Topic 15 - Other factors that affect the lending decision (UNIT 4)

Question 1

What happens if someone doesn’t request planning permission, and they make the change anyway?

Answer 1

They will likely receive a compulsory order to reinstate the property to its original state (at their expense)

The property value will also decrease and lenders will likely choose not to lend

Question 2

Can planning permission be given retrospectively?

Answer 2

Rarely

This just means the permission is given after the building work has been complete

Question 3

What is planning permission otherwise known as?

Answer 3

Planning consent

Question 4

What is permitted development?

Answer 4

Permitted development are regulations that were introduced to simplify and speed up the planning process.

They allow certain development and
changes of use to be carried out without the need for planning consent/permission

Question 5

What is ‘designated land’?

Answer 5

Areas such as conservation areas, areas of outstanding natural beauty, national parks and World Heritage sites

Question 6

An owner can build an extension, conservatory or addition to a home without
planning consent if it meets one of a number of conditions such as:

„ The addition and previous additions, including outbuildings, do not cover more than half the area of land around the original house

What does ‘original house’ refer to?

Answer 6

Original House = The house as it was originally built or as it stood on 1 July 1948 (if built earlier)

Question 7

What is the neighbour consultation scheme?

Answer 7

The neighbour consultation scheme fast‑tracks the planning permission process for non‑controversial
projects while protecting the interests of neighbours

Question 7

What are the implications for the lender if planning consent has not been granted on a property that is subject to their mortgage?

Answer 7

if the borrower defaults, the lender will likely be left with a property that is unsellable because
it does not comply with planning laws and is subject to an enforcement order

Question 8

If a previous owner fails to gain planning consent or
satisfy building regulations can the new owner face the consequences?

Answer 8

Yes

it is why it is important to be prudent during the conveyancing process

Question 9

Who actually gives planning permission/concent?

Answer 9

The local authorities ‘planning committee’

Question 10

A building development may not
require planning consent but will still be subject to building regulation (explain what this means)

Answer 10

Building regulations relate to the structure of the development and the materials used, with the aim to make the property safe and energy efficient

Planning permission/consent is something given by a planning committee that authorises you to do something to your property, for example dividing a single property into separate homes, building a second building or working on a listed building

If you don’t adhere to either you will likely be forced to revert the property back to its original condition

Question 11

Air leakage (also called air tightness, air permeability or air pressure) tests must be carried out on a sample of new homes on all developments to ensure
they meet the BLANK1 efficiency standards for new homes under Part BLANK2 of the
BLANK3 regulations

Fill in the blanks

Answer 11

1 = Energy
2= L
3= Building

Question 12

What are listed buildings?

Answer 12

Listed buildings are properties that are of significant architectural or historical value

Planning permission must always be sought for any material changes to the building (such as moving a kitchen or removing interior walls)

Question 13

What is ‘listed building consent’

Answer 13

Equivalent to planning permission but specifically for listed buildings

It is required when the owner wants to demolish a
listed building or change or extend it in a way that will affect its character as a building of special architectural or historical interest. (BASICALLY ANY MATERIAL CHANGE)

Question 14

What are the categories for listed buildings?

Answer 14

Grade I (buildings of exceptional interest, 2.5% of all
listed buildings)

Grade II* (buildings of particular importance)

Grade II (Buildings of special interest, 92% of all listed buildings)

Question 15

Who has ultimate responsibility for listing buildings?

Answer 15

A relevant government minister applies the listing to the building (deciding whether it is grade 1, grade 2* or grade 2 )

NOTE: Applications for listed building consent are made to the local authority ( not a governmental minister.. the governmental minster just applies the listing)

Question 16

What are conservation areas?

Answer 16

Areas of architectural or historical significance (equivalent to listed buildings except it is an area, not a building)

Owners of properties in such areas may have to seek permission to carry out alterations, and will need permission to demolish the property, such as cutting down a tree

Question 17

Many conveyancers carry out environmental searches
to identify potential contamination on land. Why do they do this?

Answer 17

Can change the value of the land

In somecases lenders may not lend on land that is not suitable due to being contaminated

Question 18

What is the ‘kerb appeal’ of a property?

Answer 18

refers to the visual attractiveness of a property as seen from the street or curb

Good kerb appeal can positively impact a properties value

Question 19

What are ‘rent a roof’ schemes?

Why have these schemes fallen in recent years?

Answer 19

A company leases a property’s roof for a period of 20–25 years in return for installing solar panels on it.

The occupier uses the electricity generated for free and the company receives all the income generated from the excess electricity that is sent to the grid.

Reductions in government tariffs (taxes) and costs for homeowners buying their own panels mean that the potential profit has reduced

Question 20

‘rent a roof’ schemes save the owner the cost of buying and installing the equipment, and also offers free electricity but there are a number of issues to consider

Tell me about the issues

Answer 20

Potential issues:

Harder to sell the property - The company will have a legal lease to use the roof for 20–25 years which means if the owner sells the property the new owner will be obliged to continue with the arrangement until the end of the lease

Under the arrangement, the owner is likely to need the
company’s permission to make any alterations to the property that involves the roof

If the owner needs to carry out repairs or work that requires the panels to be removed for a period, the company will prob be entitled to compensation
for lost income

Additional work will be required for a mortgage to be granted

A minority of lenders may not be prepared to offer mortgages on properties with rent‑a‑roof agreements (as they will feel there will be less buyers which affects the security offered)

Question 21

The Agricultural Holdings Act 1948 gave tenants of agricultural land a high degree of security
of tenure

What does this mean?

Answer 21

The tenant could be very hard, if not impossible, to evict

Question 22

Why do most lenders not lend against land classed as agricultural land?

Answer 22

Farming itself is very risk prone

AND, The Agricultural Holdings Act 1948 gave tenants of agricultural land a high degree of security
of tenure (basically impossible to evict)

Question 23

What is loan to value (LTV)

Answer 23

The mortgage as a proportion of the property value

If a house is valued
at £200,000 and the mortgage is £160,000, the LTV would be
80%.

The LTV is based on the property valuation rather than the purchase price

Question 24

Why do lenders set LTV thresholds? (ie if the LTV exceeds 80% they will likely not lend)

Answer 24

Lenders set LTV limits so they can ensure that if a borrower defaults
on their mortgage and the lender has to take possession to sell the property, the sale
proceeds would comfortably cover the mortgage and additional costs.

Question 25

If a borrower requires a higher LTV than the lenders threshold, what do most lenders allow?

Answer 25

Lenders will generally consider a higher LTV if the borrower pays for additional security

For example:
The borrower may need to pay the lender a premium for allowing them to have a higher LTV. Some lenders then use this premium to pay for Mortgage Indemnity Guarantee (MIG) insurance polices that protect the lender in the event the borrower defaults and the proceeds of the house sale do not cover the mortgage

Question 26

What is a Mortgage Indemnity Guarantee (MIG) policy?

Answer 26

A MIG policy is a form of indemnity insurance that protects the lender in the event the property needs to be repossessed and sold, and the sale proceeds do not cover the mortgage.

It is for the benefit of the lender (not the borrower) even though the borrower pays for the policy

For lenders to offer a higher LTV than their threshold, the lender will require MIG insurance to be included with the mortgage

Question 27

A MIG insurer has a right to subrogation within six years
of settling the claim. What does this mean?

Answer 27

Subrogation is the right of an insurer to pursue a third party that
caused an insurance loss to the insured person. For example, if a person has a car accident caused by another driver, their insurer will meet their claim and then claim the amount it paid out from the person who caused the accident

In simple terms, subrogation is
the process by which one ‘person’ can stand in the place of another who has suffered damage, loss or injury

In a mortgage context, subrogation is the
process where the MIG insurer can sue the borrower for recovery of the amount
paid to the lender (the ‘insured person’)

Question 28

Give an example of a MIG insurer exercising their right to subrogation in a mortgage context.

Answer 28

A lender sells a repossessed property for £120,000 but the
total owed by the former borrower is £130,000

There lender makes a claim to the MIG insurer for £10000

The MIG insurer will deduct 20% as this is the excess the lender must pay for making a claim

The insurer will then likely sue the borrower (
subrogation) for the £8,000 that it has paid to the lender.

NOTE: The
lender could also sue the former borrower (not through the right
of subrogation, just simply because it is their right) for the £2,000 excess, which is the loss it has
suffered

Question 29

What is a higher lending charge?

Answer 29

A premium the lender charges to the borrower in return for a LTV higher than the original threshold

Question 30

What typical mortgage fees are payable for the borrower?

Answer 30

Product Fee

Application fee (Charged by lenders for assessing and
processing the application. In many cases, the
arrangement fee includes a basic property valuation

Higher lender charge

Lenders reference fee
( may be charged by an existing lender to supply the new lender with certain info (less common now because most things can be found online)

Advisor fee
(Must be included in the Intermediary’s initial disclosure information
* Most commonly a fixed charge
Intermediaries may also receive a procuration (finder’s) fee from the lender

Mortgage Packagers fees (see topic 1)

Question 31

What is a mortgage redemption?

Answer 31

Paying off the outstanding balance on your mortgage and any other associated fees for doing so

Question 32

The FCA allows a lender to take into account 4 reasons to calculate their mortgage exit fee. What are they?

What is the most likely reason a lender will increase this fee?

If a borrower deems the exit fee is unfair what can they do?

Answer 32

Deed release fees;

Land Registry charges;

Staff processing cost;

A reasonable proportion of general overheads

The most likely valid reason would
be increases in the lender’s administration costs between
the start of the contract and redemption

Where a borrower considers a mortgage exit fee to be
unfair, they have the right to refer the case to the Financial
Ombudsman Service

Question 33

What is devolution in governments?

Answer 33

Where power is transferred by the central governments to the local or regional governments

Question 34

Stamp duty land tax (SDLT) now only applies in England and Northern Ireland but used to apply to Wales and Scotland too. What did both respective countries replace SDLT with?

Answer 34

The Scottish government it with Land and Buildings Transaction Tax (LBTT).

The Welsh government replaced it with Land
Transaction Tax (LTT)

Question 35

Are Non-UK residents subject to SDLT?

Answer 35

Yes, Since 1 April 2021, non‑UK residents purchasing property in England and Northern
Ireland are subject to an SDLT surcharge

Question 36

How is SDLT different for ‘non natural persons’

Answer 36

Natural persons are individual human beings so a non natural person would be a legal person other than this, such as a corporation

For Non Natural persons SDLT is charged at a higher rate when the price exceeds £500,000.

Question 37

What is a corporation?

What is a conglomerate?

Answer 37

Corporation = A legal entity that is separate and distinct from its owners

Conglomerate = A corporation made up of several different independent businesses (ie, A main company that owns many subsidiaries)

Question 38

How is SDLT calculated when purchasing a leasehold property?

Answer 38

When someone buys a leasehold property, they buy the lease for a premium from the current owner and must also pay ground rent to the freeholder.

The SDLT is calculated on the premium
in the same way as on the purchase price for a freehold property. SDLT is not payable on the ground rent

Question 39

Can SDLT be payable on ground rent for leasehold properties?

Answer 39

Where annual ground rent is high enough to exceed the SDLT threshold, there could be SDLT to pay on the rent (NOTE: No SDLT is payable if the buyer qualifies for first‑time buyer exemption)

Question 40

There is a first‑time buyer SDLT exemptions

Tell me about this.

Answer 40

First‑time buyers pay 0 SDLT on residential properties valued at £425,000 or less

On residential properties valued between £425,000 and £625,000, first‑time buyers pay 0 SDLT on the first £425,000 but pay SDLT at the
normal rate(s) on the remaining balance

First time buyers pay SDLT at normal rates on the whole balance for properties valued over £625,000 (ie, no exemption applies here)

Question 41

Define a first time buyer

Answer 41

A buyer who does not own or has not previously owned, anywhere in the world, a major interest in a dwelling* or an equivalent interest in land.

Major interest = A ‘major’ interest means that they are the person for whom the property is intended to be of benefit

Question 42

If a property is purchased by joint buyers and one of the buyers has owned a property before (ie not a first time buyer) does the first time buyer SDLT exemption still apply?

Answer 42

in order to benefit from the first‑time buyer exemption, both
joint owners must meet the definition of a first‑time buyer. This means
that if one of the joint owners owns, or previously owned, property then
the exemption will not apply

Question 43

If a first time buyer purchases a property and will NOT be using it as their main residence does the first time buyer SDLT exemption still apply ?

Answer 43

NO, To benefit from the exemption, the first time buyer MUST intend to occupy the property as their only or main residence

(note: it is not required for them to occupy the property immediately as this is not always possible. They just have to use the property as their main residence for the exception to apply)

Question 44

What is the first time buyer SDLT exemption?

Answer 44

Where first time buyers do not pay SDLT, subject to certain conditions being met such as the property not exceeding 425000 in value etc

Question 45

What is a dwelling?

Answer 45

A dwelling is a building, or part a building, where people will live

The first time buyer SDLT exemption only applies to single dwellings (ie, it doesnt apply to a building that has a separate ‘granny annexe’ where it enables someone to live independently)

Question 46

Does the first time buyer SDLT exemption apply to shared ownership schemes?

Answer 46

If the buyer is purchasing a property on a shared ownership scheme, the first‑time buyer exemption is available.

The buyer can choose to apply SDLT to the market value of the property or to the
share purchased

Question 47

BLANK1 and BLANK2 purchases for £BLANK3 or more are subject to an additional BLANK%4 SDLT over and above the standard rate applying to
the purchase price,

Answer 47

Fill in the blanks

Blank 1= Buy‑to‑let
Blank 2= Second home
Blank 3= £40,000
Blank 4= 3%

Question 48

LOOK AT 15.9.2

Question 49

What type of property purchases are subject to a 3% SDLT Surcharge (ie, it applies in addition with the standard rate)

What value must the purchase exceed?

Why was this introduced?

When will the surcharge NOT apply?

What happens if they own a property abroad and are buying in the UK for the first time

Answer 49

Buy to let or second home purchases of £40000 or more are subject to a 3% SDLT surcharge if the buyer already has a major interest in an existing property ( ie their share in the property is £40000 or more) and the new property is not replacing their existing one, instead just becoming an additional property

It was introduced so less people purchase second homes as all the property was being taken by older people making it first time buyers

Where it doesn’t apply:

If the new property replaces the buyers main residence the surcharge doesn’t apply. It only applies where it will be an additional property.

Where the buyers share in their existing property is less than £40000, whether joint or sole.

The surcharge will apply if the person has an existing property anywhere in the world so it will still apply if they are purchasing for the first time in the UK.

Question 50

Will the following be exempt from the 3% SDLT surcharge?

A) A married couple jointly own a flat valued at £75000. They want to purchase a second home which is not replacing their flat

B) Someone solely owns 1 property valued at £200,000. He wants to buy a holiday home

C) Someone owns 1 property valued at £200,000. He wants to buy a new property and then sell his existing one

4) Joint purchases want to buy a property. One has a major interest in an existing property. The other does not. Will the surcharge apply

Answer 50

A) It will be exempt. This is because they each have an interest in the property of £37500. This means they are deemed not to have a major interest in the property since the threshold is £40000 or more

B) They will pay the surcharge because he have a major interest in an existing property and he is not replacing the existing property with the new property as his main residence

C) He will be exempt. Although he has a major interest in an existing property he is replacing it with his new property

4) Yes it will since one of the buyers has a major interest in an existing property. For example, if a parent agrees to help their child buy a home and becomes joint owner, the surcharge will apply because the parent already has a home

Question 51

In relation to the 3% SDLT surcharge, if a person buys a new property with intention of making it their main residence but has not yet sold their existing property will the surcharge apply?

Answer 51

As long as they sell the existing property within 36 months. They can then claim a refund from HMRC

Question 52

Sarah and Sally own a semi-detached house. The gate to their medium-sized front garden opens on to the pavement that runs parallel to the road.

Which of the following would require planning consent? Select all that apply.

A loft extension measuring 35 cubic metres.

An extension to the front of the property.

A loft extension adding three feet to the existing roof height.

Converting the attached garage to a living room.

A single-storey rear extension measuring 3m from the original rear wall.

A two-storey rear extension ending 5.5m from their garden fence

Answer 52

A loft extension measuring 35 cubic metres: permission not required for a semi-detached house if the loft extension does not exceed 40m3.

An extension to the front of the property: permission required as the extension will make the front of the property closer to the highway than before.

A loft extension adding three feet to the existing roof height: permission required as the extension will be higher than the highest part of the existing roof.

Converting the attached garage to a living room: permission not required as converting a garage internally does not add to the size of the building.

A single-storey rear extension measuring 3m from the original rear wall: permission not required on a single-storey extension projecting from the rear wall of the original house wall by up to 3m on a semi-detached property.

A two-storey rear extension ending 5.5m from their garden fence: permission required on two-storey extensions closer than seven metres to a rear boundary

Question 53

Due to the permitted development regulations an owner can build an extension, conservatory or addition to a home without planning consent if it meets one of a number of conditions. What are these conditions?

NOTE: Some of these rights such as two story building extentions do not apply on designated land

Answer 53

The addition does not cover more than half the area of the land around the original house

The extension is within certain height and depth limits where:

The front or side of the property will not be closer to a high way

No part of the property will be higher than the highest part the existing roof

Two story extensions are more than 7m away to a rear boundary and the depth of the two story extension is less than 3m from the rear wall of the original house

Single story extensions can be no taller than 8m from the original house wall for a detached property and 6m on other property (also subject to the neighbour consultation scheme)

Building materials are the same as the existing house

A loft extension does not exceed 50m^3 for a detached house and 40m^3 for any other home

Question 54

What type of work always requires planning permission?

Answer 54

Dividing an existing property into separate homes

Converting an existing property such as a barn

Building a new property

Work on a listed property or property located on designated land such as conservation areas

Work in existing property that falls outside of permitted development. E.g, the building materials for the addition will be different to the original property or the highest point of the extension will exceed the highest point of the original property’s roof and so on…

Question 55

How long does a property have to pay SDLT after completion of the property purchase

Answer 55

A max of 14 days

Question 56

Which of the following is exempt from building regulations?

Cavity wall insulation in a detached house.

Underpinning foundations on a property suffering from subsidence.

Detached 20m2 garage located 3m from the property boundary.

Answer 56

Both cavity wall insulation and underpinning are subject to building regulations. A detached garage under 30 square metres in floor area and built at least one metre from the boundary of a property is exempt.

Question 57

Keith and Helen wish to make several changes to their house, a Grade II* listed building in Devon. In terms of permission to carry out the work, they must:

apply first to their local planning authority.

apply first to Historic England.

first consult with the Department for Communities and Local Government.

Answer 57

Hide question 3 feedback
They must first apply to their local planning authority, which may then consult with Historic England

Question 58

Which of the following buyers would qualify for the first-time buyer exemption from stamp duty land tax (SDLT) when buying a property now? Select all that apply.

Gary, who is buying his first property with the help of a deposit funded by his mother using equity release on the family home.

Brian, who sold his flat five years ago and has rented since.

Alison, who is buying a flat with her father, who jointly owns the family home.

Manuel, who sold his apartment in Spain to move to the UK three years ago.

Mike, who is buying his first flat with a guarantee from his father secured on his house.

Grace, who is buying a shared-ownership flat and has opted to pay SDLT in stages.

Answer 58

Gary, who is buying his first property with the help of a deposit funded by his mother using equity release on the family home.

Mike, who is buying his first flat with a guarantee from his father secured on his house.

A first-time buyer is defined as someone who has never owned an interest in property before, anywhere in the world. For joint purchasers, both must meet the definition. Using a guarantee secured on someone else’s property, or the proceeds of equity release from someone else’s property, would not affect the right to the exemption. It is the status of the buyer that counts, not the type of mortgage or funding arrangement

Question 59

SDLT applies in Scotland. True or false?

Answer 59

False. Scotland has Land and Buildings Transaction Tax (LBTT)

Question 60

Linda and Joey have bought a home in Lancashire following Linda’s job change. They have yet to sell their previous home in Kent. What is the position regarding stamp duty land tax (SDLT)?

They will pay the standard rate of SDLT on the purchase of their Lancashire property.

They will have to pay the SDLT surcharge on their Lancashire property but can claim a refund if they sell their Kent property within 36 months.

They will have up to 36 months to sell their Kent property to avoid paying the SDLT surcharge.

Answer 60

If a homeowner buys a property intended for use as their main home before selling their existing home, they will have to pay the SDLT surcharge but can claim a refund of the surcharge if they sell their original property within 36 months

Question 61

Which of the following would not be deemed a ‘permitted development’?

A loft extension of 40m3.

Internal conversion of a garage.

A two‑storey extension 2m deep.

A barn conversion.

Answer 61

A barn conversion. This would therefore require planning consent

Question 62

Which of the following would be exempt from building regulations?

A detached garage with a floor area of 20m3.

A loft conversion.

Cavity wall insulation.

A 25m3 extension

Answer 62

A detached garage with a floor area of 20m3.

Question 63

Converting an attached garage internally to create a living room of the same size would not usually require planning consent. True or false?

Answer 63

True: as long as the building is not increased in size, converting a garage internally will not usually require planning consent.

Question 64

A rent‑a‑roof scheme contract for solar panels is automatically terminated if the property is sold. True or false?

Answer 64

False: the scheme continues for the length of the contract, regardless of a change of ownership of the property.

Question 65

Glen owns a third share in a buy‑to‑let flat, valued at £100,000, which he intends to keep. He is now buying a house for his family. Glen would not have to pay 3% stamp duty land tax surplus on his new purchase. True or false?

Answer 65

True: as the value of Glen’s share in the buy‑to‑let flat is below £40,000, it would not be treated as a ‘major interest’ which means the surcharge would not apply

Question 66

Vicky’s property purchase fell through just before exchange of contracts. She had already incurred a number of fees and charges. Which of the following fees could be carried forward to a new property purchase?

Solicitor’s fees.

Land Registry search.

Local authority search.

Environmental search.

Answer 66

Solicitor’s fees.

Question 67

Clive owns a family home in Brighton. Would he have to pay SDLT on a buy‑to‑let purchase of £180,000?

Answer 67

Yes. Remember that on buy‑to‑let and second homes, the nil‑rate band only applies to purchases below £40,000. On properties costing £40,000 and above, SDLT is payable at 3% over and above the standard rate applying to the purchase price

Question 68

Joe is buying seven buy‑to‑let flats in one transaction. He can choose to pay SDLT at commercial property rate. True or false?

Answer 68

True, but he cannot also use multiple property relief