Topic 3: Mortgage Regulation Flashcards
What are Regulated Mortgages?
A mortgage granted to individual(s) or trustee(s) and secured by a legal charge on land in the UK or in the European Economic Area depending on the date the contract was entered into. At least 40% of the land is used, or is intended to be used, as or in connection with a dwelling.
What are Mortgage Credit Directive (MCD) regulated mortgages?
A mortgage that meets the criteria for a regulated mortgage but was taken out on or after 21 March 2016, the date when the Mortgage Credit Directive came into force. A specific set of rules apply to MCD regulated mortgages.
What is a Home Purchase Plan?
An alternative arrangement to a conventional mortgage for property purchase. The provider buys the property and sells it to the buyer, who repays the purchase price during, or at the end of, a set period.
What is Equity Release?
Where a property owner with a small mortgage, or no mortgage, raises funds against the equity in their property.
What are Lifetime Mortgages?
A specific type of regulated mortgage that applies to borrowers over a specified age who wish to release equity. The borrower is not required to repay the full capital borrowed until they sell the property, go into permanent residential care or die.
What is a Home Reversion plan?
An arrangement where the homeowner can release equity in their property by selling all or part of it to a provider, in return for a cash sum and a lease that guarantees their right to live in the property. The right to live in the property runs until the reversion occupier moves out, goes into residential care or dies.
What is a Mortgage?
A mortgage is an arrangement where an asset is used by the lender as security for a loan. In the case of house purchase, the loan is secured on a property through a legal charge. Property is not the only asset that can be
mortgaged: other assets, such as share portfolios, can be mortgaged too,
and mortgage‑backed loans may be used for purposes other than property Mortgage regulation purchase. ‘Secured’ means that there is a legal agreement giving the lender rights over the property until the loan is repaid. This gives the lender some ‘security’ if the borrower fails to honour their part of the deal.
What is a Legal Charge?
A legal charge gives the lender certain rights over the property while the
mortgage is outstanding. These include the right to take possession of the
property (subject to court sanction) if the borrower fails to make payments or
repay the mortgage as agreed. The security provided by the legal charge means
that lenders are prepared to offer mortgages at lower rates than unsecured loans, because they have some protection against default.
What is a First Charge?
The charge that is registered first at the Land Registry has priority over other charges. This means that the debt to which it relates will be repaid first. This applies whether the owner sells the property or defaults on the mortgage, with the result that the property is taken into possession and sold to settle outstanding debts.
What is a Second Charge?
a legal charge that is registered after a first charge will rank second in line for repayment on sale or repossession. This means that it will be repaid from any money left over after the first‑charge holder
has been repaid. If there is insufficient money to repay the second‑charge
holder, the lender will lose out.
What is a Regulated Mortgage Contract?
A regulated mortgage contract is one that, at the time it is entered into, meets the following conditions:
- a lender provides credit to an individual or to trustees (the
‘borrower’); and
- the borrower’s obligation to repay is secured by a mortgage on land in the UK, where at least 40 per cent of the land is
used, or is intended to be used, as or in connection with a dwelling.
WHICH TYPES OF HOME FINANCE ARE REGULATED? (6 types)
- Regulated Mortgages
- MCD Regulated mortgages
- Lifetime mortgages
- Home reversion plans
- Home purchase plans
- Consumer buy to let
What is a Retirement Interest Only Mortgage?
The retirement interest‑only mortgage is defined in MCOB (FCA, no date) as
“an interest‑only mortgage:
- which is not an interest roll‑up mortgage;
- entry into which is restricted to older customers above a specified age and;
- under which the lender is not entitled to seek full repayment of the loan
until the occurrence of one or more of the specified life events, unless the customer breaches their contractual obligations (including any obligation to pay interest during the term) in a way which allows the lender to terminate the agreement.”
WHAT IS THE DIFFERENCE BETWEEN A HOME PURCHASE
PLAN AND A REGULATED MORTGAGE?
- Home purchase plans involve the provider buying the property and then selling it to the ultimate owner via a
special agreement, either through regular payments of capital, or a single payment at the end of a specified term. - With a conventional mortgage the property buyer uses money borrowed from the lender to buy the property in
their own name(s), and is usually required to pay interest on the outstanding loan
Explain Buy-to-let mortgages?
Put simply, the FCA definition of a buy‑to‑let mortgage is the same as that for a regulated mortgage, except that the property cannot be occupied as a dwelling by the borrower or a related person at any time, and will be occupied as a dwelling on the basis of a rental agreement.
