Topic 1 - Property & Mortgage Markets Flashcards
The process of packaging a number of mortgages into ‘bundles’ and selling them to other institutions is known as:
Consolidation
Securitisation
Leveraging
Securitisation - Mortgage providers package mortgage loans they hold into bundles and sell them to other institutions all over the world. This process, known as securitisation, removes the loans from the lenders’ balance sheets, and the proceeds of the sale gives them more capital to invest. The institutions that buy the mortgage bundles receive the stream of income from mortgage interest payments, together with capital repayments.
A recession is usually defined as a decline in gross domestic product (GDP) over:
a quarter.
two successive quarters.
three successive quarters.
two successive quarters. - A recession is a significant decline in economic activity, usually defined as a decline in GDP (the value of all the goods and services produced within a country) for two successive quarters, ie six months.
Which of the following actions has the UK government taken to encourage first-time buyers?
Relaxing MCOB rules on affordability for first-time buyers.
Introducing measures to make buy-to-let investment more attractive.
Requiring new developments to include affordable housing.
Requiring new developments to include affordable housing. - Government efforts to support first-time buyers include measures to make buy-to-let investments less attractive and planning rules requiring affordable housing to be included in new developments. It is the FCA’s role to determine affordability measures, and there is no relaxation for first-time buyers.
Inter-bank rate is set by:
SONIA. - The inter-bank rate is set by the Sonia rate, which replaced Libor in 2021.
Which of the following is true in relation to interest rates?
A significant increase in government borrowing would place downward pressure on interest rates.
Increased demand for borrowing tends to lead to a decrease in interest rates.
When UK interest rates are higher than those abroad, the value of sterling increases.
When UK interest rates are higher than those abroad, the value of sterling increases. - The value of sterling against foreign currencies is affected by interest rates. When UK interest rates are higher than those abroad, the pound is popular and the exchange rate increases. This can have a negative effect on industry, because UK goods become expensive abroad and sales may be affected.
In relation to inflation:
the Monetary Policy Committee’s inflation target is based on the Consumer Prices Index.
any level of inflation is considered to be bad for the economy.
general inflation tends to run at a higher rate than house-price inflation
The Monetary Policy Committee’s inflation target is based on the Consumer Prices Index. - The government has set the Bank of England a target for inflation of 2%, as measured by the Consumer Prices Index. It is accepted that a small (2–2.5%) amount of inflation is good for the economy. In general, house-price inflation runs well ahead of general inflation.
What is the maximum percentage of total lending activities that a building society can allocate to lending not for residential mortgages?
25%.
50%.
75%.
25%. - Until 1986, building societies were legally restricted to lending on property in the form of freehold and leasehold estate (or its equivalent) in the UK. The Building Societies Act 1986 allowed building societies to diversify into new areas, including unsecured lending and banking services. Building societies must still devote a minimum of 75% of their total lending activities to residential mortgages, although they can convert to plc status if they wish to enjoy the same freedom as banks.
Specialised (centralised) mortgage lenders raise funds for mortgage lending:
on the retail market.
from depositors.
on the wholesale market.
on the wholesale market. - Specialised mortgage houses are funded from the wholesale market and lend on a centralised basis.
George has a generally poor credit record, with two county court judgments in recent years. He is seeking a mortgage. Which of the following is true?
A sub-prime lender may offer George a mortgage, with an interest rate based on an assessment of the risk George poses.
A mainstream lender is likely to offer George a mortgage but at a rate higher than its standard offering.
George is unlikely to secure a mortgage until he has been debt-free for at least three years.
A sub-prime lender may offer George a mortgage, with an interest rate based on an assessment of the risk George poses. - Borrowers with a poor credit history struggle to find a mainstream lender prepared to lend to them, even several years after their debts have been settled. A potential borrower who does not meet the lender’s standard criteria is not necessarily a poor business proposition – it just means that they require different and more specialised assessments.
Sale and rent back arrangements involve a company buying a property from its owner:
usually at market value, then renting it back to them.
usually below market value, then renting it back to them.
usually below market value, then renting it to a separate person.
usually below market value, then renting it back to them. - With sale and rent back, although the former owner loses ownership, they are able to stay in their home.
What of the following factors hampered the recovery of the property market following the 2007–09 financial crisis? Select all that apply.
Looser affordability criteria.
Reluctance of sellers to put properties on the market.
Tighter affordability criteria.
Recession.
A requirement for lower deposits.
Reluctance of sellers to put properties on the market.
Tighter affordability criteria.
Recession.
Which of the following is a contributing factor to the difficulties experienced by people seeking to buy their first home?
Rising property prices.
Falling property prices.
A growing economy.
Rising property prices.
When interest rates are low for a prolonged period, what is likely to happen to property prices?
They are likely to fall.
They are likely to increase.
They are likely to stay the same.
They are likely to increase. - They are likely to increase: people feel confident that they can afford to borrow more, which drives demand and, in turn, leads to rising prices
Libor replaced Sonia as the inter-bank lending rate from the end of 2021. True or false?
False – Sonia replaced Libor as the inter-bank rate
The level of government borrowing has no influence on interest rates in the UK. True or false?
False: the level of government borrowing does have an influence on interest rates. When government borrowing increases, interest rates generally increase.
