Topic 2 Types Of Borrower Flashcards
What are the 3 P’s of assessing a mortgage application?
- Person
- Purpose
- Property
Which P’s of assessing a mortgage application is the below?
Is the lender able and will to lend to the applicant?
Person
Which P’s of assessing a mortgage application is the below?
Is the purpose of the application acceptable
Purpose
Which P’s of assessing a mortgage application is the below?
Is the property suitable security for the required mortgage
Property
When a lender is considering a mortgage applicant what are these?
- Lenders strategy, market positioning & required business levels in certain sectors
- Applicant risk profile
- Desired profit margins
- Areas & recovery statistics & other circumstances
What is in a lender’s “Lending policy”
What does “Joint & Several Liability” mean?
All parties are liable for mortgage debt not just there share
What are these in relation to mortgage applicants?
- Private (Personal)
- Buy-to-Let
- Business
- Corporate
Types of borrower
What are these in relation to mortgage applicants?
- Commercial
- Personal representatives & attorneys
- Trustees
- Other
Types of borrower
What are the 3 reasons “Private borrowers” seek mortgage finances?
- Family home
- Second charge
- Bridging Finance
What is “Interest Coverage Ratio” in a BTL mortgage?
Level of rental income against payments (including costs and tax)
What is the minimum standard for BTL “Interest Coverage Ratio” set by the PRA?
125%
What is the “Interest rate affordability stress test” in relation to a BTL application?
Lender required stress test on borrower’s ability to repay a mortgage if interest rates rose
How long a period must a lender perform a “Interest rate affordability stress test” over
5 years
What is the minimum interest rate rise a lender must increase a person interest rate when performing an “Interest rate affordability stress test”?
2% (minimum)
What is an “Income Affordability Test” in relation to a BTL application
A detailed affordability test that must be carried out if the borrower is using some personal income to support a mortgage application
What does having “4a permission” in the Consumer Credit Directive mean for CBTL’s?
The form can carry out regulated CBTL activities (if they register with the FCA)
What is the minimum annual income a person must receive to be classed as “High-net-worth”?
- £300,000 minimum annual income
- Minimum net assets of £3 million
What is a “Professional Customer”?
- Customer who has worked in the home finance sector for at least a year
- Firm believes is capable of understanding risks in a mortgage proposal
What does a “Personal representative do”?
Executor of the will of deceased person
Under what circumstances are lenders able to lend to “Personal Representatives”?
- Loan is required to administer an estate
- Purchase property for a dependant of the deceased
In Scotland in relation to executors what is an “executor-nominate”?
Person appointment an executor in a will
In Scotland in relation to executors what is an “executor-dative”?
Executor appointed by a court
What is an “Attorney”?
Somebody given responsibility to deal with another person’s financial affairs
Before lending to a trustee of a trust what should a lender do?
Should check to see where the lender has been given the power to borrow under the trust deed
Where can a lender tell if “Clubs & Associations” are able to borrow?
- Constitution
- Club rules
For a mortgage to be regulated by MCOB How much percentage of land would need to be used as residential?
At least 40%
True or False
A mortgage taken out by a business that is secured on business premises needs to be regulated?
False
If a mortgage taken out for business purposes is regulated what must the lender see?
- Business plan
- Other evidence to support
When lending to a Business Partnership where can the below information be found?
- Each partners share of profit
- Arrangements if one partner dies, retires or becomes bankrupt
- Whether the partnership is able to borrow
Partnership Agreement
Is mortgage lending to a LLP regulated?
No (owners are separate legal entities)
What is a Special Purpose Vehicles (SPV)?
Limited company set up with the purpose of owning BTL property
Who is the only legal owner of property when a Special Purpose Vehicle (SPV) is used?
The limited company
Where a Special Purpose Vehicle (SPV) is used in a BTL mortgage what would a lender required from the directors?
Personal Guarantee (taking responsibility if the company fails to cover repayments)
Guarantee usually over the directors property
Before lending to a limited company (Corporate borrower) what should a lender check?
Whether the memorandum & articles of association permit lending
What is the maximum of a Building Society’s commercial assets are able to be loaned to limited companies security on land?
Maximum of 25%
Is a Commercial mortgage regulated? And why?
No as it is secured on commercial property
What is a “Mortgage Prisoner”?
Customer with a regulated mortgage that may be prevented from changing to a new arrangement or remortgaging if the are subject to standard MCOB affordability checks
What are the 4 key drivers that could lead to a customer being classed as “Vulnerable”?
- Health
- Life Events
- Resilience
- Capability
These are what in relation to vulnerable customers?
- Those buying a property using statutory right to buy
- Those entering “sale & rent back arrangements
- Equity release applicants
- Debt Con applicatants
What the FCA classes as vulnerable customers
What is the minimum age a person has to be to hold a legal estate?
18
A person who has a lack of mental capacity that requires housing funded by a mortgage needs what?
A deputy appointed by the Court of Protection
“Sequestration” is what?
What Scottish law refers to bankruptcy as
A person can petition for their own bankruptcy at any amount but what is the minimum amount that a creditor can petition for a debtor’s bankruptcy?
Minimum £5,000
What is the role of the trustee in bankruptcy?
- Sell assets
- Use proceeds to pay court fees & debt
A bankruptcy period normally lasts how long?
12 months
Somebody who is an “undischarged bankruptcy” cannot acquire an interest in a property (apply for an mortgage)
True or False
True
What must a borrower do if they are applying for a mortgage who has previously been bankrupt?
Declare it to the lender
What is an “Individual Voluntary Arrangement”?
Agreement between a debtor and credit to make payments towards their debt over an agreed period
What is a “Debt Relief Order”?
- Order issued by the Official Receiver on a person who can’t repay their debts.
- Stops creditors from chasing debt without courts authority
To qualify for a “Debt Relief Order” what are the rules?
- Non property owner
- Debts less than £30,000
- Cannot repay debts
These are all what?
- Ordinary
- Enduring
- Lasting (Health & Welfare)
- Lasting (Property & Financial Affairs)
Types of “Powers of Attorney”
What is a “Deputy” in relation to powers of attorney?
Individual appointed by the Court of Protection to look after a person’s affairs after they become mentally incapacitated
What “Power of Attorney” is this?
- Typical used by people who are mental able but physically infirm
- Donor has controls over their affairs & can also carry out transactions
- Ceases when the donor becomes mentally incapable
Ordinary power of attorney
What “Power of Attorney” enables the attorney to look after the affairs of somebody after they become mentally unable?
Lasting power of attorney
What must be done to enable a “Lasting Power of Attorney” to become effective?
Must be registered with the “Office of the Public Guardian”
What are the 2 types of “Lasting Power of Attorney”?
- Property & Financial Affairs
- Health & Welfare
The below are features of what “Lasting Power of Attorney?
- Can be registered before the donor loses mental capacity
- Usually allows borrowing
- Can still deal with own finances before mental capacity is lost
- Look after the donor’s finances & property
Property & Financial Affairs LPA
The below are features of what “Lasting Power of Attorney?
- Attorney can make decisions about the donor’s medical treatment & care
- Can only be used once the donor has lost mental capacity
Health & Welfare LPA
What is the Scottish equivalent of Property & Financial Affairs LPA?
Continuing power of attorney
What is the Scottish equivalent of a Health & Welfare power of attorney?
Welfare power of attorney
In Scotland what power of attorney combines property & welfare matters?
Combined Power of Attorney
What was the precursor of a Lasting Power of Attorney?
Enduring Power of Attorney
What needs to happen for an “Enduring Power of Attorney” to be used after a donor loses mental capacity?
Needs to be registered at the Office of Public Guardian
When an “Enduring Power of Attorney” was registered with the office of public guardian what must happen?
Donor & 3 relatives (with mental capacity and 18) must be informed
MCOB rules only apply to second charges for business purposes if the loan is how much?
£25,000 or less
If the sole purpose of a mortgage is to raise funds for the use of a small business under what amount of turnover is regulated by MCOB?
Under £1 Million
An individual who has taken out an Individual Voluntary Arrangement (IVA) can legally take out a mortgage?
True or False
True (may not be successful)
Why are Corporate mortgages not regulated by the FCA?
The loan is to a company not an individual
What is a “Corporate Borrower?
Unregulated lending to a limited company
What are the purposes of Corporate Borrowing?
Residential or commercial purposes
If a person is subject to an Individual Voluntary Arrangement (IVA) or a Debt Relief Order (DRO) are they able to apply for a mortgage?
Yes if can find a lender willing to lend to them
