Unit 6 - Topic 27 Flashcards
Transferring mortgages
Andrea is consolidating some existing debts under a remortgage arrangement. What are the most likely implications for her ? (27.2)
A. Her mortgage term is likely to need reducing
B. Her underlying repayment method is likely to need changing
C. It could trigger a refund of the higher lending charge
D. It could increase the chances of repossession
D. It could increase the chances of repossession
If Andrea had difficulty meeting monthly costs and defaulted on her mortgage, the decreased
equity could make repossession more of a possibility; this may not have happened if the
debts she has consolidated remained unsecured (such as credit card debt)
Ted and Alice are moving to a new area as a result of Ted’s recent job-change. They’re currently two years into a five-year fixed rate mortgage with early repayment charges.
Which feature could enable them to move without incurring a penalty ? (27.3)
A. An overhanging option
B. A remortgage option
C. A consolidation option
D. A portability option
D. A portability option
If the current mortgage arrangement has a portability option, this would enable Ted and
Alice to transfer their existing mortgage to a new property during the term of the fixed rate,
without penalty, providing the same terms and conditions apply.
Which of the following would be seen as a transfer of equity? (27.4)
A. The borrower assigns a life policy to the lender as security
B. The lender takes possession of the title deeds to the property
C. The borrower’s new husband is added to the mortgage deed
D. A further advance is taken, increasing the loan-to-value ratio
C. The borrower’s new husband is added to the mortgage deed
A transfer of equity arises when a sole owner wishes to add another person as joint owner.
It can also arise if a joint owner transfers their share of the property into the other owner’s sole name
Richard is the sole owner of a property valued at £500,000. There is a mortgage of £400,000.
When he and Liz got married in January 2020, he transferred 50% of the property ownership to her and she agreed to take on 50% of the mortgage. What Stamp Duty Land Tax, if any, would Liz have had to pay on the transfer? (27.4.9)
A Nil
B £1,500
C £2,000
D £5,000
B £1,500
A Stamp Duty charge can arise when the transfer is agreed in exchange for a consideration, which could include a cash payment and/or an assumption of liability to pay a mortgage. Liz has agreed to take on 50% of the mortgage, (£200,000) , so this what is known as the ‘consideration’.
As the total of £200,000 is above the threshold for SDLT, tax of £1,500 (2 per cent above
£125,000) will be payable.
Which of the following mortgage fees has been raised to as high as £500 in recent years and has been the subject of complaints, leading to refunds and reductions? (27.5.2)
A. Arrangement fee
B. High lending charge
C. Booking fee
D. Mortgage Exit Administration Fee
D. Mortgage Exit Administration Fee
A Mortgage Exit Admin Fee (MEAF) is a fee often charged by the lender to cover the lender’s costs in closing the account and carrying out the required procedures when the borrower redeems a mortgage. MEAFs used to be relatively low, often around £50, but in recent years many lenders have increased the fees for existing customers, often to amounts as high as £500, which has led to controversy, complaints and some refunds or reductions.
What is meant by ‘a clog on the equity of redemption’? (27.5.2)
A. A borrower refuses a request from the lender to repay the mortgage
B. The lender delays providing the borrower with a redemption statement
C. A lender imposes a condition that deliberately prevents or discourages a borrower from repaying the mortgage early
D. When a borrower defaults on payments
C. A lender imposes a condition that deliberately prevents or discourages a borrower from repaying the mortgage early
In some circumstances, a court can decide that an early repayment charge is what is known
as a ‘clog on the equity of redemption’. (The word clog in this context means ‘blocked’.) This
means that the court feels an unreasonable condition has been imposed deliberately to
prevent or discourage a borrower from paying back the loan. In such cases, the court can set
aside the clause in the mortgage.
Which of the following is true in relation to part-redemption of a repayment mortgage ? (27.5.3)
A. Lenders do not apply the money to the borrower’s account until the year-end.
B. With special-deal mortgages, part redemption does not incur a penalty.
C. In the absence of a request from the borrower, the lender will reduce the monthly payment.
D. Lenders are required to accept part-redemption for any amount the borrower chooses.
C. In the absence of a request from the borrower, the lender will reduce the monthly payment.
With a repayment mortgage, there are usually two options available for the borrower if they
want to make a part-repayment:
- Continue repayments at the same amount and reduce the mortgage term
- Reduce the amount of monthly payments and keep the same term.In the absence of a request from the borrower, the lender would normally reduce the monthly mortgage payment
Annabel has made a part repayment on her repayment mortgage. Which of the following is most likely to be true? (27.5.3)
A. Her lender will automatically reduce the remaining term of the mortgage.
B. Annabel can choose to maintain her previous monthly payments and reduce the term.
C. She must make monthly payments as set by her lender, based on the new amount.
D. As a result of her repayment, she can choose to pay less than the lender requires for the
reduced mortgage amount.
B. Annabel can choose to maintain her previous monthly payments and reduce the term.
With a repayment mortgage, there are usually two options available for the borrower if they
want to make a part-repayment:
- Continue repayments at the same amount and reduce the mortgage term
- Reduce the amount of monthly payments and keep the same term.In the absence of a request from the borrower, the lender would normally reduce the monthly mortgage payment
In England and Wales the term ‘vacation’ in relation to a mortgage, refers to: (27.5.1)
A. the facility for taking a payment holiday.
B. the redemption of the mortgage loan, plus repayment of any additional charges.
C. agreeing the completion date.
D. cancelling the property insurance.
B. the redemption of the mortgage loan, plus repayment of any additional charges.
Vacation does mean a holiday, but not in this context ! Vacation is the technical term in England and Wales for the release from obligation when the mortgage is repaid.
Nick started his current mortgage in 2014 and is now considering switching to a different arrangement with his existing lender, or remortgaging to a new lender. The borrowing will not be increased. Before he makes his decision, which of the following should he be made aware ? (27.1)
A. If Nick stays with his existing lender, the lender isn’t required to carry out an affordability assessment.
B. Both options would require an affordability assessment to be carried out.
C. If he remortgages, a higher lending charge will not be required because the loan is not being increased and Nick may already have paid the charge with his current lender.
D. Because the loan is not being increased, a formal valuation will not be required by a new lender.
A. If Nick stays with his existing lender, the lender isn’t required to carry out an affordability assessment.
Nick took out the mortgage in 2014, so he has a non-MCD regulated mortgage. The lender is
not required to carry out an affordability assessment on changes to a non-MCD regulated mortgage, providing no increase in borrowing is involved.
