Unit 3 Topic 1 Flashcards
Property and mortgage markets
LIBOR SONIA
Mortgage interest rates are traditionally broadly linked to the Bank of England base rate,
but more directly affected by: (1.5.1)
A. the repo rate
B. interbank lending rates
C. the variable rates of the major lending institutions
D. the state of the housing market
B. interbank lending rates
Although mortgage interest rates are broadly linked to Bank Rate, they are more directly affected by interbank lending rates
There are two elements to inflation in the property market, namely: (1.5.2)
A. General inflation and asset inflation
B. Cost-push inflation and systemic inflation
C. General inflation and house-price inflation
D. Consumer inflation and asset inflation
C. General inflation and house-price inflation
The two elements to inflation in the property market are:
General inflation and house price inflation.
If the Government eased monetary policy, what effect would this have on interest rates?
(1.5.1)
A. Rates would reduce
B. Rates would gradually increase
C. Rates would increase
D. Rates would remain unchanged.
A. Rates would reduce
The Government uses interest rates as a way of controlling the economy. If monetary policy is eased this means that interest rates are reduced to stimulate economic growth.
Which of the following was not considered to be a key factor in slowing the recovery of the UK property market after the credit crunch? (1.3)
A. Sellers unwilling to put their properties on the market
B. Recession
C. Banks’ reluctance to lend to each other
D. Lenders’ relaxed affordability criteria
D. Lenders’ relaxed affordability criteria
Lenders’ relaxed affordability criteria was not a key factor, in fact the reverse was true. Lenders tightened affordability criteria following the credit crunch, which made it more difficult for people to obtain a mortgage.
What is the main driver for the Bank of England Monetary Policy Committee to adjust interest rates? (1.5.2)
A. Borrowing targets
B. Consumer spending
C. European Directives
D. Inflation targets
D. European Directives
The Bank of England can control general inflation to some extent through its Monetary Policy Committee, which adjusts interest rates. The Government has set the Bank of England an inflation target
of 2%, as measured by the CPI.
What percentage of a building society’s total lending activities must be related to residential mortgages? (1.6.2)
A. 25%
B. 50 %
C. 75%
D. 90%
C. 75%
Building societies must devote at least 75% of their total lending to residential mortgages. If they want
the same freedom as the banks have in terms of lending, they can convert to PLC status.
The Big Short
What is ‘securitisation’? (1.2)
A. A collection of mortgage assets repackaged and sold by the lender
B. A mortgage with additional security
C. A portfolio of stocks and shares underlying a mortgage book
D. An insurance policy taken out by the lender to protect high loan-to-value advances
A. A collection of mortgage assets repackaged and sold by the lender
A Securitisation is the process where mortgage providers sold ‘bundles’ of mortgage loans to other institutions. The proceeds of the sale provided more money to invest
A recession is usually defined as a decline in GDP for: (1.3)
A. one month
B. two successive quarters
C. three successive months
D. 12 months
B. two successive quarters
A recession is defined as a decline in gross domestic product (GDP) over two successive quarters.
Which of the following would not be an issue which affects the UK mortgage market ? (1.5)
A. Interest rates
B. Inflation
C. The economy
D. Currency fluctuations
D. Currency fluctuations
Currency fluctuations are not one of the key factors which affect the UK mortgage market.
If the Bank of England lowers interest rates, what effect could this have on the economy? (1.5.2)
A. Prices would remain stagnant
B. Property prices could fall
C. Prices generally become higher
D. Inflation would fall
C. Prices generally become higher
If the Bank of England lowers interest rates, people have more disposable income and their spending
increases. This results in higher prices, which includes higher house prices.
Specialised mortgage companies primarily raise their funds from which source? (1.6.4)
A. Central banks
B. Corporate bond issues
C. Individual investors
D. Wholesale markets
D. Wholesale markets
Specialised mortgage companies are funded by the wholesale market and lend on a ‘centralised’ basis,
because they have no branches, or depositors.
Under the regulations which apply to ‘sale and rent back’ arrangements, the former owner must be given a fixed tenancy agreement of at least (1.6.5)
A. 6-12 months
B. 3 years
C. 5 years
D. 10 years
C. 5 years
Under a sale and rent back arrangement, although the former owner loses ownership, they can stay in the property and must be given a fixed tenancy agreement for at least five years.
