Property And Morgage Markets Flashcards
What is liquidity?
The ease and speed to turn assets into cash without losing significant value
What affects the mortgage market?
Interest rates
Inflation
The economy
Supply and demand
Government action
Non-property funding
What is -
Libor
Bank rate
Basis point
Libor - London Interbank offered rate. The rate at which banks lend to each other.
Bank rate - the at which the Bank of England lends to other financial institutions ( also known as the base rate).
Basis point - one hundredth of one percent.
Which body is responsible for setting the bank rate?
Monetary Policy committee (MPC)
Agree the rate based on the government targets for inflation and what they believe will achieve this.
What factors hampered the recovery of the property market following the 2007-2009 financial crisis?
Recession - reluctance of sellers to put properties on the market or buyers to commit to purchase at a time of falling or static property prices.
Financial institutions concentrating on building up reserves rather than lending.
Tighter affordability criteria making it more difficult for people to obtain mortgages.
What factors are contributing to the difficulties experienced by people seeking to buy their first home?
A requirement for more stringent affordability criteria
Requirement for larger deposits
Rising property prices
When interest rates are low for a prolonged period what is likely to happen to property prices?
They are likely to increase
Confidence rises, so people borrow more and this drives prices up
Interest rates on mortgages are closely linked to which interbank lending rate?
Three month Libor
The level of government borrowing has no influence on interest rates in the U.K. True or false?
False
When government borrowing increases, generally interest rates increase
Inflation can be reduced by reducing interest rates. True or false?
False
Inflation generally increases when interest rates are reduced
What percentage of a building society’s total lending activities must be related to mortgages?
A) 25%
B) 50%
C) 75%
D) 90%
C) 75%
Building society’s must devote 75% of their total lending business to residential mortgages.
What is meant by ‘securitised’ lending?
Securitised lending involves bundling together a number of mortgage loans and selling them to another business. The seller receives a capital sum that they can use to offer further mortgage loans. The buyer receives the regular income stream from borrowers repayments on the bundled mortgages.
Lending to people who have county court judgements against them is referred to a ‘sub-prime’ lending. True or false?
True
Sun prime lending is lending to those with poor credit history
Lending to customers classified as ‘sub-prime’ is always an irresponsible decision. True or false?
False
A sub prime customer is not necessarily someone who can not afford a loan or mortgage, they require further assessment and the interest rate may be adjusted to reflect the risk.
