Sources of Finance & Types of Mortgages Flashcards
Which of the following is NOT a typical cost when buying a property?
A) Solicitor’s disbursements
B) Stamp Duty Land Tax (SDLT) or Land Transaction Tax (LTT)
C) Annual council tax
D) Deposit at exchange
C) Annual council tax
📌 Explanation: Council tax is a recurring charge, not a cost incurred at the point of purchase.
Which of the following is the most common way to finance a residential property purchase?
A) Crowdfunding
B) Equity finance
C) Bank mortgage loan
D) Government bonds
C) Bank mortgage loan
📌 Explanation: Most buyers fund purchases using a mortgage loan from a bank or building society.
Which of the following best describes a capital repayment mortgage?
A) Only interest is paid each month
B) Both interest and capital are repaid each month
C) Capital is repaid at the end of the mortgage term
D) No repayments are made until the mortgage matures
B) Both interest and capital are repaid each month
📌 Explanation: In a capital repayment mortgage, monthly payments include both capital and interest, ensuring the loan is fully repaid by the end of the term.
Which type of mortgage allows monthly payments to be lower, but requires a lump sum repayment at the end?
A) Capital repayment mortgage
B) Interest-only mortgage
C) Endowment mortgage
D) Fixed-rate mortgage
B) Interest-only mortgage
📌 Explanation: An interest-only mortgage keeps monthly payments low, but capital remains outstanding.
Emily is buying a property without selling her current home. She wants to rent out her current home to tenants but still needs to borrow money for the new property.
Which type of mortgage is she likely to need for her current home?
A) Standard residential mortgage
B) Buy-to-let mortgage
C) Equity release mortgage
D) Bridging loan
B) Buy-to-let mortgage
📌 Explanation: A buy-to-let mortgage is specifically for properties being rented out to tenants.
David and Sarah are purchasing a commercial property, but the price is too high for a single bank to lend the entire amount.
Which funding method might be used to spread the risk?
A) Equity finance
B) Syndicated loan
C) Private mortgage
D) Interest-free development loan
B) Syndicated loan
📌 Explanation: A syndicated loan is when multiple lenders contribute to funding high-value properties.
Tom has an interest-only mortgage. He has been making payments for 25 years but has not repaid the capital loan.
What options does he have?
A) Sell the property to repay the capital
B) Remortgage to a repayment mortgage
C) Use savings to repay the loan
D) All of the above
D) All of the above
📌 Explanation: Interest-only mortgages require an alternative method to repay the capital, such as selling the property, remortgaging, or using savings.
Sophie takes out a capital repayment mortgage with a term of 25 years. After 10 years, she sells the property.
What happens to the mortgage?
A) It continues with the new buyer
B) It must be repaid in full from the sale proceeds
C) It is automatically cancelled
D) The lender writes off any remaining balance
B) It must be repaid in full from the sale proceeds
📌 Explanation: When a property is sold, the outstanding mortgage balance must be settled.
Which of the following is NOT a common source of funding for a commercial property purchase?
A) Syndicated loan
B) Equity finance
C) Inheritance tax refund
D) Development finance
C) Inheritance tax refund
📌 Explanation: Inheritance tax refunds are unrelated to property financing. Syndicated loans, equity finance, and development finance are all common commercial funding methods.
Which type of mortgage requires an investment policy to pay off the capital balance?
A) Fixed-rate mortgage
B) Tracker mortgage
C) Endowment mortgage
D) Offset mortgage
C) Endowment mortgage
📌 Explanation: Endowment mortgages are interest-only mortgages linked to an investment policy intended to repay the capital at the end of the term.
Which of the following is a key advantage of a capital repayment mortgage?
A) Lower monthly payments
B) The loan is fully paid off at the end of the term
C) The borrower does not have to repay the capital
D) The borrower only pays interest
B) The loan is fully paid off at the end of the term
📌 Explanation: In a capital repayment mortgage, monthly payments include both interest and capital, ensuring full repayment by the end of the mortgage term.
Which of the following most accurately describes a buy-to-let mortgage?
A) A mortgage for landlords who rent out the property to tenants
B) A mortgage for first-time buyers only
C) A mortgage for properties valued over £1 million
D) A short-term bridging loan
A) A mortgage for landlords who rent out the property to tenants
📌 Explanation: A buy-to-let mortgage is designed for landlords who purchase properties for rental purposes.
John is purchasing a commercial office building and requires a mortgage. His lender insists on having a charge over the property as security.
What type of mortgage is this?
A) Unsecured loan
B) Equity release mortgage
C) Secured mortgage
D) Bridging loan
C) Secured mortgage
📌 Explanation: Most mortgages are secured loans, meaning the lender takes a legal charge over the property as security.
Emma takes out a tracker mortgage for her new home. After two years, interest rates increase significantly, and her monthly payments go up.
Why did this happen?
A) Tracker mortgages are linked to an interest rate benchmark, which increased
B) The lender increased the fixed rate
C) Tracker mortgages require overpayments after two years
D) Her mortgage switched to an endowment policy
A) Tracker mortgages are linked to an interest rate benchmark, which increased
📌 Explanation: A tracker mortgage follows the movements of an external interest rate, such as the Bank of England base rate.
A developer wants to buy land for a new housing project but does not have the funds. The lender offers to finance both the land purchase and the development costs.
What type of finance is this?
A) Buy-to-let mortgage
B) Development finance
C) Offset mortgage
D) Fixed-rate mortgage
B) Development finance
📌 Explanation: Development finance provides funds for both land purchase and property construction, with lenders often requiring step-in rights if the borrower fails to complete the project.
