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Financial Studies - Year 1 > Unit 2 Topic 3 > Flashcards

Unit 2 Topic 3 Flashcards

1
Q

Bank rate

A

The interest rate that the Bank of England uses when it lends money to other banks.

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2
Q

Finish the sentence: Financial services providers take account of the ____ ____ when they decide how to set interest rates on their own products.

A

Bank rate

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3
Q

What is this definition describing?
A long-term secured loan taken out by a person who is buying a property with the intention of letting it to tenants.

A

Buy-to-let mortgage

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4
Q

Consumer durable
Name an example

A

A useful product with an expected long life (eg TV or a car).

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5
Q

Creditworthiness

A

The extent to which an individual is seen as being likely to pay back any money they borrow.

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6
Q

Default

A

To fail to repay borrowing when the repayment is due

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7
Q

What is a discount mortgage?

A

A variable-rate mortgage that gives the customer a set discount off the provider’s standard variable rate (SRV) for an agreed period.

The rate charged can rise or fall.

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8
Q

A. Equity (in terms of investments)
B. Equity (in terms of property)

A

A. Another name for the shares of a company quoted on the stock exchange

B. Refers to the difference between the value of a property and the amount of money still outstanding on the mortgage

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9
Q

What is this definition describing?
A mortgage loan whereby the interest rate is fixed for a stated number of years at the beginning of the mortgage. This benefits the borrower if the interest rates rise during the fixed period, but not if they fall.

A

Fixed-rate mortgage

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10
Q

What can you remember about the Ijara home purchase plan?

A

Provider buys client’s selected property

Provider then sells property to client for same price under a promise to purchase agreement

repayment spread over a term of up to 25 years

provider is registered owner of property during repayment term

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11
Q

What is this definition describing?
A mortgage loan whereby the monthly repayment covered only the interest on the whole amount borrowed for the whole mortgage period. At the end of the mortgage period, the borrower still owes the full amount borrowed and must repay this capital sum in one payment.

A

Interest-only mortgage

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12
Q

Loan forebearance

A

When a lender does not seek to repossess a property as soon as the borrower misses a few monthly payments, instead allowing the customer to stop paying or make reduced payments for a set period.

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13
Q

Define Loan to income (LTI)
What does this mean?

A

The ratio of the size of the loan to the income of the customer.

It means that the lower someone’s income, the less they can borrow.

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14
Q

Define Loan to value (LTV)

A

The ratio of the size of the loan to the value of the property

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15
Q

Loyalty mortgage

A

A mortgage loan with specific discounts or incentives for a provider’s loyal customers, eg those that keep their current account with the provider for an extended period of time.

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16
Q

Maintenance loan

A

A loan granted to a full-time students by the not-for-profit Student Loans Company that covers living expenses incurred during their course.

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17
Q

Mis-selling

A

When an individual or provider is negligent or reckless in selling a product to an unsuitable customer, and/or misrepresenting the contract.

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18
Q

What can you remember about the Murabaha home purchase plan?

A

provider buys property at an agreed price then sells it immediately to the client at a higher price

exact price depends on repayment term, which can be up to 15 years

the higher price charged to the purchaser reflects the profit element for the provider

a first payment, typically around 20% of the property value, is usually required

client will then make monthly fixed payments to the provider during the term

registered in clients name, not providers

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19
Q

Negative equity

A

The situation where a mortgage loan is bigger than the value of the property

20
Q

Fill the gaps: The Office of Fair Trading was a government department that _________ ___ __________ ______ with each other. It was abolished in _____ ____ and its responsibilities were shared between the _________ _______ ________ and the ____________ ___ _______ __________.

A

monitored how businesses compete

April 2014

Financial Conduct Authority

Competition and Markets Authority

21
Q

What is this definition describing?
A mortgage loan whereby the interest that would have been earned on the borrower’s savings and current accounts is set against the interest owing on the mortgage. The borrower either makes a lower monthly repayment or continues to pay the same amount each month but reduced the number of years of the mortgage term.

A

Offset mortgage

22
Q

Overdraft

A

A facility that allows an account holder to withdraw more money than they actually have in their account.

23
Q

PAYE

A

Pay as you earn - the term used to describe the deduction of income tax from employees’ to pay by their employer. The deduction is made each time the employee is paid. The employer then pays the tax deducted to HMRC.

24
Q

Payment protection insurance (PPI)

A

An insurance product intended to ensure repayment of loans should a borrower face unexpected events that prevent them from repaying the debt.

25
Q

Premium Bond

A

A lottery bond, issue by NS&, entered into a monthly prize draw with tax-free prizes or ‘premiums’. Bonds must be held for a full calendar month after the month in which they were purchased, and retain an equal chance of winning until cashed in.

26
Q

Repayment mortgage

A

A mortgage loan whereby the monthly repayments cover both interest and capital so that, by the end of the mortgage period, the loan has been completely repaid.

27
Q

Stamp duty

A

The term generally used to refer to stamp duty land tax (SDLT), a tax payable or purchased of land and property above a certain value.

28
Q

Standard variable rate (SVR)

A

A provider’s basic mortgage rate, which the provider can decide to change at any time - often such changes follow a change in the Bank of England’s Bank rate.

29
Q

Tracker

A

A common form of variable-rate mortgage whereby the interest rate charged ‘tracks’ changes in some other specific interest rate.

30
Q

Tuition fee loan

A

A loan granted to a student by the not-for-profit Student Loans Company to enable them to pay the tuition fees of their course.

31
Q

Why do people borrow over a prolonged period of time?

A

They need to fund a large expenditure, such as :
a house
a car
university education
an emergency life event

32
Q

Name five FSP’s of loan products that are designed for the medium and long term

A

Banks
Building societies
Friendly societies
Credit unions
Finance and insurance companies

33
Q

Name as many features of a mortgage as you can (there’s 3 on this flash card)

A

Not available to anyone under 18 as a customer must have full capacity to borrow

Must be repaid by customer by their retirement date at the latest

Mortgage term may be extended by lender beyond the maximum age if the customer can give evidence that they will have enough income beyond retirement

34
Q

What is the most commonly used account for making and receiving payments

A

Current account

35
Q

Name four types of mortgage borrowers

A

First-time buyers
Remortgage
Moving home
Buy-to-let mortgages

36
Q

Name five costs associated with obtaining a mortgage

A

A survey of the property
Legal fees
Stamp duty if the property is more than a certain value
A mortgage application fee
Insurance

37
Q

Name two main aspects that will determine how much a provider will lend to a mortgage customer

A

Loan to income (LTV)
Loan to value (LTV)

38
Q

Explain the relationship between the length of the mortgage and the size of the monthly repayment

A

The longer the mortgage period, the lower the amount of the monthly repayment

39
Q

Name and explain the two types of payments made on a mortgage

A

Capital
The total amount they borrowed and thus had to be paid back in full

Interest
Borrowers must pay interest on the amount borrowed over the period of years of the mortgage

40
Q

Name as many factors that influence the rate of interest paid on a mortgage (there are four on this flashcard)

A

Whether the product is a fixed-rate or a variable-rate mortgage

The LTV ratio (usually the larger the deposit paid and the smaller the LTV ratio, the lower the interest rate)

Whether the customer qualifies for a loyalty mortgage

Whether the customer is remortgaging the property

41
Q

Name to benefits of loan forbearance

A

Provides support to customers who are having financial difficulties and helps to maintain good relations between the customer and the provider

Enhances providers reputation and reflects the citizenship/corporate social responsibility policy

42
Q

Name a disadvantage of loan forbearance

A

Once a customer’s temporary financial difficulties have been resolved they will be faced with higher repayments to make up the shortfall that arose while they were making reduced or no payments

43
Q

Name three government ownership schemes

A

Help to Buy mortgage guarantees
Lifetime ISAs
Shared ownership schemes

44
Q

Name three features of a student loan

A

Pays loans and grants to students in university and colleges in the UK

Pays loans a and non-repayable grants to cover living costs and studying expenses

Provides loans to meet costs of tuition fees

45
Q

Name two types of insurances that may be used by long term borrowers

A

Life insurance
Payment protection insurance

Financial Studies - Year 1 (22 decks)

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