TOPIC 27 - Transferring mortgages Flashcards
Mike and Maria took out their mortgage with Prudent Bank in 2019 and now wish to switch to a lower-rate mortgage deal with a new lender. They will not increase their borrowing beyond adding the arrangement fee to the loan. The new lender is required to carry out a full affordability assessment. True or false?
a) True b) False
False. MCOB rules allow lenders to carry out a ‘proportionate’ (less stringent) affordability assessment if the amount of borrowing does not increase, other than to cover product or arrangement fees for the new contract.
Which of the following is least likely to happen when consolidating an unsecured debt into a remortgage?
The borrower’s equity in the property will be reduced.
The total interest payable will be roughly the same.
There will be a higher risk of repossession on default.
The total interest payable will be roughly the same.
Moving unsecured loans to a mortgage will reduce the equity in the property, which in turn will increase the risk of repossession if the borrower cannot keep up the mortgage payments. As the term of unsecured loans is generally much shorter than a mortgage, moving such debts to a mortgage is likely to result in interest being paid for a much longer period and a consequent increase in the total payable.
Joe has 3 years remaining on a 5-year fixed-rate mortgage for £100,000. The mortgage carries an early repayment charge of 2% but has a portability option. Joe is moving to a different part of the country where property prices are lower, and he needs a new mortgage of £80,000. Assuming he stays with his existing lender, it is most likely he:
will have to take out a new fixed-rate mortgage for £80,000 and pay an early repayment charge of £400.
will have to redeem the existing mortgage and pay an early repayment charge of £2,000.
can transfer £80,000 of the existing mortgage to the new property and pay an early repayment charge of £400.
can transfer £80,000 of the existing mortgage to the new property and pay an early repayment charge of £400.
Portability allows a borrower to take an existing mortgage to a new property, subject to the lender’s current affordability criteria and lending policies. If the new property requires a higher mortgage, the existing amount can be transferred on the same terms, but any additional borrowing will be on a current mortgage deal offered by the lender. If the new property requires a smaller mortgage, the mortgage can usually be transferred, but early repayment charges will usually apply to the difference between the original new mortgage and the new borrowing.
Paul and Emily are divorcing, and Emily wants to remain in their flat and take over the mortgage. Which are true and which are false?
The lender’s agreement is not required if the transfer is registered at the Land Registry.
Paul must agree to the arrangement.
The agreement must be subject to a court order.
Paul has no automatic right to be released from the mortgage.
Stamp duty land tax will apply to the transfer.
The lender’s agreement is not required if the transfer is registered at the Land Registry. False.
Paul must agree to the arrangement. True
The agreement must be subject to a court order. False
Paul has no automatic right to be released from the mortgage. True
Stamp duty land tax will apply to the transfer. False
The transfer can go ahead as long as the lender and both borrowers agree. The transfer will be registered at the Land Registry once all parties have agreed and the transfer is complete. Transfers of equity on divorce are exempt from stamp duty land tax. Even if both Paul and Emily agree to the transfer, the lender will only agree to remove Paul from the mortgage if it is satisfied that Emily can afford the mortgage on her own. If it is not satisfied it will not agree to the transfer, as the mortgage must be on the same basis as ownership of the property.
If a person is added to an existing MCD regulated mortgage contract, the lender must provide them with a European Standardised Information Sheet (ESIS). It must:
meet the requirements for pre-application disclosure detailed in MCOB 5.
illustrate the details for the individual’s share of the mortgage.
use the exact wording and format detailed in MCOB.
meet the requirements for pre-application disclosure detailed in MCOB 5.
The ESIS must meet the pre-application requirements outlined in MCOB 5, but the lender can change words and add or remove information to reflect the change of the customer’s circumstances, to avoid misleading information. The ESIS must show information for the whole of the mortgage.
Annie owns her house, valued at £450,000, and has a mortgage of £150,000. She will soon marry Adam, who will move in with her.
No SDLT is payable as transferring equity on marriage is exempt. True or false?
a) True b) False
False. There is no SDLT exemption for marriage, only for separation / divorce.
When a mortgage is created, the deed contains a ‘legal date of redemption’. This is usually:
six months after the mortgage starts.
at a date mutually agreed between lender and borrower.
the agreed end date of the mortgage.
six months after the mortgage starts.
Which of the following is true of part-redemption of a mortgage?
The lender must automatically credit the payment to the account as soon as it is made.
The lender may not credit the payment to the account immediately unless asked to do so.
Most lenders will credit the payment as advance monthly mortgage repayments.
The lender may not credit the payment to the account immediately unless asked to do so.
The lender may not credit the payment to the account immediately, and some lenders will not credit it until the end of the year unless the borrower requests otherwise. A lender may credit a small additional payment as an advance monthly payment, unless the borrower states otherwise, but the lender is unlikely to use larger sums in that way.
Voluntarily increasing the monthly payment on a standard variable-rate repayment mortgage will:
reduce the mortgage term.
reduce the capital payable over the term.
result in early repayment charges.
reduce the mortgage term.
Overpaying is unlikely to result in early repayment charges unless the overpayments are excessive.
Nicola has not made any changes to her current mortgage, which started in 2020, and is now considering whether to switch to a different arrangement with her current provider. In what circumstances would her lender be able to apply a proportionate affordability assessment? Where Nicola wants to:
increase the borrowing to pay for the mortgage arrangement fee.
increase the borrowing to consolidate debts.
increase the borrowing to build an extension.
increase her mortgage by less than £10,000.
increase the borrowing to build an extension.
Her current lender will not need to carry out a full affordability assessment, providing she is not increasing her borrowing other than to cover application fees.
The facility to transfer a mortgage product to a new property during the term of a special deal, without incurring charges, is called:
transfer of equity.
redemption.
portability.
remortgaging.
portability.
A transfer of equity occurs when a mortgage or block of mortgages is sold by one lender to another. True or false?
True False
False: transfer of equity is the addition or removal of a borrower from the mortgage deed.
Alan and Ann are divorcing and Ann is going to take over their interest‑only mortgage. What would be an appropriate course of action in relation to their joint endowment policy?
Do nothing.
Transfer the policy to a dependant.
Transfer the policy to Ann.
Transfer the policy to Ann.
Alan and Ann are not obliged to make any changes to their endowment policy but as the policy is designed to repay the mortgage, and Ann is now solely responsible for the mortgage, it would be appropriate to transfer the policy to Ann.
SDLT is always payable if a new owner is added to the property and the mortgage. True or false?
True False
False: SDLT is only payable if the total of any consideration plus the share of any mortgage taken on by the new owner exceeds the nil‑rate band. When one person is removed from ownership as a result of a court order or agreement between the partners in a divorce, judicial separation or dissolution of a civil partnership, the transfer will be exempt from SDLT.
Releasing a borrower from their mortgage obligations when the mortgage is repaid is known in England and Wales as:
discharge.
redemption.
completion.
vacation.
vacation.
