Unit 6 Flashcards
Which of the following is true in relation to a base-rate tracker mortgage?
A. The rate is linked to the lender’s standard variable rate
B. Any change to the interest rate is at the lender’s discretion
C. The initial rate is likely to be higher than the lender’s standard variable rate
D. There may be application and early repayment fees
D. There may be application and early payment fees.
Which of the following is a feature of a typical capped-rate mortgage but not a typical fixed-rate mortgage?
A. An application fee
B. Early repayment charge
C. Variable monthly costs
D. Overpayment facility
C. Variable monthly costs.
Ellen is considering a mortgage that offers a cashback facility. Which of the following is true? The cashback received:
A. Will be subject to income tax
B. May be clawed back if the mortgage is redeemed early
C. Will always be based on a percentage of the mortgage
B. May be clawed back if the mortgage is redeemed early.
Cashback is not subject to tax and could be a fixed amount or a percentage of the mortgage.
How much do self-build mortgages provide funds for the cost of the land?
A. 75%
B. 85%
C. 90%
D. 100%
A. Self-build mortgages usually provide funds for up to 75 per cent of the cost of the land.
Joe is planning to invest in a buy-to-let property when he gains access to his pension fund in August this year and is unsure whether to use an SPV or buy a property in his own name.
Which of the following would be an important consideration for him?
A. The SPV will pay higher stamp duty land tax
B. The SPV will be able to claim mortgage interest as a business expense in full
C. Holding the property in his own name will enable him to avoid paying income tax on rental income he does not withdraw from the business
D. Joe would lose control of the property if he bought it though a SPV
B. The SPV will be able to claim mortgage interest as a business expense in full.
What type of tax would the buyer of an SPV’s shares be liable for?
A. Stamp Duty Land Tax
B. Stamp Duty
C. Capital Gains Tax
D. Dividend Tax
B. Stamp Duty.
Stamp duty is payable on the transfer of shares within an SPV, but there is no liability to stamp duty land tax because the property itself does not change hands.
Capital gains made on the sale of a property by an SPV are subject to:
A. Corporation Tax
B. Capital Gains Tax
C. Income Tax
D. Stamp Duty Land Tax
A. Corporation Tax.
Capital gains made by an SPV are treated as trading receipts.
In relation to a further advance of an existing MCD regulated mortgage, in order to comply with MCOB, the lender must provide the borrower with:
A. An illustration based on the further advance only
B. An ESIS based on the further advance only
C. An ESIS based on the total borrowing
D. An illustration based on the total borrowing
B. An ESIS based on the further advance only.
Which of the following is UNTRUE in relation to MCOB rules and second charges?
A. MCOB rules apply to new and existing second-charge loans, regardless of when they started
B. When arranging a new second-charge loan, the lender must provide the borrower with an ESIS
C. The lender must provide a suitability report to give an adequate explanation of the product
D. A second-charge loan of £30,000 secured on the borrower’s home for business purposes would not be subject to MCOB
C. The lender does not have to provide a suitability report for a second-charge loan.
Nicola has not made any changes to her current mortgage and is now considering whether to switch to a different arrangement with her current provider.
In what circumstances would her lender NOT be able to apply the transitional arrangements in MCOB 11.7 regarding an affordability assessment? Where Nicola wants to:
A. Increase the borrowing to pay for the mortgage arrangement fee
B. Increase the borrowing to fund essential repairs
C. Increase the borrowing to build an extension
D. Reduce her mortgage with a small capital payment
C. Increase the borrowing to build an extension.
Her current lender will not need to carry out a full affordability assessment providing she is not increasing her borrowing other than to cover application fees or to pay for essential repairs or maintenance.
Releasing a borrower from their mortgage obligations when the mortgage is repaid is known in England and Wales as:
A. Discharge
B. Redemption
C. Completion
D. Vacation
D. Vacation is the technical term in England and Wales for the release from obligation when the mortgage is repaid (‘discharge’ in Scotland).
When George defaulted on his mortgage, the lender took possession of his flat and sold it to repay his outstanding mortgage, but the proceeds did not repay the whole debt.
Within what period of time must the lender inform George of his intention to pursue him for the remaining shortfall?
A. One year from the sale
B. Three years from the sale
C. Five years from the sale
D. Six years from the sale
D. Six years from the sale.
If a lender decides to recover a shortfall, it must notify the borrower within six years of sale (five years in Scotland).
Once a possession order has been granted, the lender can usually take possession within:
A. 7 days
B. 14 days
C. 28 days
D. 60 days
C. 28 days.
Once a property has been taken into possession, the borrower has the right to regain possession by:
A. Paying off the arrears, up to the point at which the lender exchanges contracts with a new buyer
B. Paying off the full mortgage debt, up to the point at which the lender markets the property for sale
C. Paying off the full mortgage debt, up to the point at which the lender exchanges contracts with a new buyer
D. Paying off the full mortgage debt, up to the point of completion of the sale to a new buyer
C. Paying off the full mortgage debt, up to the point at which the lender exchanges contracts with a new buyer.
Under a mortgage what does a ‘cashback facility’ usually refer to?
A. A tax-free lump sum paid to the borrower on completion of some mortgages, clawed back if it is redeemed within a set period.
B. An equity release mortgage arrangement where further funds can be drawn down T a later date
C. The savings made on mortgage interest where the loan is linked to a savings account
D. When a mortgage is redeemed early and the borrower has to pay a penalty to the lender
A. A tax-free lump sum paid to the borrower on completion of some mortgages, clawed back if it is redeemed within a set period.
The primary difference between a unitised with profits endowment policy and a traditional with profits endowment policy is that:
A. The sum assured under a unitised with profits endowment policy is the value of the units; under a traditional policy there is no sum assured
B. The sum assured under a unitised with profits endowment can fluctuate; under a traditional policy the sum assured is fixed
C. The value of units in a unitised with profits endowment policy can fluctuate: units in a traditional policy are fixed
D. Premiums for a unitised with profits endowment policy buy units in the with-profits fund; premiums for a traditional policy do not buy units at all
D. Premiums for a unitised with profits endowment policy buy units in the with-profits fund; premiums for a traditional policy do not buy units at all.
Cathy has a capital repayment vehicle of £150,000 over a 25-year term. The interest rate is 3% on an annual rest basis and her monthly repayment is £711 (to the nearest whole pound).
How much of the CAPITAL will she repay in the first year?
A. £8,532
B. £4,500
C. £4,032
C. Cathy would repay £4,032 of capital in the first year.
£150,000 x 0.03 = £4,500
So £4,500 of interest is charged per year
£4,500 / 12 = £375
£711 - £375 = £336
£336 x 12 = £4,032
With a with-profits endowment, the fund manager will:
A. Take a relatively cautious approach to investment
B. Invest only in guaranteed investment areas
C. Take a significant element of risk to achieve growth
A. Take a relatively cautious approach to investment.
The manager will take a relatively cautious approach but will make some investment in areas such as stocks and shares that do not provide guarantees. They are unlikely to take significant risks, due to the guarantees and liabilities provided by this type of fund.
A potential advantage of a unit-linked endowment over a low-cost with-profits endowment is that:
A. There is a choice of investment funds
B. The guaranteed maturity value is usually higher
C. Bonuses may be higher if the fund performs well
A. There is a choice of investment funds.
Unit-linked endowments offer a range of funds, while with-profits offer just one fund.
While the guaranteed sum assured on a with-profits plan will be paid on maturity, there is no such guarantee on a unit-linked plan.
Unit-linked plans do NOT offer bonuses.
The death benefit on a unit-linked endowment is:
A. Guaranteed and comprises the plan’s value on death plus variable term assurance
B. Guaranteed and provided by a form of level term assurance
C. Not guaranteed and comprises the bid value of units at the time of death
A. The death benefit is guaranteed and comprises the plan’s value on death plus variable term assurance to plug the gap between the guaranteed death benefit and the unit value.
For a typical 25-year unit-linked endowment, policy reviews would occur after:
A. 5, 10 and 20 years and then annually
B. 10, 15 and 20 years and then annually
C. 10 years and then annually
B. 10, 15 and 20 years and then annually.
A unitised with-profits plan offering ‘fixed units’ fixes the value of units on purchase and:
A. Does not add bonuses
B. Adds bonuses by buying more units
C. Adds bonuses by increasing unit value
B. With fixed units, bonuses are added by buying more units at the current price.
Once added to the Guaranteed Sum Assured, reversionary bonuses:
A. Cannot be removed but may be reduced if the policy is surrendered early
B. Cannot be removed but may be reduced if the policyholder dies before the policy reaches maturity
C. May be removed if the policy is made paid up
D. Cannot be removed or reduced in any circumstances
A. Once added to the GSA, reversionary bonuses cannot be removed but may be reduced if the policy is surrendered early.
Complete the following sentence. Anyone saving to buy their first home can start a Help to Buy ISA if they are:
A. Aged 16 or over and start the ISA before 1 December 2019, and they must claim the bonus by 1 December 2030
B. Aged 16 or over and start the ISA before 1 November 2019, and they must claim the bonus by 1 December 2030
C. Aged 18 or over and start the ISA before 1 December 2019, and they must claim the bonus by 30 December 2030
A. Aged 16 or over and start the ISA before 1 December 2019, and they must claim the bonus by 1 December 2030.
In order to receive a government bonus, a Help to Buy ISA investor must have saved at least:
A. £400
B. £1,600
C. £4,000
B. £1,600.
The minimum bonus is £400, which means at least £1,600 must be saved, I.e. to receive 25% of £1,600.
The interest rate on a base-rate tracker mortgage could potentially change:
A. Eight times a year
B. Twelve times a year
C. Any number of times
A. Eight times a year
The interest rate on a base-rate tracker changes whenever the Monetary Policy Committee (MPC) changes the Bank rate. The MPC meets eight times a year, so the rate could change eight times a year.
