Topic 24 - Transferring Mortgages

Question 1

What issues does a borrower need to consider when remortgaging?

Answer 1

Terms and conditions

Fees and other costs - valuation, legal fees, arrangement fees

Higher lending charge

Question 2

What are reasons for switching to a new arrangement with an existing lender?

Answer 2

Arrangement costs, legal fees, will be relatively low.

Early repayment charges could be waived.

The lender is not required to carry out an affordability assessment if no increase in borrowing is involved.

Question 3

With a remortgage with a new lender, all the normal checks must be carried out. True or False?

Answer 3

True

Question 4

What is a redemption statement?

Answer 4

This is to establish accurate borrowing requirements so there is not a shortfall that cannot be met.

Question 5

What are issues to consider in relation to the existing mortgage when considering a remortgage with a new lender?

Answer 5

Early repayment charges

Admin fees

Loyalty offerings

Relationships

Question 6

Why is remortgaging for debt consolidation risky?

Answer 6

The borrower’s equity in the property will be reduced, which could reduce their options if they want to move in the future.

If the borrower has difficulty meeting monthly costs and then defaults, the decreased equity could make repossession more likely.

Question 7

On remortgaging, any second charges will need to be…

Answer 7

…settled on completion of the remortgage, or the second charge holder will need to agree to postpone their charge to allow the new lender to establish first charge on the property.

If this was not done, the new loan would become a second charge itself, due to registration after the existing second charge.

Question 8

A portability option is:

Answer 8

The facility to transfer an existing mortgage to a new property during the term of a special deal without penalty.

Question 9

When porting a mortgage, the borrower will have to…

Answer 9

…submit a new application and the lender will be required to carry out an affordability assessment, (although MCOB 11.6 does allow the lender to waive affordability checks if there is no increase in borrowing).

Question 10

Transfer of equity arises when:

Answer 10

A joint owner transfers their share of the property into the other owner’s sole name

OR

A sole owner wishes to add another person as a joint owner.

This usually occurs at divorce or marriage.

If there is any threat to the security of the mortgage, the lender is unlikely to agree and the transfer cannot go ahead. This has often led to a situation where divorced couples are still joint mortgagors.

Question 11

A less common reason for a request to release a borrower from the mortgage contract is where…

Answer 11

…that party is seeking to escape creditors, by transferring assets to a spouse. This does not work. The trustee in bankruptcy can seize the assets anyway.

Question 12

When is a consent to mortgage form used?

Answer 12

If a person is moving in, it must be established whether they intend to become a party to the mortgage contract. The form is used to waive rights of residence should the lender have to seek possession.

Question 13

A transfer of equity may create a liability to SDLT in some situations. When does this occur?

Answer 13

When adding a joint owner, it occurs if they pay a lump sum when added to the mortgage that is over the threshold.

It also occurs when removing a joint owner and the property is transferred into one name. If the consideration (money transferred) plus half the mortgage exceeds the threshold then there is liability to SDLT.

Question 14

When a party is added to a mortgage contract, the lender must provide them with an…

Answer 14

…ESIS for the whole loan.

It must meet the requirement for pre-application disclosure in MCOB 5, but changes can be made to ensure the content reflects the context of the change.

Question 15

When might a mortgage be redeemed early?

Answer 15

When the borrower:

1) Recieves a legacy;
2) Wants to move and take a new mortgage;

OR

3) Has funds to clear the mortgage and feels it will be of benefit to do so.

Question 16

The borrower being released from the mortgage is termed what?

Answer 16

Vacation.

After this an officer of the lender signs a receipt and a solicitor completes legal work.

Some lenders hold a small amount as a debit balance on the mortgage account so the mortgage is still in force. This provides a free safe-custody facility for the borrower in respect of the title deeds.

Question 17

What is the Mortgage Exit Adminstration Fee (MEAF)?

Answer 17

A fee chsrged by the lender to cover the costs in closing the account.

It is as low as £50 and sometimes as high as £500.

The FCA considers the following to be acceptable components of it:

• Deed release fees
• Land registry charges
• Staff processing costs
• A reasonable proportion of general overheads

Question 18

What is a clog on the equity of redemption?

Answer 18

This is what a court terms an unreasonable condition imposed to prevent or discourage a borrower from paying back the loan.

Question 19

When a part-redemption is made, the borrower can either:

Answer 19

Continue repayments at the same amount and reduce the term;

OR

Reduce payments and keep the same term. This is the only realistic option with an endowment mortgage because the term cannot usually be altered.`