a chain. This can also help those planning to renovate and quickly sell, or to buy at auction where they need the money immediately.
What are second charge mortgages?
When someone takes out a second loan on a property from a different lender (As oppose to a further advance, same lender). The second lender takes priority and interest rates tend to be higher. Under the Mortgage Credit Directive, these are regulated mortgage contracts.
There are two types of Buy to Let mortgages - what are they, and how are they regulated?
Consumer BTL - Not entered into wholly for business purposes, regulated by the FCA
Business BTL - Entered into purely for income, active decision to become a landlord - not regulated
If a mortgage is held by a limited company, are the shareholders or the company responsible for upholding it?
The Company
Why might someone consider starting a limited company to become a landlord?
To potentially keep tax relief, as landlords will eventually pay tax on their entire rental income
What is a remortgage?
A replacement loan with a new lender, generally with similar criteria. The borrower will probably have to pay for valuations and other costs. Equity must be within their lending limits.
What is the right to buy?
A scheme allowing council home tenants to buy the property at a discounted rate up to 70% of its value. The discount depends on how long they have lived in council housing (not always the same house)
What is shared ownership/equity share?
Housing associations share ownership with the buyer, usually 25, 50 or 70%. The purchaser pays rent to the association on their share.
What is a help to buy equity loan?
A newly built home can be purchased with at least 75% of the cost met by a mortgage and a deposit of at least 5%. The remaining amount is paid for by the gov up to 20% through an equity loan. Buyers cannot apply for this after October 2022.
What is a help to buy ISA?
FTB’s could open with a deposit of up to £1000, and save £200 per month into them. The maximum savings are £12k with a bonus of £3k from the gov. These are closed to new borrowers but can be used by existing customers until 1 December 2030.
What status considerations may be applied for those with difficulty borrowing?
A longer term to reduce payments, subject to ongoing affordability.
Recommend seeking a cheaper property.
Lenders may accept guarantors (same affordability checks as principal)
Consider shared ownership
The applicant may be declined altogether. Future affordability must be supported by firm evidence.
What is a non-status borrower?
A applicant who is unable to borrow the amount of money that they need. The application may be accepted with firm evidence to assure that the loan will be repaid.
What are some possible examples of a non-status borrower
High risk careers such as Actors/Footballers
Self employed/Start up for less than 3 years
Someone with bad credit history
Some people do not have any legal capacity to borrow substantial amounts, who may this include?
Undischarged bankrupts - they are only ever able to borrow nominal amounts until discharged, after which they would be considered a high risk.
Those who are mentally incapacitated and minors, their borrowing is limited to necessity
What is a mortgage prisoner?
When someone is unable to switch products due to affordability checks and their current rate has been increased to the lenders SVR, meaning they are ‘trapped’ in their current mortgage on a higher rate than they initially purchased
What are transitional arrangements?
These apply when lending to borrowers who already had mortgages before the amended affordability rules came into place. Lenders are permitted to ‘switch off’ some elements of affordability providing the overall size of the borrowing is not increased. This must be done on the condition that this will serve the borrowers best interests.
