Unit 6 - Topic 24 Flashcards
Other mortgage products
Which one of the following might be considered a major disadvantage of a foreign currency mortgage ? (24.1)
A. If sterling declines in value against other major currencies, the outstanding capital will increase in sterling terms.
B. If sterling increases in value against other major currencies, the capital outstanding is likely to 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. The interest rate charged is likely to be higher for a sterling variable rate loan.
A. If sterling declines in value against other major currencies, the outstanding capital will increase in sterling terms.
With a foreign currency mortgage, the mortgage is in a different currency to that of the borrower’s income. The capital owed is denominated in the foreign currency. What this
means is that if the foreign currency strengthens against sterling, for example, the debt increases and so do the mortgage payments.
In this question we’re told that sterling has declined against other major currencies, so this
means the debt owing and the borrower’s payments in sterling would increase.
Richard has agreed to stand as guarantor for 25% of his daughter’s mortgage. This means that he has agreed to: (24.3)
A. A mortgage indemnity guarantee
B. A limited liability guarantee
C. A full liability guarantee
D. A conditional liability guarantee
B. A limited liability guarantee
The applicants are responsible for the debt in the first instance, but if they fail to meet the
interest or capital payments as required, the guarantor becomes responsible for some or
all of the debt, depending on whether the guarantee is on a full or limited liability basis.
With a limited liability guarantee, the liability is limited to the difference between the loan
the lender would normally agree to and the loan needed, with a possible addition of say
10%
Arthur is a mortgage adviser. For which of the following clients would he be most likely to recommend a mortgage from a ‘sub-prime’ lender ? (24.2)
A. Anne, who wants to borrow 90% of the property value
B. Chris, a 22-year-old trainee solicitor
C. Jane, an employee with 12 months’ employment history
D. Rakesh, who has three recent county court judgements against him
D. Rakesh, who has three recent county court judgements against him
Those who have suffered credit problems in the past are referred to by the FCA as ‘credit
impaired’ borrowers. The mortgages offered by sub-prime lenders reflect the increased risk taken, and interest rates are usually higher than those that apply to standard mortgages.
With Islamic home finance, who pays the Stamp Duty Land Tax ? (24.4.2)
A. Both the lender and the borrower
B. The lender
C. The borrower
D. Lender and borrower share the cost
B. The lender
With both the Ijara and Murabaha methods, stamp duty land tax is paid once, when the
property is initially purchased by the lender.
With which type of Islamic home finance would fixed payments be made by the borrower throughout the term ? (24.4.2)
A. Neither Ijara or Murabaha
B. Ijara
C. Murabaha
D. Both
C. Murabaha
With the Murabaha method of house purchase, the customer makes an initial payment of 20% of the purchase price, then makes fixed monthly capital payments for the remainder of the term.
A borrower is purchasing a house using Islamic home finance, with the Ijara method. At what point during the mortgage term will ownership of the new property transfer to the borrower? (24.4.1)
A. Exchange of contracts
B. Completion
C. When the cross-over point is reached
D. When the end of the lease term is reached
D. When the end of the lease term is reached
With the Ijara method, the property is transferred to the customer at the end of the term of the lease
Which of the following statements is correct in respect of the Ijara version of an Islamic home finance plan ? (24.4.1)
A. The lender purchases the property and immediately sells it to the client
B. The monthly payment made by the client includes an element of rent
C. The lender retains ownership of the property until 50% of the loan has been repaid
D. The customer makes an initial payment
B. The monthly payment made by the client includes an element of rent
Payments using the Ijara method include an element of rent. To remember this, think of
somebody saving up rent money by putting their spare change into a jar !
A loan provided to an individual secured by a first charge over a property that will be let on the open market, which is not entered into by the borrower wholly or predominantly for business purposes, will be : (24.6.1)
A. A commercial mortgage
B. A consumer buy-to-let mortgage contract
C. An MCD-exempt mortgage contract
D. unregulated
B. A consumer buy-to-let mortgage contract
Borrowers in this category are sometimes described as ‘accidental landlords’ – in other
words, they are people who need to let out a property because of personal circumstances,
rather than because they have made a conscious choice to buy a property for rental. This category might include those who have inherited a property
Karen is considering using a special purpose vehicle (SPV) to buy a buy-to-let property with a mortgage. Which of the following is true of the legal position ? (24.6.4)
A. Karen would always be liable personally for the mortgage
B. Karen would own shares in the SPV, but would not directly own the property
C. The mortgage would be a consumer buy-to-let mortgage
D. The property would be registered in Karen’s name
B. Karen would own shares in the SPV, but would not directly own the property
The SPV owns the property. Individuals own shares in the SPV but do not own the
property directly and are not normally liable for any debts incurred by the SPV.
How is rental income from a buy to let received by an SPV taxed ? (24.6.4)
A. Corporation tax
B. Income tax
C. Capital gains tax
D. Stamp Duty Land Tax
A. Corporation tax
Because SPVs are companies, they pay corporation tax in rental income. The rate is 17 from April 2020.
