Topic 25 - Schemes for specific groups of borrowers Flashcards
The minimum and maximum initial shares available through the Help to Buy shared ownership (England) taken out today are:
a) 10% and 50%.
b)25% and 75%.
c) 10% and 75%.
c) 10% and 75%. - Under the old model, the minimum initial share was 25%, but since April 2021 this has been reduced to 10%. The maximum initial share is 75%.
A buyer using a shared ownership scheme will pay a maximum rent of 3% to the:
a)
provider, based on the value of the part retained by the provider.
b)
lender, based on the value of the part retained by the lender.
c)
provider, based on the value of the property when purchased.
provider, based on the value of the part retained by the provider. - A buyer using a shared ownership scheme will pay a maximum rent of 3% to the provider, based on the value of the part retained by the provider.
Jeremiah and Luna intend to buy a property in Birmingham using the First Homes Initiative (England) scheme. It is true that they:
a)
can sell the property to any buyer at a later date.
b)
must have a mortgage to fund at least 50% of the full market price.
c)
must be first-time buyers with a combined income not exceeding £80,000.
must be first-time buyers with a combined income not exceeding £80,000. - Resales can only be to someone who is eligible to buy under the scheme and they must have a mortgage to fund at least 50% of the discounted purchase price.
Jason bought a flat in England using the Help to Buy Equity Loan scheme, with an equity loan of £15,000 to help afford the £150,000 purchase price. He has made no repayments of the loan and is now selling the flat for £200,000. How much will he have to repay to settle the equity loan?
£15,000.
£20,000.
£50,000.
£20,000 - If no repayments of the equity loan have been made and the property is sold, the equity loan is repaid as a percentage of the sale price. In this case it would be 10% of £200,000 = £20,000.
Ed and Kelly have been living in their local authority house in London for eight years and now want to exercise their right to buy it. What discount are they entitled to, ignoring any monetary cap that might apply?
a)
35%
b)
38%
c)
41%
38% - The discount for houses starts at 35% after three years’ tenancy and accrues at the rate of 1% for each year over five years, up to 70%. Kelly and Ed have been tenants for eight years, which would give a discount of 35% + 3% = 38%.
A shared‑ownership mortgage is one on which part of the loan attracts zero or very low rate of interest. True or false?
False. A loan on which part is repayable at zero or a very low rate of interest is a feature of the equity‑share mortgage.
Aleksy and Danuta exercised their right to buy their local authority flat, receiving a discount. At what point could they sell the flat without having to repay any of the discount?
Three years after purchase.
Five years after purchase.
Ten years after purchase
Five years after purchase. - The discount is repayable during the first five years of ownership, with the proportion of the discount payable reducing each year.
Which of the following would not be defined as a lifetime mortgage by the Financial Conduct Authority? A mortgage:
a)
requiring interest and partial capital repayments each month.
b)
with no capital repayments that allows interest to be accumulated each month.
c)
requiring interest and full capital repayments each month.
requiring interest and full capital repayments each month. - A lifetime mortgage cannot require full capital repayment until the borrower dies, leaves the property without a reasonable expectation of returning, sells the property or moves to another main residence. However, a lifetime mortgage can contain a condition requiring some repayment of capital during the term.
John took out a home reversion scheme when his house was valued at £200,000, entering 70% of his house into the scheme. On his death the property was valued at £300,000. How much, if anything, would pass to his estate?
Nothing.
£60,000.
£90,000.
£90,000 - The home reversion company owns 70% of the property so will receive 70% of the sale proceeds. This leaves 30% (£90,000) to John’s estate. The value of the property when the plan started is not relevant.
Which type of lifetime mortgage arrangement would result in the lowest interest accumulation?
Roll-up.
Drawdown.
Annuity-based scheme.
Drawdown. - A roll-up scheme would result in interest accumulating on the whole loan each month. An annuity-based scheme would use the amount borrowed to buy an annuity, but as a large lump sum is taken at the start to buy the annuity, interest would accumulate on the whole loan each month. A drawdown scheme means that part of the total advance available is taken each time. This will reduce the total interest accumulated, as interest is only accumulated on the amount actually drawn.
Which of the following is untrue of a home reversion plan?
The minimum age for the plan tends to be higher than for a lifetime mortgage.
Drawdown is not generally an option on such plans.
The planholder’s right to occupy the property is guaranteed by a lifetime lease.
Drawdown is not generally an option on such plans. - Many home reversion companies offer a drawdown option, whereby the planholder can sell further ‘chunks’ of the property at a later date.
Which of the following is untrue in relation to shared ownership?
a)
The property is bought on a freehold basis.
b)
It involves paying rent to the provider.
c)
The maximum initial share is 75%.
d)
The property is valued at its open market value.
The property is bought on a freehold basis. - Shared‑ownership properties are bought on a leasehold basis, not freehold.
Ben and Gerry are hoping to buy a property in London, using the First Homes initiative (England) scheme. Which of the following is true?
a)
They must arrange a mortgage to fund at least 75 per cent of the discounted price.
b)
Their combined income cannot exceed £80,000.
c)
The property price cannot exceed £420,000.
d)
The discount will be 20 per cent of the market price.
The property price cannot exceed £420,000. - The property price in London cannot exceed £420,000.
In an equity‑share mortgage arrangement, the borrower pays rent for a portion of the property while owning the remainder. True or false?
False. Rent paid on a portion of the property is a feature of a shared‑ownership mortgage.
Jay and Emma are buying a 50% share in their new shared ownership home for £100,000. What is the maximum annual rent they will pay on the share owned by the provider?
a)
£150.
b)
£300.
c)
£1,500.
d)
£3,000
d) £3,000 - The maximum annual rent Jay and Emma will pay on the share of their home that is owned by the provider is 3% of the value of the portion held by the provider (ie £100,000).
