Topic 3 - Mortgage Regulation Flashcards
A mortgage can only be secured using property or land. True or false?
False - Although mortgages are usually associated with property, property is not the only asset that can provide security for a mortgage. Other assets, such as share portfolios, can be mortgaged too, and mortgage-backed loans may be used for purposes other than property purchase.
Some time ago, Anita built a family house on a plot of land she bought, and she is now looking to remortgage. The mortgage will be regulated if:
at least 40% of the house and garden will be used as family accommodation.
the house and garden occupies at least 40% of the land.
the house was built after 31 October 2004.
at least 40% of the house and garden will be used as family accommodation. - A mortgage is regulated if at least 40% of the land is used, or is intended to be used, as or in connection with a dwelling. As long as Anita’s house and garden equate to 40% of the total land, any mortgage would be regulated. The date the house was built is not relevant, but only mortgages entered into since 31 October 2004 are regulated.
Vladimir today applied for a commercial mortgage to buy a three-storey building with a shop on the ground floor and a two-storey maisonette on floors one and two. All floors are of an equal size. Vladimir intends to live in the maisonette and rent out the shop. The mortgage will be:
an MCD regulated mortgage.
a buy-to-let mortgage.
a regulated mortgage.
an MCD regulated mortgage. - As roughly 66% of the building will be used as Vladimir’s home, and the mortgage will be arranged after 21 March 2016, it will be a Mortgage Credit Directive (MCD) regulated mortgage.
Brenda and Tom have been informed that their mortgage is a regulated lifetime mortgage. Which of the following statements are not true? Select all the false statements.
A) Brenda and Tom must be in their 30s.
B) The lender can require full repayment of the mortgage after a stated time.
C) The lender may require Tom and Brenda to make regular interest payments.
D) The lender can allow Brenda and Tom to roll up any interest payments.
E) The mortgage will end if Tom and Brenda sell their house.
A & B - A regulated lifetime mortgage must only be available to older borrowers over a certain (unspecified) age and the lender cannot seek full repayment until one of a number of specified events occurs. The arrangement can require some regular capital and/or interest payments (but not total repayment), or interest can be deferred until the mortgage ends.
Shahid is buying a house through an Islamic home finance plan. Which of the following would not be acceptable under Islamic law?
A) The provider buys the property and sells it to Shahid at a higher price, with Shahid making regular payments of capital over an agreed term.
B) Shahid arranges a mortgage to buy the property, but any interest due is added to the capital and repaid at the end of an agreed term.
C) The provider buys the property and sells it to Shahid at the same price. Shahid then makes regular payments of capital and rent over an agreed term.
B) Under Islamic law it is forbidden to take out a conventional mortgage requiring payment of interest to the lender. Islamic home finance plans meet this requirement by adopting the other methods outlined.
Which of the following is untrue? To be classified as a regulated home reversion plan, the plan must end:
if the occupier enters residential care.
if the occupier dies.
at the end of a specified term of at least 25 years.
at the end of a specified term of at least 25 years. - A regulated home reversion plan will end if the occupier dies or enters residential care, or at the end of a specified term of at least 20 years.
When a lender assesses an application for a ‘consumer buy to let’ mortgage, it:
A - must assess the application in a similar way to a standard residential mortgage.
B - can use a less stringent assessment of affordability than for a standard mortgage.
C - can opt to use the Mortgage Credit Directive exemption.
A - A ‘consumer buy to let’ mortgage must be treated in a similar way to a standard residential mortgage. The Mortgage Credit Directive exemption applies to the government rather than lenders.
Jacob is buying a house. Which of the following would define a mortgage on the property as a business buy-to-let mortgage?
A) The property forms part of Jacob’s property portfolio.
B) Jacob will use the property for holiday lettings.
C) Jacob has moved for work reasons and will rent out his old house to cover costs until he can sell it.
D) Jacob has bought the house for his mother to live in.
A & B - If Jacob moved for work reasons and rented out his old house to cover costs until he could sell it, any mortgage would be consumer buy to let. If Jacob bought the house for his mother to live in, it would not be considered business buy to let.
An estate agent has exaggerated the dimensions of several rooms in a property it has advertised. This is a potential breach of the:
Property Misdescriptions Act 1991.
Consumer Protection (Amendment) Regulations 2014.
Consumer Rights Act 2015.
Consumer Protection (Amendment) Regulations 2014. - This would be a breach of The Consumer Protection (Amendment) Regulations 2014, which replaced the Property Misdescriptions Act 1991. The Consumer Rights Act 2015 deals with unfair terms in standard contracts between firms and consumers.
Which of the following statements is false in relation to the Consumer Credit Acts of 1974 and 2006?
A) Regulated mortgages are exempt from the Consumer Credit Acts.
B) The Acts do not apply to lending to limited companies.
C) Second-charge loans are subject to the Consumer Credit Acts.
C) Regulated mortgages, including second charges, are exempt from the Consumer Credit Acts. Loans to limited companies are not within the scope of the Consumer Credit Acts.
Anita took out a second mortgage on her home in January 2016. Is her mortgage subject to MCOB?
Yes.
No.
Yes - Second‑charge mortgages that would have been subject to MCOB had they been taken out after 21 March 2016 fall within the MCOB regime.
Brian has just bought a three‑storey property with the help of a mortgage. Two floors provide office accommodation and the top floor is a two‑bedroom flat. Is the mortgage regulated?
Yes.
No.
No - The mortgage would not be regulated, because less than 40% of the land is to be used as a dwelling.
What type of lending became subject to MCOB rules in 2016, and included ‘back book’ loans?
Bridging loans.
Consumer buy to let.
Second charge loans.
Second charge loans.
All mortgages on BTL property owned by individuals are consumer buy‑to‑let mortgages. True or false?
False, for two reasons: a) the CBTL regime applies only to mortgages arranged on or after 21 March 2016; b) a mortgage is only a CBTL mortgage if the borrower is an ‘accidental landlord’, ie is not involved in a property‑letting business.
Gabby, aged 56, has entered into an arrangement where a lender has given her a mortgage that must be repaid only when she moves, goes into care or dies. What type of arrangement does she have?
A lifetime mortgage.
A home reversion plan.
A home finance plan.
A lifetime mortgage.
