Topic 1 Property & Mortgage Markets Flashcards
What did changes to regulations do in the 1980’s for the property markets?
- Enabled new lenders to enter the property markets
- Increased demand from borrows
What are the below in relation to an event that affected the mortgage market in the late 2000’s?
- Lenders relaxing lending criteria
- Securitisation
- Risker borrowers failed (leading to failure of several US lenders)
Factors lead to the “ 2007 Credit Crunch”
What is a “Sub-Prime Borrower”?
Mortgage offered to people with Risker credit history who are less likely to be able to repay a mortgage
What is “Securitisation”?
Lenders who sell a series of bundled up mortgages to other lenders
What is a benefit of “Securitisation” to a mortgage lender?
Mortgages are removed from their books enabling them to borrow more
What is a benefit of “Securitisation” to a lender who has bought a mortgage provider’s mortgages?
They receive an income stream from mortgage repayments
What are the below in relation to an event that affected the mortgage market in the late 2000’s?
- Banks stopped lending in “Sub-prime sector, interests rates increased & markets slowed
- Share prices fell leading to cash flow problems and lack of available credit
- Northern Rock failed
Factors lead to the “ 2007 Credit Crunch”
What are the below in relation to an event that affected the mortgage market in the late 2000’s?
- Government did not bail out Northern Rock leading to it’s collapse along with Bradford & Bingley
- Inflation rises in basic commodies
- Several large US insituations failed or had to be bailed out. Same happened in UK. Interest rates cut to stimulate lending
Factors lead to the “ 2007 Credit Crunch”
What happened to mortgage markets & the economy after the “2007 Credit Crunch”?
- Recession of UK economy (Job losses, hours cut, pay freezes)
- Stagnation of the property markets
- Banks reluctant to lend to each other and prospective homebuyers
- Lenders more cautious (higher deposits, lack of risks in lending)
What are these factors in relation to housing markets?
- Housing prices higher than wages
- Limited houses available
- Lack of affordable homes
Factors that lead to an increase in housing prices
What are the factors that affect first time buyers from entering the housing market?
- More stringent affordable checks
- Needing a larger deposit
- Increasing house prices
What are these efforts introduced by the government meant to do?
- Make BTL’s less attractive
- SDLT exemptions for first time buyers
- Planning rules to make affordable housing in new developments
Help first time buyers get on the market
What are all these factors?
- Interest rates
- Inflation
- Economy
- Supply & Demand
- Government Action
- Non-Property Funding
Factors that affect the mortgage market
What is normally higher when banks are lending or borrowing?
- Interbank rates
- BOE rates
Interbank rates
What is a “Basis Point”?
One-hundredth of 1%
Why is SONIA seen as close to a risk free measure of borrowing?
It is based on actual transactions (hard to manipulate)
What affect on interest rates is this?
Government need to raise money for public spending. It can raise taxes or borrow. Interest rates increase when government increases borrowing
Level of Government Borrowing
What affect on interest rates is this?
Rates increase when there is a high demand for borrowing. Too much money in the economy pushes prices up. Interest rate rises leave people financial over stretched
Higher levels of individual borrowing
What affect on interest rates is this?
Government uses interest rates as a way of controlling the economy particularly inflation
Monetary Policy
What affect on interest rates is this?
Value of sterling abroad is higher than those abroad. Pound is popular & exchange rate increases.
Foreign Interest Rates
What is a down side of sterling being stronger than other currencies?
UK goods abroad become expensive
Who sets the BOE rate?
Monetary Policy Committee
What is “General
Inflation”?
Decrease in spending power of money over a period of time
What is “House-price Inflation”?
Increase of a property’s value over a period of time
What is “Negative Equity”?
When a property’s value fall below the amount of secured lending against it
They are examples of what?
- Changes to mortgage interest relief on BTL property
- SDLT on BTL property
- First time buyer SDLT exemption
Government action in the property market
These are what in relation to secured borrowing ?
- Better debt planning (longer period of borrowing)
- Debt Consolidation
- Further advance (release of equity)
- 2nd home purchase
Reasons why people would borrow other than for a property purchase
Which type of provider of a mortgage finance is this?
- Seek residential & commercial mortgage business
- Look for cross-selling business
- Can raise money cheaply
Banks
Which type of provider of a mortgage finance is this?
- Diversified into unsecured lending and banking services
- Corporate lending on land
Building Societies
What percentage of their total lending activities must Building Societies devote to residential mortgages?
75%
Which type of provider of a mortgage finance is this?
Offer services such as
General Insurance, Life Assurance or composites
Focus mainly on providing services alongside mortgages offered by other providers
Insurance Companies
What is a “Specialist Mortgage Company” as know as?
Centralised Lender
Which market do”Centralised Lenders” borrow from?
Wholesale? or Retail banking?
Wholesale banking
A new bank to the banking arena is called what?
Challenger Bank
Centralised Lenders and Challenger Banks have a reputation for what?
- Offering innovative mortgage products
- Offer attractive mortgage rates
Centralised Lenders and Challenger Banks are susceptible to what?
- Increased wholesale interest rate rises
- Wholesale market “Freeze up”
What are “Mortgage Packers”
Intermediary between a customer and the mortgage lender
What is the role of a “Mortgage Packer”
Administration work and tailoring mortgage arrangements to specific situations
A benefit of using a “Mortgage Packers” is?
They have direct access to to lender & underwriters
What would a “Sub-prime” lender do to somebody who can be termed “Sub-prime”?
Charge a higher interest rate to compensate for the risk
What is the name of the term when a “Sub-prime” lender sets a higher interest rate for a customer considered “Sub-prime”?
Setting the rate for risk
What is a “Sell & Rent back arrangements”?
Where a company buys a property from the owner and rents it back to them
What is the advantage of “Sell & Rent back arrangement for a customer/owner?
An unmanageable mortgage is repaid and credit is managed
What is the length of fixed tenancy agreement a customer who has a “Sell & Rent back arrangement” must be given?
5 years
