Unit 6 Topic 23,24&25

Question 1

Jeff and Linda’s mortgage interest rate goes up by just 0.25% when their lender
announces a general 1% increase. This could be because they have what type of
mortgage?
A Fixed rate
B Discounted rate
C Capped rate
D Collared rate

Answer 1

C Capped rate

Question 2

Which of the following statements is true in relation to the Help to Buy Equity
Loan scheme?
A from the start of year 6, an annual fee of 1.75% of the equity loanwill be charged.
B a minimum deposit of 10% is required
C An interest only mortgage is permitted with a credible repayment method
D the maximum property purchase price is £500,000

Answer 2

A from the start of year 6, an annual fee of 1.75% of the equity loan will be charged.

Question 3

Tracey’s mortgage lender has charged her an arrangement fee. For which type
of mortgage is she LEAST likely to have applied?
A Fixed rate
B Standard Variable
C Capped
D Discounted

Answer 3

B Standard Variable

Question 4

What is the maximum discount available to a tenant of a council house under the 
Right to Buy legislation?
A 35% 
B 50%
C 70% 
D 60%

Answer 4

C 70%

Question 5

What penalty is likely to be applied if a cash back mortgage is redeemed within a
year of being taken out?
A None
B Charging of an administration fee
C Redemption penalty of several months’ interest
D Claw back of some or all of the cash back

Answer 5

D Claw back of some or all of the cash back

Question 6

A fixed rate mortgage is an appropriate choice for a borrower who believes that:
A interest rates will fall. 
B interest rates will rise.
C house prices will fall. 
D house prices will rise.

Answer 6

B interest rates will rise.

Question 7

Kristina has received confirmation that she can buy a flat in May 2021 under the
government’s Help to Buy Equity Loan scheme. Which of the following
statements is true?
A Kristina plans to let the flat to her friends
B Kristina will only be buying 50% of the flat
C The equity loan can only be repaid when Kristina sells the flat
D Kristina must be a first time buyer

Answer 7

D Kristina must be a first time buyer

Question 8

Which of the following could be considered to be an advantage of a Base Rate
tracker mortgage over a standard variable rate mortgage, both offered by the
same lender?
A An arrangement fee is unlikely to be payable.
B An early repayment charge is unlikely to apply.
C The borrower is protected from arbitrary interest rate increases imposed by
the lender.
D The interest rate charged will not exceed a pre-determined level.

Answer 8

C The borrower is protected from arbitrary interest rate increases imposed by
the lender.

Question 9

Which of the following statements is correct in respect of a five-year fixed rate
mortgage offered by Eastern Bank?
A It cannot be redeemed during the five-year period.
B The Bank is likely to charge an arrangement fee.
C The rate charged will always be higher than the bank’s standard variable rate.
D The rate charged will always be lower than the bank’s standard variable rate.

Answer 9

B The Bank is likely to charge an arrangement fee.

Question 10

Which of the following statements is correct in respect of a discounted rate
mortgage?
A The interest rate charged does not change in line with the lender’s standard
variable rate during the discounted rate period.
B During the discounted rate period the rate charged may fall but will not be
increased.
C The total amount of interest that is underpaid is recovered by the lender over
the term remaining after the discounted rate period ends.
D The interest rate charged during the discounted rate period always falls and
rises in line with the lender’s standard variable rate.

Answer 10

D The interest rate charged during the discounted rate period always falls and
rises in line with the lender’s standard variable rate.

Question 11

Neville is buying his first home and, although he has a good income, he only has sufficient savings for the deposit and the mortgage related expenses. He would
like to purchase some furnishings, which product might be most suitable for
him?
A A capped rate mortgage
B A shared ownership mortgage
C A cash back mortgage
D A fixed rate mortgage

Answer 11

C A cash back mortgage

Question 12

Aaron and Sarah moved into their first local authority house in England in June
2017 as secure tenants. When will they first gain the right to buy their home?
A June 2018
B June 2019
C June 2020
D June 2021

Answer 12

C June 2020

Question 13

When a property that is subject to an equity share mortgage is sold, part of the 
sale proceeds will go to:
A the borrower’s family
 B the lender or developer
C a housing association
 D the solicitor

Answer 13

B the lender or developer

Question 14

Who would be most attracted to a capped rate mortgage?
A Mike, who believes interest rates have reached an all-time high.
B Eric, who believes interest rates will rise in the short to medium term.
C Ken, who believes interest rates will fall in the short to medium term.
D Daniel, who believes interest rates have stabilized.

Answer 14

B Eric, who believes interest rates will rise in the short to medium term.

Question 15

Nigel has taken out a new mortgage that requires him to pay monthly rent as
well as mortgage payments. What type of mortgage does he have?
A shared ownership
B deferred interest
C Equity share
D LIBOR

Answer 15

A shared ownership

Question 16

Which one of the following might correctly be regarded as the major disadvantage of a foreign currency mortgage?
A The interest rate charged is likely to be higher for a sterling variable rate loan.
B If sterling declines in value against other major currencies the outstanding
capital will increase in sterling terms.
C If sterling increases in value against other major currencies the monthly
payments are likely to increase in sterling terms.
D If sterling increases in value against other major currencies the capital
outstanding is likely to increase in sterling terms.

Answer 16

B If sterling declines in value against other major currencies the outstanding
capital will increase in sterling terms.

Question 17

Which of the following statements is correct in respect of the Ijara version of a
Sharia compliant mortgage?
A Lender purchases the property and sells it to the borrower at the end of the
agreed term.
B Monthly payment made by the client includes an element of rent.
C Loan is interest free and no profit is made by the lender.
D Monthly payment made by the borrower is fixed for the term of the mortgage.

Answer 17

B Monthly payment made by the client includes an element of rent.

Question 18

Tom and Sally both have £100,000 25-year repayment mortgages. Tom’s
mortgage has a fixed interest rate of 4.75% and Sally has a capped rate of
5.50%. Both rates apply for two years. Which of the following statements is
true?
A Sally may pay less than Tom at some point.
B Sally’s payments will increase in the third year.
C Tom will pay a lower rate than Sally in the third year.
D Tom will pay less than Sally throughout the first two years.

Answer 18

A Sally may pay less than Tom at some point.

Question 19

Which of the following statements is correct of Sharia compliant mortgages?
A Only the Ijara method involves the payment of interest to the lender.
B The Murabaha method involves the payment of rent to the lender.
C Under the Murabaha method, the property is purchased by the lender and sold
to the applicant at a higher price.
D Under the Ijara method the lender purchases the property and immediately
sells it to the applicant.

Answer 19

C Under the Murabaha method, the property is purchased by the lender and sold
to the applicant at a higher price.

Question 20

Which of the following might correctly be regarded as an advantage of a foreign
currency mortgage?
A If sterling declines in value against other major currencies the outstanding
capital will increase in sterling terms.
B If sterling declines in value against other major currencies the monthly
payments are likely to decrease in sterling terms.
C If sterling decreases in value against other major currencies the capital
outstanding is likely to increase in sterling terms.
D Interest rates abroad may be lower than in the UK.

Answer 20

D Interest rates abroad may be lower than in the UK.

Question 21

Sandra is considering a £150,000 interest only offset mortgage with a variable
rate of 6.5%. After meeting the costs of the mortgage, she will have £15,000 in a
deposit account, earning 4% interest. Assuming no changes to interest rates,
how much interest will she pay her lender each year if she offsets her savings?
A £8,775
B £9,075
C £9,270
D £9,750

Answer 21

A £8,775

Question 22

Which of the following might be regarded as a disadvantage of the equity share
mortgage that has just been taken out by Ryan?
A His payment will increase substantially at the end of the initial period.
B He will lose some of the increase in value that his home accrues.
C He will lose any increase in value that his home accrues.
D He will pay a higher rate of interest throughout the mortgage term.

Answer 22

B He will lose some of the increase in value that his home accrues.

Question 23

Pavel and Irina are looking to buy a flat for £180,000 using the Government’s
Help to Buy Equity Loan scheme. The minimum deposit they must put down is:
A Nil
B £9,000
C £18,000
D £36,000

Answer 23

B £9,000

Question 24

Ben has bought a 50% share in a shared ownership flat. Which of the following
would not be contained in the lease?
A the maximum share Ben could own by staircasing
B if Ben wants to sell the flat, he must first offer it to the landlord
C the terms on which Ben could rent out the flat
D the landlord’s right to take court action to gain possession if Ben
Falls behind with the rent.

Answer 24

C the terms on which Ben could rent out the flat

Question 25

George has set up a special purpose vehicle (SPV) to run his buy to let rental
business, while his brother Tim runs his buy to let business as a sole trader.
Which of the following statements is true?
A George and Tim will each be registered as owners of their respective rental properties at HM Land Registry
B George’s SPV will not have to pay the SDLT surcharge on buying a new property,
but Tim will have to pay the surcharge.
C George will be liable to income tax on any profit made by the business, while Tim will only be liable to income tax on his drawings from his business
D Tim could be liable to capital gains tax if he made a profit when selling his property, whereas George would not be liable to capital gains tax on a profit made on selling the SPV property.

Answer 25

D Tim could be liable to capital gains tax if he made a profit when selling his property, whereas George would not be liable to capital gains tax on a profit made on selling the SPV property.

Question 26

Sally is applying for a 4 year fixed rate business buy to let mortgage. Under the
Prudential Regulation Authority rules for assessing affordability, Sally’s lender:
A cannot take rising rent into account when assessing affordability
B does not need to complete an affordability assessment
C must assess affordability assuming interest rates will increase by 3%
D must assess affordability using a minimum future interest rate of 5.5%

Answer 26

D must assess affordability using a minimum future interest rate of 5.5%

Question 27

Which of the following is a difference between fixed and capped-rate mortgages?
A fixed-rate mortgages may be subject to a collar
B only capped-rate mortgages may have extended early repayment charges
C only fixed-rate mortgages have a product fee
D payments on a capped-rate mortgage may go down

Answer 27

D payments on a capped-rate mortgage may go down