WEEK 6: mortgage types / types of borrowers

Question 1

MORTGAGE TYPES:

Answer 1

FIXED RATE (SWAP), VARIABLE RATE, TRACKER RATE, DISCOUNT VARIABLE RATE.

Question 2

MORTGAGE INTEREST OVER THE LAST 30 YEARS:

Answer 2

1995 - 8%, 1998 - 9%, 2012 - 5%, 2023 - 4%.

Question 3

BUILDING SOCIETY FUNDING MODEL

Answer 3

RELY ON CUSTOMER SAVINGS AND DEPOSITS

Question 4

BANKS FUNDING MODEL

Answer 4

BORROW FROM WHOLESALE MARKETS TO SELL CREDIT.

Question 5

FACTORS IMPACTING MORTGAGE PRICES:

Answer 5

LOWER LTV=LOW COST, CREDIT WORTHINESS, CUSTOMER RISK, STRATEGIC DECISIONS ON MARKET SHARE AND COMPETITIVENESS

Question 6

MAIN TYPES OF MORTGAGES:

Answer 6

CAPITAL REPAYMENT VS INTEREST ONLY

Question 7

INTEREST ONLY MORTGAGE

Answer 7

ONLY INTEREST PAYMENTS ARE MADE IN THE TERM OF THE LOAN. THE CAPITAL HAS TO BE PAID IN ONE LUMP SUM AT THE END OF THE TERM.

Question 8

REPAYMENT VEHICLE:

Answer 8

BORROWERS PAY INTO A REPAYMENT VEHICLE MONTHLY SO THERE ARE STILL STILL SUFFICIENT FUNDS AVAILABLE WHEN THE CAPITAL IS DUE FOR REPAYMENT.

Question 9

CREDIBLE REPAYMENT PLAN:

Answer 9

INTEREST ONLY LOANS ARE ONLY GRANTED WITH A CREDIBLE REPAYMENT PLAN IN PLACE.

Question 10

OFFSET MORTGAGE:

Answer 10

MORTGAGES, SAVINGS AND CURRENT ACCOUNT WITH THE SAME PROVIDER. POSITIVE BALANCES IN CURRENT ACCOUNT AND SAVINGS ARE OFFSET AGAINST THE NEGATIVE BALANCE IN THE MORTGAGE ACCOUNT. OUTSTANDING LOAN IS KEPT TO A MINIMUM RESULTING IN LOWER INTEREST PAYMENTS.

Question 11

CURRENT ACCOUNT MORTGAGE

Answer 11

SIMILAR TO OFFSET BUT ONLY CURRENT ACCOUNT IS USED WITH HUGE OVERDRAFT FACILITY. BOTH OFFSET AND CURRENT ACCOUNT OFFER EASY ACCESS TO OVERPAYMENTS IF NEEDED.

Question 12

ISLAMIC COMPLIANT MORTGAGES

Answer 12

ACCORDING TO SHARIAH LAW, INTEREST CHARGES (RIBA) ON LOANS ARE TO BE AVOIDED.

Question 13

IJARA MORTGAGE

Answer 13

: INCORPORATES LEASING ELEMENTS OF A HOME PURCHASE PLAN. MONTHLY PAYMENTS CONSIST OF RENT, CAPITAL REPAYMENT AND CHARGES. PAYMENTS FINANCE THE PROPERTY AT THE END OF THE TERM. PROPERTY SHARE REMAINS CONSTANT UNTIL LENDERS STAKE IS BOUGHT OUT AND BORROWER BECOMES OWNER.

Question 14

MURABAHA MORTGAGE

Answer 14

LENDER PURCHASES THE PROPERTY AND SELLS IT TO THE BORROWER AT A SLIGHTLY HIGHER PRICE. PRICES DETERMINED BY PROPERTY VALUE, MORTGAGE LENGTH AND DEPOSIT AMOUNT. REQUIRES AN INITIAL DEPOSIT, USUALLY ATLEAST 20%. BORROWER OWNS PROPERTY FROM DAY 1. FIXED PAYMENTS THROUGHOUT THE MORTGAGE. FULL LOAN REPAYMENT POSSIBLE WITHOUT PENALTY.

Question 15

DIMINISHING MUSHARAKA MORTGAGE

Answer 15

COOWNERSHIP AGREEMENT WIH BORROWER AND LENDER. BOTH PARTIES OWN THE PROPERTY AT SEPERATE STAKES. REPAYMENT CONSISTS OF RENT, CAPITAL AND CHARGES. PAYMENTS USED TO BUY BANK SHARES IN THE PROPERTY OVER TIME. BORROWERS STAKES INCREASE WHILE LENDERS DECREASE. REDUCED RENT AS STAKES INCREASE.

Question 16

GREEN MORTGAGES

Answer 16

LENDER REWARDS YOU FOR OWNING OR MAKING AN IMPORVEMENT TO YOUR PROPERTY FOR ENERGY EFFICIENCY. UK HAS ONE OF THE OLDEST AND LEAST ENERGY EFFICIENT HOUSES IN EUROPE. 25% OF LENDERS CURRENTLY OFFER GREEN MORTGAGES WITH 88% OF OTHER 75% PLANNING ON OFFERING THEM. CURRENTLY A LACK OF UPTAKE ON THESE. EPC RATINGS A,B AND SOMETIMES C GET CHEAPER RATES, CASHBACK AND FREE VALUATION.

Question 17

SELF EMPLOYED MORTGAGE

Answer 17

FLEXIBLE UNDERWRITING CRITERIA TAILORED FOR THE SELF EMPLOYED. ASSESSMENT OF INCOME BASED ON ACCOUNTS OR TAX RETURNS OVER SEVERAL YEARS. SPECIALIST UNDERWRITING PROCESS.

Question 18

BUY TO LET:

Answer 18

DESIGNED FOR PURCHASING PROPERTIES TO RENT OUT. TYPICALLY REQUIRES HIGHER DEPOSIT COMPARED TO STANDARD RESIDENTIAL MORTGAGE. RENTAL INCOME MAY BE CONSIDERED IN AFFORDABILITY ASSESSMENTS.

Question 19

ADVERSE CREDIT MORTGAGE

Answer 19

AVAILABLE TO BORROWERS WITH A HISTORY OF ADVERSE CREDIT SUCH AS DEFAULTS OR MISSED PAYMENTS. MAY HAVE HIGHER INTEREST RATES AND REQUIRE LARGER DEPOSITS. SPECIALIST UNDERWRITING TO ASSESS CREDIT RISK.

Question 20

EXPAT MORTGAGES:

Answer 20

DESIGNED FOR UK CITIZENS LIVING ABROAD WHO WISH TO BUY IN THE UK. UNDERWRITING MAY ACCOUNT FOR FOREIGN INCOME AND EXCHANGE RATES. HIGHER DEPOSIT MAY BE REQUIRED.

Question 21

SELF BUILD MORTGAGES:

Answer 21

SPECIFIC FOR INDIVIDUALS BUILDING THEIR OWN HOMES. FUNDS RELEASED IN STAGES AS THE PROJECT PROGRESSES. SPECIALIST UNDERWRITING TO ASSESS PROJECT FEASIBILITY AND RISK.

Question 22

LIFETIME MORTGAGE

Answer 22

DESIGNED FOR OLDER HOME OWNERS 55+. ALLOWS THEM TO RELEASE EQUITY WHILE CONTINUING TO LIVE IN PROPERTY. REPAYMENT TYPICALLY OCCURS UPON DEATH OR SALE OF PROPERTY.

Question 23

SHARED OWNERSHIP MORTGAGE:

Answer 23

ENABLES BUYERS TO PURCHASE A SHARE IN THE PROPERTY (TYPICALLY BETWEEN 25-75%) AND PAY RENT ON THE REMAINDER. ADDITIONAL SHARES CAN BE PURCHASED LATER ON (KNOWN AS STAIRCASING). OFTEN AVAILABLE TO FIRST TIME BUYERS.

Question 24

FLEXIBLE MORTGAGE

Answer 24

ALLOWS BORROWERS TO OVERPAY / UNDERPAY / TAKE PAYMENT HOLIDAYS WITHIN SPECIFIED LIMITS. OFFERS FLEXIBILITY TO ADAPT TO CHANGES IN FINANCIAL CIRCUMSTANCES. INTEREST CALCULATED DAILY, OFFERING POTENTIAL COST SAVINGS.

Question 25

FIRST TIME BUYERS:

Answer 25

OFTEN REQUIRE HIGHER LTVS, CHARGED HIGHER INTEREST AND AVERAGE AGE HAS STEADILY INCREASED.

Question 26

MOVING BETWEEN MORTGAGED PROPERTIES

Answer 26

OFTEN ABLE TO REDUCE THEIR MORTGAGE ON NEW PROPERTY BY SELLING OLD ONE. IN THAT CASE, CHARGES ARE LOWER. HOWEVER, SOME BORROWERS OWE MORE ON THEIR PROPERTY THAN THE VALUE SO MAY NEED A BRIDGING LOAN.

Question 27

IMPROVING A MORTGAGED PROPERTY

Answer 27

CAN SEEK A FURTHER ADVANCE FROM THEIR LENDER, TAKE OUT A SECOND MORTGAGE WITH A NEW LENDER OR TAKE OUT A NEW PRODUCT LIKE AN UNSECURED LOAN.

Question 28

BUY TO LET

Answer 28

OFTEN NOT REGULATED BY FCA. 2 TYPES. CONSUMERS (ACCIDENTAL LANDLORDS), BUSINESSES / COMMERCIAL

Question 29

REMORTGAES:

Answer 29

GOING TO A NEW LENDER FOR A MORTGAGE THAT WILL REPLACE THE CURRENT ONE, OFTEN DUE TO MORE FAVOURABLE TERMS. CAN REMORTGAGE TO RELEASE EQUITY WHICH INCLUDES DEPOSIT, MORTGAGE ALREADY PAID OFF AND ADDITIONAL VALUE GAINED OVER TIME ON THE PROPERTY.

Question 30

COMMERICAL MORTGAGES:

Answer 30

(OR BUSINNESS) MORTGAGES USED TO ACQUIRE PROPERTY FOR BUSINESSES. THE MORTGAGE AND HOME FINANCE: CONDUCT OF BUSINESS SOURCEBOOK (MCOB) REGULATES SOME UNDER THIS CATEGORY. MORTGAGES TO UNINCORPORATED BUSINESSES, SEMI COMMERCIAL MORTGAGES.

Question 31

SPECIFIC METHODS OF ASSESSMENT

Answer 31

APPLY TO MORTGAGES TO INCORPORATED BUSINESSES AND THOSE FALL OUTWITH THE REMIT OF THE MCOB.