Topic 2 - Types of borrower Flashcards
What percentage of a building society’s commercial assets can be held in loans to limited companies secured on land?
a) 25%
b) 50%
c) 75%
d) 100%
a) A maximum
of 25 per cent of a building society’s commercial assets can be
held in loans to limited companies secured on land.
A joint mortgage means that the borrowers have
______ and ______ liability for the mortgage.
Joint and Several - If two or more people take out a mortgage, the mortgage deed (the contract) makes them jointly and severally liable for that loan. This means all parties are individually liable for the whole amount of the loan, not just their ‘share’ of it.
A ‘consumer buy to let’ mortgage would apply to which of the following mortgage applicants?
Francesca, who needs a mortgage to buy a flat to rent out on a long-term basis.
Ann, who has inherited her parents’ house and needs a small mortgage to carry out improvements so that she can rent it out until she decides what to do with it.
Parvinder, who wishes to buy a semi-detached house to add to his investment portfolio.
Ann - A ‘consumer buy to let’ mortgage is one where the purpose of arranging a mortgage is not ‘wholly or predominantly’ for business purposes. Borrowers in this category are sometimes described as ‘accidental landlords’ – in other words, they are people who need to let out a property because of personal circumstances rather than because they have made a conscious choice to buy a property for rental.
True or False?
A ‘professional customer’ is someone who has a financial services qualification.
False - The FCA defines a professional customer as one who has worked in the home finance sector for at least a year, in a professional position that requires knowledge of the product or service to be arranged, and who the firm reasonably believes to be capable of understanding the risks involved in the proposed arrangements. There is no mention of the need for a qualification.
True or False?
The FCA defines a high-net-worth mortgage customer as one with a minimum annual net income of £100,000, or minimum net assets of £1m.
False - The FCA defines a high-net-worth customer as one with a minimum annual net income of £300,000, or minimum net assets of £3m. Lenders can apply more flexible processes to high-net-worth customers than for mainstream mortgages.
True or False?
Trust deeds automatically give trustees the power to borrow on behalf of the trust.
False - Trustees only have the power to borrow if it is specifically stated in the trust deed.
True or False?
Lenders are not permitted to lend to the personal representatives of a deceased person’s estate to buy property for a beneficiary.
False- Lenders can lend to the personal representatives of a deceased person’s estate to buy property for a beneficiary.
True or False?
Firms are able to apply more flexible processes to mortgage applications from high-net-worth customers.
True
Colette, Craig and Christine each wish to raise cash for their businesses by arranging a mortgage on a property they own and use as a dwelling. Which of the following mortgages would be a regulated mortgage?
The mortgage of Colette, who wishes to raise money for her limited company.
The mortgage of Craig, who is a sole trader with annual business turnover of £1.2m.
The mortgage of Christine, who is in a business partnership with her husband, and has annual business turnover of £450,000.
Christine - Mortgages to raise money for limited companies and limited liability partnerships are not regulated. Mortgages to raise money for partnerships or sole traders are regulated if annual turnover is below £1m. This assumes that the property meets the criteria for a regulated mortgage.
Which of the following statements are true in relation to a special purpose vehicle (SPV) used to hold property? Select all the true statements.
1.The SPV is owned and controlled by shareholders.
2.The property is owned by the shareholders.
3.The SPV forms a joint legal entity with the shareholders.
4.Shareholders have no liability for any SPV debts.
5.A mortgage lender is likely to require personal guarantees from directors.
1,4&5 - The property is owned by the SPV, which is a separate legal entity and able to hold property and borrow in its own right. While the shareholders own the SPV, the SPV is the legal owner of the property. The shareholders’ liability for SPV debts is limited to the money they invested when buying the shares, although directors (who may be shareholders) are liable to the limit of any guarantees provided to mortgage lenders.
Clive’s wife died unexpectedly last month, while the couple were in the process of remortgaging their home. The FCA would expect financial firms to treat Clive as a:
mortgage prisoner.
vulnerable customer.
exposed customer.
Vulnerable customer. - ‘Mortgage prisioners’ are those who have a regulated mortgage taken out before 26 April 2014 and may be prevented from changing to another arrangement with their existing lender or moving to another lender, due to the tightening of affordability requirements under MCOB. We have no indication of affordability, but we know that bereavement is one of the circumstances identified by the FCA that could make an individual ‘vulnerable’.
Which of the following people could arrange a power of attorney?
Barry, who has been diagnosed with dementia.
Gary, who has moved from Essex to Canada for a two-year work contract.
Harry, who is 17 and living apart from his parents.
Gary - Those lacking capacity to enter into a contract cannot appoint an attorney. Capacity to contract includes having mental capacity and being aged 18 or over.
Janet is 65 and considering arranging a power of attorney, appointing her sister Gill as her attorney. She would like Gill to be able to deal with her financial affairs now, where necessary, and later if Janet becomes confused mentally. Which arrangement would be appropriate?
Lasting power of attorney: property and affairs.
Enduring power of attorney.
Ordinary power of attorney.
Lasting power of attorney: property and affairs. - A property and affairs lasting power of attorney allows the attorney to look after the donor’s finances and property, including before the donor loses mental capacity if they consent. An enduring power of attorney would have been suitable before 30 September 2007, but new ones can no longer be set up. An ordinary power of attorney would allow Gill to deal with Janet’s finances while Janet remained mentally capable, but would cease if she became mentally incapacitated.
Complete the sentence by typing the missing words.
An enduring power of attorney must be registered with the
______ of the public _____ for the attorney to continue to act for the donor after the donor loses mental capacity.
Office of the public Guardian
Helena and Cath have a £120,000 mortgage in their joint names on their flat, which they bought two years ago. Helena and Cath have split up, Helena has moved out and Cath has not been able to contact her about paying the mortgage. Who will the lender hold liable if the mortgage payments are not made? (Assume that Helena and Cath own the flat on a joint tenancy basis.)
Helena and Cath, but the lender will pursue Cath for the whole amount if Helena cannot be contacted.
Cath for the whole amount, because she is the only person actually living in the flat.
Cath for 50% because she is only liable for half the amount borrowed.
Cath for 50% of the outstanding payments and Helena for the remainder.
Helena and Cath, but the lender will pursue Cath for the whole amount if Helena cannot be contacted.
What are the three main reasons why a personal borrower might require a mortgage?
- To purchase a family home.
- To purchase a business property.
- To arrange additional finance on a second-charge basis.
- To provide bridging finance.
- To let a home to tenants.
1,3&4
Before agreeing to lend to trustees, a lender must establish that the trustees have authority to borrow for the proposed transaction under the terms of the trust deed. True or false?
True
A partnership business has a legal existence of its own, separate from that of the individual partners. True or false?
False. A partnership is not a separate legal entity. Assets and liabilities are jointly owned by the partners.
James wishes to raise £30,000 for his small business by arranging a further advance on the mortgage on his family home. Would the further advance be a regulated mortgage?
Yes.
No.
Yes. Even though the further advance is for business purposes it would be secured on the family home, so it would be regulated, as long as at least 40% of the land is used as the main residence.
Vanda has mortgages on two BTL properties, which she owns via a special purchase vehicle. Are the mortgages regulated under MCOB?
Yes
No
No: the properties are regulated under the Mortgage Credit Directive Order 2015.
An undischarged bankrupt cannot own property. True or false?
False – an undischarged bankrupt can own property, although the trustee in bankruptcy may take it to pay their debts. An undischarged bankrupt cannot acquire an interest in property, which means they cannot buy property while undischarged.
Alan was declared bankrupt for the first time in London on 5 May this year. He will be discharged on:
5 May next year.
5 May two years later.
5 May three years later.
5 May five years later.
5 May next year.
A person who makes a power of attorney is known as a donor. True or false?
True
Jack established an enduring power of attorney in 2006, with his daughter as his attorney. Jack is now suffering from dementia and his daughter wishes to sell his house and use the proceeds to extend her own home so that Jack can move in with her. Is she permitted to do this?
Yes, regardless of the circumstances.
No.
Yes, if the EPA is registered with the Office of the Public Guardian.
Yes, if the EPA is registered with the Office of the Public Guardian.
