Topic 1: Property and Mortgage Markets Flashcards
What is Securitisation?
The process by which a mortgage lender sells mortgage contracts to a third party in exchange for a cash sum. This takes the mortgage off the lender’s balance sheet and gives the lender more cash to invest. The buyer receives all the capital and interest payments due on the mortgage but also carries all the risk.
What is a Recession?
A decline in a country’s economic activity, usually defined as a decline in the country’s gross domestic product for two consecutive quarters.
What is LIBOR?
The London interbank offered rate, the rate at which major banks used to lend to each other. A number of rates for different timescales are published. Ultimately replaced by the Sterling overnight interbank average rate (Sonia).
What is Monetary Policy?
The government’s economic strategy relating to interest rates and the money supply.
What is Inflation?
The decrease in the spending power of money over a specified period of time, usually 12 months, as measured by the Consumer Prices Index.
Who are Prime Borrowers?
Borrowers who meet the lender’s standard criteria for lending, such as employment status and credit record.
Who are Sub-Prime Borrowers?
Borrowers who do not meet the lender’s standard criteria due to type or length of employment, credit history and so on.
What is Negative equity?
A situation where the market value of a property falls below the total value of all loans secured on it.
What is a Second (or subsequent) charge?
Lending secured on property but registered after a prior charge, which means it ranks second (or lower) for repayment in the event of the borrower defaulting on secured loans and the property being taken into possession and sold.
What is a Bridging loan?
A temporary loan secured on property to enable a borrower to buy another property before they have sold an existing property.
What is a Centralised lender?
Specialist mortgage provider that obtains mortgage funds from the wholesale market and operates through intermediaries.
What affects the mortgage market? (six)
- Interest rates
- Inflation
- The economy
- Supply and demand
- Government action
- Non-property funding
What is the Interbank rate?
The rate at which banks lend to each other. The measure has transitioned
from the London interbank offered rate (Libor), to the sterling overnight
index average (Sonia) for all lenders.
What is the Bank Rate?
The rate at which the Bank of England lends to other financial institutions.
You might also see it referred to as base rate.
What is the basis point?
One‑hundredth of one per cent.
