U6: T25 - SCHEMES FOR SPECIFIC GROUPS OF BORROWER

Question 1

Which of the following is untrue in relation to shared ownership?

a) The property is bought on a freehold basis.
b) It involves paying rent to the provider.
c) The maximum initial share is 75 per cent.
d) The property is valued at its open market value.

Answer 1

a) Shared‐ownership properties are bought on a leasehold basis, not freehold.

Question 2

A shared‐ownership mortgage is one on which part of the loan attracts zero or very low rate of interest. True or false?

Answer 2

False: a loan on which part is repayable at zero or a very low rate of interest is a feature of the equity‐share mortgage.

Question 3

In an equity‐share mortgage arrangement, the borrower pays rent for a portion of the property while owning the remainder. True or false?

Answer 3

False: rent paid on a portion of the property is a feature of a shared‐ownership mortgage.

Question 4

With the Help to Buy equity loan scheme (England):

a) the maximum government loan is 25 per cent of the full purchase price.
b) the buyer must provide a deposit of at least 5 per cent of the full purchase price.
c) no interest is charged on the equity loan for three years.
d) on sale, the equity loan is repaid as a percentage of the original purchase price.

Answer 4

b) The buyer must provide a deposit of at least 5 per cent of the full purchase price.

Question 5

Jay and Emma are buying a 50 per cent share in their new home. What type of government scheme are they using?

Answer 5

They are using the Help to Buy shared ownership scheme.

Question 6

Under the right‐to‐buy scheme, in England the maximum discount on a flat is 60 per cent. True or false?

Answer 6

False: 70 per cent is the maximum discount for a house or a flat.

Question 7

Gary and Ayesha are buying their local authority flat in Leeds under the right‐to‐buy scheme, having been tenants for six years. What is the maximum discount they could claim?

Answer 7

Gary and Ayesha have been tenants for six years, which gives them a discount of 52 per cent, subject to the maximum monetary cap.

Question 8

Moira and Ken (both aged 67) are considering an equity release scheme because they would like to improve their standard of living. Their three daughters are all in favour, although Moira and Ken are concerned that the scheme would prevent them leaving as much of their estate as they would like to their daughters and grandchildren. Why would an adviser suggest a drawdown roll‐up lifetime mortgage might be best for them?

Answer 8

Moira and Ken meet the criteria for lifetime mortgages and home reversion plans schemes. They want to leave as much of their estate as possible to their family, so a home reversion plan would not be ideal, because they would be giving up the value of all (or part of) the house. A lifetime mortgage will allow them to leave the remaining equity to their heirs, and by taking a drawdown plan they can take money as and when they wish while keeping the compounding effect of interest roll‐up to a relative minimum. As long as house prices increase at a reasonable rate, they would have a good chance of leaving a substantial part of the property to their heirs.

Question 9

The minimum age for a home reversion plan is usually lower than for a lifetime mortgage. True or false?

Answer 9

False: the lifetime mortgage minimum age is usually between 55 and 60, while the minimum age for a reversion plan is at least 65.

Question 10

Home reversion plans generally allow more capital to be released than lifetime mortgages. True or false?

Answer 10

True

Question 11

What is the maximum initial share a person can buy on shared ownership?

Answer 11

The maximum initial share is 75 per cent.

Question 12

Under shared ownership the property will be owned:

A) Freehold
B) Leasehold

Answer 12

B) Leasehold

Question 13

Define Staircasing

Answer 13

Buying further shares (usually a minimum of 10 per cent each time) in a shared‐ownership property based on its market value at the time of the additional purchase.

Question 14

The lease holder of a shared ownership flat will only qualify for the statutory right to extend the lease once they own what per cent of the flat?

Answer 14

The lease holder of a shared ownership flat will only qualify for the statutory right to extend the lease once they own 100 per cent of the flat, although some landlords may allow an extension voluntarily.

Question 15

Who approves most shared ownership leases?

Answer 15

Most shared ownership leases are in a format approved by the Homes and Communities Agency (HCA).

Question 16

Subletting is permitted under shared ownership leases. True or false

Answer 16

False

Question 17

Once the occupier owns more than what per cent of a shared ownership property, SDLT is charged using a complex calculation?

Answer 17

Once the occupier owns more than 80 per cent of a shared ownership property, SDLT is charged using a complex calculation.

Question 18

Equity share ownership can be on what basis?

A) Freehold
B) Leashold
C) Both

Answer 18

C) Both

Question 19

Providers can lose money on the equity share ownership. True or false?

Answer 19

True.

If the property was later sold for less than the original purchase price, the provider would receive their share of the lower price, which means they would also share in any downside.

Question 20

What is the maximum combined income required for the English help-to-buy shared ownership scheme?

Answer 20

£80k in England, £90k in London

Question 21

How long is the rental agreement on Welsh Rent to Own scheme?

Answer 21

5 years

Question 22

What is the maximum combined income required for the Welsh help-to-buy shared ownership scheme?

Answer 22

£60k per year

Question 23

The government loan of help to buy equity loan is secured by:

A) First Charge
B) Second Charge

Answer 23

B) Second Charge

Question 24

Interest‐only mortgages can be used with the Help-to-buy equity scheme. True or false

Answer 24

False.

The buyer must provide a minimum of 80 percent of the purchase price, with a deposit of at least 5 per cent and a conventional repayment mortgage for between 25 and 75 per cent of the purchase price. Interest‐only mortgages cannot be used with the scheme.

Question 25

What is the maximum property value available on the London help-to-buy equity loan scheme?

A) £186,100
B) £437,600
C) £600,000
D) £250,000

Answer 25

C) £600,000

Question 26

What is the maximum property value available on the North East England help-to-buy equity loan scheme?

A) £186,100
B) £437,600
C) £600,000
D) £250,000

Answer 26

A) £186,100

Question 27

What is the maximum property value available on the South East England help-to-buy equity loan scheme?

A) £186,100
B) £437,600
C) £600,000
D) £250,000

Answer 27

B) £437,600

Question 28

Under the help-to-buy equity loan scheme, the purchaser must arrange a conventional mortgage of what minimum percentage of the full purchase price in London?

A) 55%
B) 75%
C) 80%

Answer 28

A) 55%

Question 29

Under the help-to-buy equity loan scheme, the purchaser must arrange a conventional mortgage of what minimum percentage of the full purchase price in England?

A) 55%
B) 75%
C) 80%

Answer 29

B) 75%

Question 30

Under the help-to-buy equity loan scheme, the purchaser must arrange a conventional mortgage of what minimum percentage of the full purchase price in Wales?

A) 55%
B) 75%
C) 80%

Answer 30

B) 75%

Question 31

What is the maximum property value available on the Wales help-to-buy equity loan scheme?

A) £186,100
B) £437,600
C) £600,000
D) £250,000

Answer 31

D) £250,000

Question 32

There is no Help to Buy scheme available in Northern Ireland. True or false

Answer 32

True

Question 33

Under the first homes initiative, the buyer(s) must have a mortgage or home purchase plan to fund at least what per cent of the discounted purchase price?

Answer 33

50%

Question 34

Under the England first homes initiative, after the discount has been applied, the initial purchase price must be no more than what in England?

Answer 34

£250,000

Question 35

Under the England first homes initiative, after the discount has been applied, the initial purchase price must be no more than what in Greater London?

Answer 35

£420,000

Question 36

Under the Open Market Shared Equity Scheme (Scotland), what is the Golden Share?

Answer 36

The share in equity ownership retained by the Scottish government

Question 37

What is a preserved right to buy?

Answer 37

Where a tenant had a secured tenancy with a local authority and ownership of the property was transferred to a housing association while they were a tenant, the tenant will have a ‘preserved right to buy’, which means they have the right to buy based on their combined tenancy.

Question 38

True or false: If the tenant sells the property within a certain period, some, or all, of the discount may be repayable

Answer 38

True

Question 39

Under a right to buy, how long should the new owner wait to see the property in order to not repay any of the discount?

Answer 39

6 years

Question 40

They may acquire (ie buy) their housing association property after three years of tenancy.

Answer 40

They may acquire (ie buy) their housing association property after three years of tenancy. T

Question 41

It is possible to roll up interest on a retirement interest only mortgage. True or false

Answer 41

False.

MCOB defines a retirement interest only mortgage as an interest only mortgage which is not an interest roll‐up mortgage.

Question 42

The minimum age for home reversion plan is typically?

Answer 42

65-70

Question 43

The minimum age for a lifetime mortgage is typically?

Answer 43

55-60

Question 44

The minimum age for a lifetime mortgage is typically?

Answer 44

55-60

Question 45

The maximum initial share available on a shared ownership scheme is:

A) 25%.
B) 50%.
C) 75%.

Answer 45

C) 75%.

Question 46

A buyer using a shared ownership scheme will pay a maximum rent of 3% to the:

A) provider, based on the value of the part retained by the provider.
B) lender, based on the value of the part retained by the lender.
C) provider, based on the value of the property when purchased.

Answer 46

A) provider, based on the value of the part retained by the provider.

Question 47

Assuming the Help to Buy Equity Loan scheme provides a government loan for a new-build property with a maximum purchase price of £600,000 in London, the maximum available government loan is:

A) £30,000.
B) £60,000.
C) £120,000.

Answer 47

C) £120,000.

The government loan can be for between a minimum of 10% and a maximum of 20% of the full purchase price.

Question 48

Jason bought a flat in England using the Help to Buy Equity Loan scheme, with an equity loan of £15,000 to help afford the £150,000 purchase price. He has made no repayments of the loan and is now selling the flat for £200,000. How much will he have to repay to settle the equity loan?

A) £15,000.
B) £20,000.
C) £50,000.

Answer 48

B) £20,000.

If no repayments of the equity loan have been made and the property is sold, the equity loan is repaid as a percentage of the sale price. In this case it would be 10% of £200,000 = £20,000.

Question 49

Ed and Kelly have been living in their local authority house in London for eight years and now want to exercise their right to buy it. What discount are they entitled to, ignoring any monetary cap that might apply?

A) 35%.
B) 38%.
C) 41%

Answer 49

B) 38%.

The discount for houses starts at 35% after 5 years’ tenancy and accrues at the rate of 1% for each additional year, up to 70%. Kelly and Ed have been tenants for 8 years, which would give a discount of 35% + 3% = 38%.

Question 50

Aleksy and Danuta exercised their right to buy their local authority flat, receiving a discount. At what point could they sell the flat without having to repay any of the discount?

A) Three years after purchase.
B) Five years after purchase.
C) Ten years after purchase.

Answer 50

The discount is repayable during the first five years of ownership, with the proportion of the discount payable reducing each year.

Question 51

Which of the following would not be defined as a lifetime mortgage by the FCA? A mortgage:

A) requiring interest and partial capital repayments each month.
B) with no capital repayments that allows interest to be accumulated each month.
C) requiring interest and full capital repayments each month.

Answer 51

A lifetime mortgage cannot require full capital repayment until the borrower dies, leaves the property without a reasonable expectation of returning, sells the property or moves to another main residence. However, a lifetime mortgage can contain a condition requiring some repayment of capital during the term.

Question 52

Which type of lifetime mortgage arrangement would result in the lowest interest accumulation?

A) Roll-up.
B) Drawdown.
C) Annuity-based scheme.

Answer 52

B) Drawdown.

A roll-up scheme would result in interest accumulating on the whole loan each month. An annuity-based scheme would use the amount borrowed to buy an annuity, but as a large lump sum is taken at the start to buy the annuity, interest would accumulate on the whole loan each month. A drawdown scheme means that part of the total advance available is taken each time. This will reduce the total interest accumulated, as interest is only accumulated on the amount actually drawn.

Question 53

John took out a home reversion scheme when his house was valued at £200,000, entering 70% of his house into the scheme. On his death the property was valued at £300,000. How much, if anything, would pass to his estate?

A) Nothing.
B) £60,000.
C) £90,000.

Answer 53

C) £90,000.

The home reversion company owns 70% of the property so will receive 70% of the sale proceeds. This leaves 30% (£90,000) to John’s estate. The value of the property when the plan started is not relevant.

Question 54

Which of the following is untrue of a home reversion plan?

A) The minimum age for the plan tends to be higher than for a lifetime mortgage.
B) Drawdown is not generally an option on such plans.
C) The planholder’s right to occupy the property is guaranteed by a lifetime lease.

Answer 54

B) Drawdown is not generally an option on such plans.

Many home reversion companies offer a drawdown option, whereby the planholder can sell further ‘chunks’ of the property at a later date.

Question 55

Moira and Ken (both aged 67) are considering an equity release scheme because they would like to improve their standard of living. Their three daughters are all in favour, although Moira and Ken are concerned that the scheme would prevent them leaving as much of their estate as they would like to their daughters and grandchildren. An adviser would suggest a home reversion plan for them. True or false?

Answer 55

False.

Moira and Ken meet the criteria for lifetime mortgages and home reversion plans schemes. They want to leave as much of their estate as possible to their family, so a home reversion plan would not be ideal, because they would be giving up the value of all (or part of) the house. A lifetime mortgage will allow them to leave the remaining equity to their heirs, and by taking a drawdown plan they can take money as and when they wish while keeping the compounding effect of interest roll‑up to a relative minimum. As long as house prices increase at a reasonable rate, they would have a good chance of leaving a substantial part of the property to their heirs.

Question 56

Gary and Ayesha are buying their local authority flat in Leeds under the right‑to‑buy scheme, having been tenants for six years. What is the maximum discount they could claim?

A) 42%.
B) 52%.
C) 62%.

Answer 56

B) 52%.

Gary and Ayesha have been tenants for six years, which gives them a discount of 52%, subject to the maximum monetary cap.