Topic 3 Mortgage Regulation Flashcards
What is a disadvantage of having a second charge secured on a property for lender?
Second charge holder may not receive any funds after sale or repossession
Do lenders offer higher or lower rates of interest for a second charge?
Yes because the risk of them not receiving any funds after a sale or repossession is higher than a first charge lender
The FCA took over from who in 2013 as the regulator for marketing and sale of mortgages?
Financial Services Authority (FSA)
All the below are mortgage and home finance but what book are they covered in?
- Lifetime & second charge mortgages
- Bridging Loans
- Home Reversion Plans
- Home Purchase Plans (Islamic mortgages)
Mortgage & Home Finance Conduct of Business Sourcebook (MCOB)
What does the EU Mortgage Credit Directive do?
Sets minimum regulatory requirements in members states for credit agreements for residential property
Due to the complexity of amending the Mortgage Credit Directive (MCD) to MCOB many rules were adapted. What new rules were required?
- BTL mortgages
- Second charges
- CBTL mortgages
What is a “Back Book Loan”?
Regulation of a second charge mortgages before (21st March 2016 regulation came into place) provided they meet 2nd charge criteria
What did the EU (Withdrawal Agreement) Act 2022 (EUWAA) do?
Has allowed the UK to continue to use EU laws post-Brexit which are know as
(REU’s) Retained EU Laws
What does the Future Regulatory Framework review (FRF) do for the UK?
Ensures the UK financial services sector is subject to rules that suit the UK
The Future Regulatory Framework review lead to what act?
Financial Services & Markets Act 2023
What are the stages of UK legislation?
- Parliamentary Bill
- Act of Parliament
- Primary Legislation
- Secondary Legislation
The are what in relation to regulated mortgages?
- Lender provides credit to a individual or to trustees
- Borrow’s obligation to repay is secured by a mortgage on land in the UK
Regulated Mortgage Contract
What percentage of land in a dwelling meets the rules of a Regulated Mortgage Contract?
At least 40%
What are the features of a “Regulated Mortgage”?
- Completed before 21st March 2016
- MCOB rules apply
What are the features of a Mortgage Credit Directive (MCD) Regulated Mortgage”?
- Mortgages post 21st March 2016
- Subject to MCOB amendments to meet MCD rules
These types of borrowers are all what?
- Regulated Mortgages
- MCD Regulated Mortgage
- Lifetime Mortgages
- Home Reversion Plans
- Home Purchase Plans
- CBTL
Regulated Home Finance
What is a “Lifetime Mortgage”
Realise of equity for older homeowners out of their home
How does a “Lifetime Mortgage” work?
- Lender agrees to pay a percentage of the property
Mortgage repaid on:
- Death
- Borrow moves
- Goes into care
What normally happens with repayments of Interest on a lifetime mortgage?
Interest is rolled up and repaid when the arrangement ends
Lifetime Mortgages are exempt from MCD loans?
True or False
True
What type of “Lifetime Mortgage” allows lenders to arrange mortgages on an “Interest only” basis
Retirement Interest Only Mortgage
What is a “Home Purchase Plan”?
“Provider” buying a property and selling it to the ultimate owner during a specified period
Regular repayment or a lump sum amount
In a “Home Purchase Plan” does the beneficiary have to buy the land from the Provider?
Yes they are obliged to
“Home Purchase Plans” are linked to
which religion?
Islam
How would a Provider make a profit from a “Islamic Home Finance Plan”?
- Home purchaser agreeing to pay a higher price for the property
- Home purchaser paying rent in addition to capital repayments
In a “Home Purchase Plan” how much of the dwelling is the ultimate owner allowed to occupy?
At least 40%
What is a “Home Reversion Plan”?
- Where a provider/Lender buys (a portion or all) of somebody’s property
- Former owner continues to live in the property on a lifetime lease
What happens on a “Home Reversion Plan” when the former owner (Reversion Occupier)?
- Dies
- Goes into care
- End of specified term
Provider/Lender sales the property and keeps the proceeds
What is the minimum specified term of a “Home Reversion Plan”?
20 years
These are all criteria for what type of Buy-to-Let?
- Purchased with the intention of renting it out (borrows or relatives can’t occupy)
- Borrower has more than one rental property
- Lending is happy mortgage is for business purposes
- Less than 40% is used as residential
Business BTL
All second charge lenders, administers & brokers must what to operate?
Authorisated & have permissions from the FCA
According to (2) Conduct of Business Standards in MCOB communications must be?
- Clear
- Fair
- Not Misleading
According to (3) Financial Promotions in the MCOB handbook are unsolicited real time promotions (Cold Calling) permitted?
No they are rules banning this
What legislation covers these the 3 points below?
- Ban on unfair regulations
- Assessment on misleading & aggressive practices to see whether they are unfair on the customer
- “Blacklist” of banded unfair practices
Consumer Protection (Amendment) Regulations 2014
To avoid being misleading according to the Consumer Protection (Amendment) Regulations 2014 would an estate agent failure disclosing the condition of a property be misleading?
Yes
Who were the Consumer Credit Acts 1974 & 2006 were transferred to who in 2014?
FCA
Consumer Credit Legislation applies to what?
- Credit cards
- Unsecured Loans (No upper limit)
- Similar Lending
Over what percentage of a property would be regulated on a plot of land?
Over 40% if this was to be used as a dwelling
If a mortgage was taken before 31st October 2004 what does this mean?
It not regulated
