Unit 3 T1

Question 1

securitisation

Answer 1

Having sold these mortgages, lenders then packaged these subprime mortgages into bundles along with prime mortgages and then sold them to institutions all over the world thus giving the lender more capital to invest.

Question 2

who set up the interest rate?

Answer 2

It is the Bank of England’s Monetary Policy Committee (MPC) who decide on a monthly basis whether to change interest rates. Their role is to set interest rates or the Bank of England Base Rate in order to meet the government’s inflation targets.

Question 3

what influence the interest rate in economy

Answer 3

The level of government borrowing
Higher levels of individual borrowing
Monetary policy
Foreign Interest Rates

Question 4

Inflation

Answer 4

Inflation relates to increases in prices over a given time.
Annual inflation of around 2% is generally considered to be healthy for the economy as measured by the Consumer Price Index.

Question 5

Banks

Answer 5

Relative newcomers to the mortgage market -
* Attracted by high returns and low risk-
* Cross selling opportunities –
* A number of new entrants to the mortgage market called challenger banks has increased competition in the mortgage market.

Question 6

Building Societies

Answer 6

major suppliers of mortgage finance
Via the Building Societies Act 1986, some have converted into banks by de- mutualising which means changing from a mutual organisation which isn’t a company into a bank which is normally a public limited company (plc).
* A building society must devote a minimum of 75% of its lending activities to loans to individuals secured on residential property.

Question 7

Specialist Mortgage Houses and Challenger Banks

Answer 7

• Funded mostly from the wholesale market - money markets.
• Tend to operate on a centralised basis – few branches – mainly call centres.
  The rise of ‘challenger banks’ who are new entrants to the banking arena has also led to increased competition. Eg Metro, Atom, Aldermore.

Question 8

Mortgage Packagers

Answer 8

Usually operate between the lender and an intermediary (mortgage broker).
* Packagers have detailed understanding of certain lenders’ underwriting
requirements and are able to match non-standard applicants to lenders.
* Saves a lot of time for both the lender and the intermediary on non-standard cases. E.g. people with poor credit history – subprime.