12. Suitability Flashcards
(20 cards)
What should be considered with regards to suitability if a customer is likely to want to make early repayments? (2)
- can they make repayments without penalty?
- if there are charges, are they willing to pay this and is it outweighted by the benefits of the product?
What might you recommend if a customer requires minimised initial payments? (2)
A low start or discount mortgage
What should advisers always try to advise for the term of the mortgage?
Should always be shortest possible so long as it meets the borrower’s needs
What considerations need to be taken into account with regards to term suitability? (5)
- How does it affect monthly budget?
- Preferred age to be MTG free?
- Does cust think they are likely to want to pay off early (if so, avoid ERCs)
- Lending into retirement - will there be enough income?
- is cust aware than shorter terms = higher monthly payments and longer term = more borrowing allowed?
What are the two main risks to consider with regards to suitability?
- Not being able to repay
- Interest rate changes
How might there be a risk to someone’s home?
Repossession
How might there be a risk of negative equity?
If house prices go down
What types of mortgage might be suited to customers with the following attitudes to repayment risk?
1. Adventerous/significant risk
2. Balanced / limited risk
3. Cautious/minimal risk
- Greater risk=higher reward. May want I/O and hope investment growth would lead to early repayment
- interested in limited risk if the rewards are attractive. Might want a combo of I/O & CR
- Important to ensure repayment, only C/R suitable
What questions should we ask regarding customer’s attitudes to interest rates? (3)
- Do they want certainty?
- Are they worried about increases?
- Do they have spare income to cover increases?
What is used to limit the risk posed by increasing interest rates?
Stress testing
Are advisers able to ask custs to rate their attitudes to risk on a scale of 1-10?
no, too subjective
What two methods can be used for assessing attitudes to risk?
- Questionnaires
- Psychometric profiling
According to Mcobs 4 & 11, what must a lender do with regards to the repayment strategy of I/O mortgages?
Must assess the strategy on whether it has potential to repay at the end of term. They need to have a strategy in place but the vehicle itself does not need to be in place.
Should advisers give advice on repayment strategies?
No, only IFAs
What is not considered a credible repayment strategy? (3)
- expecting property to increase in value
- using expected inheritance
- sale of the property - if it is a main residence. Usually lenders wont allow unless they think it will have potential to buy another property and change strategy
Should the cost of paying for a repayment vehicle be included within affordability assessments?
Yes
What is the default repayment type that advisors should use when assessing affordability?
Should always assess affordability as if repayment type is C/R unless
there is a clearly understood and credible alternative
i.e. without a good repayment vehicle, affordability should be assessed as C/R and cust will be entitled to lower amount
We know that lenders should carry out a review at least once during the term, but which types of mortgages are exempt from this? (3)
- Lifetime
- Retirement I/O
- Bridging Loans
What affordability checks are required for an interest only retirement mortgage?
Same as everyone else, just no repayment vehicle needed as repayment is made on death, moving into care or sale of property
Who are Retirement I/O mortgages suitable for?
Those over a certain age who
wish to extend their I/O mortgage into retirement but DONT WANT A LIFETIME MORTGAGE
