Topic 24 Flashcards
Other mortgage products
Malcolm has both a first and second charge on his property, but he has not been able to make any payments on either loan recently. He also has an unsecured loan. His mortgage lender is now exercising its power of sale.
Where does Malcolm sit in the order of priorities to receive any proceeds from the sale?
a. First.
b. Second.
c. Third.
d. Fourth.
c. Third.
Which of the following statements is true in respect of Sharia-compliant home purchase plans?
a. Only the ljara method involves the payment of interest to the lender.
b. The Murabaha method involves the payment of rent to the lender.
c. Under the ljara method, the lender purchases the property and immediately transfers ownership of it to the applicant.
d. Under the Murabaha method, the property is purchased by the lender and immediately sold to the applicant at a higher price.
d. Under the Murabaha method, the property is purchased by the lender and immediately sold to the applicant at a higher price.
Kimi is considering building his own house. Assuming that he is able to secure a self-build mortgage on normal terms, what is the earliest stage that he is likely to be able to drawdown the first instalment of his mortgage?
On:
a. completion of footings and foundations.
b. completion of the building.
c. exchange of contracts.
d. purchase of the land.
d. purchase of the land.
Michonne is applying for a 25-year business buy-to-let mortgage with a fixed-rate product for four years.
Under the Prudential Regulation Authority rules for assessing affordability, Michonne’s lender:
a. does not need to complete an affordability assessment.
b. must assess affordability using a minimum future interest rate of 1%.
c. must assess affordability assuming that interest rates will increase by 3%.
d. must assess affordability using a minimum future interest rate of 5.5%.
d. must assess affordability using a minimum future interest rate of 5.5%.
Stress tests must be completed using either 5.5% or the current rate plus 2%, whichever is higher.
Which of the following might be regarded as the major disadvantage of a new foreign currency mortgage secured on a UK property?
a. If sterling decreases in value against other major currencies, the capital outstanding will increase in sterling terms.
b. If sterling increases in value against other major currencies, the monthly payments will increase in sterling terms.
c. Minimum loans tend to be the same as standard UK mortgages.
d. The borrower will not be protected by mortgage regulations.
a. If sterling decreases in value against other major currencies, the capital outstanding will increase in sterling terms.
With a Murabaha home purchase plan, the:
bank buys the property and sells it immediately to the borrower at a higher price.
maximum term is usually 25 years.
monthly payments consist of capital repayment and rent.
monthly payment is usually fixed for 12 months at a time.
bank buys the property and sells it immediately to the borrower at a higher price.
Ben, a London-based solicitor, has a Swiss franc foreign currency mortgage on his UK home. If the value of sterling goes down against the Swiss franc, what effect will it have on his mortgage?
a) His monthly sterling payments will reduce but the mortgage outstanding will increase in sterling terms.
b) His monthly sterling payments will increase but the mortgage outstanding will remain the same in sterling terms.
c) His monthly sterling payments will increase, as will the mortgage outstanding in sterling terms.
c) His monthly sterling payments will increase, as will the mortgage outstanding in sterling terms.
A decrease in the value of the pound would result in fewer francs to the pound, so it would cost Ben more each month in sterling to buy or exchange the required francs. For the same reason, the outstanding mortgage would increase in sterling terms, as it would require more pounds to buy the francs to pay off the capital.
Which of the following circumstances would not be defined as a foreign currency mortgage? The borrower:
a) has a euro mortgage on their Spanish family home but is paid in sterling.
b) lives and works in Berlin but has a UK mortgage on a flat in London.
c) is French, living and working in London and buying a UK property with a mortgage from a UK lender.
c) is French, living and working in London and buying a UK property with a mortgage from a UK lender.
The Mortgage Credit Directive defines foreign currency mortgages as those in a currency other than the borrower’s income or a currency different from that in the country where the borrower lives. The nationality of the borrower is not, in itself, a defining factor.
Which of the following is true of sub-prime mortgages?
MCOB rules mean they cannot be arranged for borrowers with a good credit rating.
Interest rates tend to be higher than for standard mortgages.
The maximum loan-to-value ratio is likely to be higher than for a standard mortgage.
Interest rates tend to be higher than for standard mortgages.
Gemma’s father, Dan, has agreed to deposit 15% of the purchase price of Gemma’s new flat into a savings account with her lender as a guarantee for her mortgage. This means that:
Dan’s savings will be assigned to the lender for as long as the lender feels it is necessary.
Dan will not earn any interest on the savings.
Dan will not have access to his savings for an agreed period.
Dan will not have access to his savings for an agreed period.
Dan will earn interest on the savings as long as the mortgage payments are made and the T&C’s are met. Dan will be able to take his savings at the end of the agreed period.
Which of the following is true in relation to a guarantor mortgage?
a)The lender will consider the guarantee separately from any other financial commitments the guarantor has.
b) The arrangement will commit the guarantor until the earlier of the end of the mortgage term or the lender deciding that a guarantor is no longer needed.
c) The lender is likely to offer fixed or variable rates in line with their standard products.
c) The lender is likely to offer fixed or variable rates in line with their standard products.
The lender will need evidence that the guarantor can afford their own commitments as well as the payments on the guarantor mortgage. Guarantor mortgages tend to be short-term arrangements, perhaps for three to four years.
With the Ijara method of Islamic home finance, the lender buys the property and:
a) immediately sells it to the client at a higher price, with the client required to make monthly payments of rent and capital to buy the property over an agreed term.
b) makes a ‘promise to purchase’ agreement with the borrower, who makes monthly payments of rent and capital to buy the property over an agreed term.
c) immediately sells it to the client at a higher price, with the client required to make monthly capital payments to buy the property over an agreed term.
b) makes a ‘promise to purchase’ agreement with the borrower, who makes monthly payments of rent and capital to buy the property over an agreed term.
With the Ijara method, there is a ‘promise to purchase’ agreement and the property is transferred to the client at the end of the term, during which the client pays rent.
Under the Murabaha method of Islamic home finance, stamp duty land tax is:
a) not payable on the purchase.
b) paid when the lender buys the property and also when the property is transferred to the buyer.
c) paid only once, when the lender buys the property.
c) paid only once, when the lender buys the property.
With both the Ijara and Murabaha methods, stamp duty land tax is paid once, when the property is initially purchased by the lender.
Which of the following is true in relation to self-build mortgages? Lenders will typically:
a) advance up to 70% of the land cost.
b) insist on advance stage payments.
c) advance between 75% and 85% of build costs.
c) advance between 75% and 85% of build costs.
A typical lender would advance between 75% and 85% of the land cost initially, and then 75–85% of the build costs or final value in stages. Arrears payments are more common than advance payments, but the policy varies between lenders.
Jonathan, a higher-rate taxpayer, is buying a buy-to-let flat as an investment and is considering the pros and cons of buying it through a special purpose vehicle (SPV). The advantage of this approach compared to buying it in his own name is that the SPV:
a) would not have to pay the stamp duty land tax surcharge.
b) can claim all mortgage interest as a business expense.
c) would not pay tax on any gain made on a later sale of the property
b) can claim all mortgage interest as a business expense.
SPVs have to pay the same SDLT surcharge as individual buyers, but can claim all mortgage interest payments as a business expense. SPVs have to pay corporation tax on all profits, including the sale of a property.
