Topic 27: Transferring Mortgages Flashcards
Mike and Maria took out their mortgage with Prudent Bank two years ago 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?
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.
For which of the following reasons would remortgaging not be a sensible option?
Building an extension.
Buying a car.
Refurbishing a kitchen.
Buying a car. - Financing non-property purchases, such as a car, can be attractive at the time, as mortgage rates are generally lower than other forms of borrowing. However, the borrower will be repaying the increased borrowing to the end of the mortgage term; this could mean the car is financed for upwards of 20 years, even though it will lose value rapidly.
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:
a)
will have to take out a new fixed-rate mortgage for £80,000 and pay an early repayment charge of £400.
b)
will have to redeem the existing mortgage and pay an early repayment charge of £2,000.
c)
will be able to transfer £80,000 of the existing mortgage to the new property and pay an early repayment charge of £400.
c) will be able to 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. Select the True Statements:
a) Paul must agree to the arrangement.
b) The lender’s agreement is not required if the transfer is registered at the Land Registry.
c) Paul has no automatic right to be released from the mortgage.
d) Stamp duty land tax will apply to the transfer.
e) The agreement must be subject to a court order.
A, C. - 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 Mortgage Credit Directive regulated mortgage contract, the lender must provide them with a European Standardised Information Sheet (ESIS). It must:
a)
meet the requirements for pre-application disclosure detailed in MCOB 5
b)
illustrate the details for the individual’s share of the mortgage.
c)
use the exact wording and format detailed in MCOB.
a) 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 and become a party to the mortgage. No stamp duty land tax is payable as transferring equity on marriage is exempt. True or false?
False. There is no stamp duty land tax exemption for marriage, only for separation.
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. - Either party to the mortgage has the right to ask for early redemption after the legal date of redemption, although the lender will usually only do so if the borrower has breached the conditions of the mortgage.
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. - Increasing the monthly repayments will reduce the term. The same amount of capital will be paid overall, but as it will be repaid more quickly, the total interest will be lower. 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 two years ago, and she 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:
a)
increase the borrowing to pay for the mortgage arrangement fee.
b)
increase the borrowing to consolidate debts.
c)
increase the borrowing to build an extension.
d)
increase her mortgage by less than £10,000.
a) increase the borrowing to pay for the mortgage arrangement fee. - 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:
a)
transfer of equity.
b)
redemption.
c)
portability.
d)
remortgaging.
c) portability. - Portability is the facility to transfer a mortgage product to a new property during the term of a special deal without incurring charges.
A transfer of equity occurs when a mortgage or block of mortgages is sold by one lender to another. True or false?
False. Transfer of equity is the addition or removal of a borrower from the mortgage deed.
The borrower has the right to alter the terms and conditions of a mortgage contract without the lender’s agreement in certain situations. True or false?
False. Contract terms can only be changed with the consent of both parties.
Jack and Tom have a joint mortgage on their flat, with Jack’s mother as guarantor. The couple have split up and Tom wants to be released from the mortgage. Does Jack’s mother have to agree to Tom’s request?
a)
Yes.
b)
No.
a) Yes. - Yes. Changes to terms and conditions may affect the likelihood of a guarantee being called in and the guarantor must therefore agree to any such changes.
