U3: T2 - TYPES OF BORROWER Flashcards
Which of the following does not classify as one of the 3 ‘P’s of Mortgage Assessment?
A) Purpose
B) Person
C) Proportion
D) Property
C) Proportion - Is not
Those which are:
A) Purpose: Is the purpose of the mortgage acceptable?
B) Person: Is the lender legally able and willing to lend to the applicant?
D) Property: Is the property a suitable security for the required mortgage?
What is an ICR?
Interest coverage ratio (ICR) – the ratio of rental income to mortgage payments (including associated costs and tax).
Each lender can set an ICR based on rental demand and typical rent levels in the area, with the PRA setting 125 per cent as a minimum industry standard, meaning that rent must be at least 125 per cent of the landlord’s costs, although some lenders set a minimum as high as 145 per cent.
In 2016, the PRA introduced requirements for lenders to assess more stringently a number of affordability factors when considering buy‐to‐let applications.
With of the following is not a factor?
A) Interest Coverage Ratio
B) Affordability of Tenants
C) Income Affordability Test
D) Interest Rate Affordability Stress Test
B) Affordability of Tenants - not a factor
BTL mortgages are regulated by the FCA’s regulation.
True or False?
False.
In general, mortgages for BTL property are not subject to FCA regulation because they are defined as business loans and are not secured on the borrower’s main residence.
CBTL mortgages are regulated by the FCA’s regulation.
True or False?
True.
CBTL mortgages are subject to legislation resulting from the Consumer Credit Directive 2015. Firms with Section 4a permission to carry out regulated activities that wish to deal in CBTL business must register as CBTL firms with the FCA.
CBTL mortgages are subject to the Mortgage Credit Directive Order 2015, but the requirements for firms are similar to the MCOB rules and, where advice is given, the firm must assess the client’s circumstances, meet initial and product disclosure requirements and assess affordability.
What does the FCA defines a high‐net‐worth customer?
A minimum annual net income of £300,000 OR;
or minimum net assets of £3m
Who does the FCA define as a ‘Professional Customer’?
The FCA defines a ‘professional customer’ as one who has worked in the home finance sector for at least a year, in a professional position that requires knowledge of the product or service to be arranged, and who the firm reasonably believes to be capable of understanding the risks involved in the proposed arrangements.
Mortgages taken out by individuals for business purposes can be regulated and subject to MCOB.
True or false?
True
Mortgages taken out by individuals for business purposes are regulated and
subject to MCOB if:
A) the borrowing is secured by a legal charge on a property where at least 40 per cent of the land is used as a residence (the standard definition of a regulated mortgage); and
B) the sole purpose of the mortgage, remortgage or further advance is to raise funds for use by a small business (ie one with turnover of less than £1m per year).
If the mortgage is taken out by a business, or by individuals in the business, and is secured on business premises, the mortgage is not a regulated mortgage.
True or false?
True
Mortgages for business partners for business purposes can be regulated.
True or false
True.
Mortgages for business partners for business purposes are regulated if the criteria for regulated business mortgages are met:
A) the borrowing is secured by a legal charge on a property where at least 40 per cent of the land is used as a residence (the standard definition of a regulated mortgage); and
B) the sole purpose of the mortgage, remortgage or further advance is to raise funds for use by a small business (ie one with turnover of less than £1m per year).
Elena and Rita are in a business partnership together, and have arranged a mortgage loan of £240,000. They agree between them that Elena will pay for a third of the mortgage and Rita for two thirds. However, Rita very suddenly leaves the country and does not leave any contact details.
How much of the loan is Elena liable to repay?
a) £80,000
b) £160,000
c) £240,000
c) £240,000
Mortgage lending directly to an LLP is not regulated.
True or false?
True
As the SPV is a business, any BTL mortgage would be a regulated CBTL mortgage.
True or false?
False
As the SPV is a business, any BTL mortgage would not be a regulated CBTL mortgage.
Corporate mortgages are not regulated by the FCA, regardless of the type of property, because the loan is to a company, not an individual, but it will be covered by MCOB rules if the firm has a turnover of less than £1m.
True or false
True
A maximum of what percentage of a building society’s commercial assets can be held in loans to limited companies secured on land?
25%
A maximum of 25 per cent of a building society’s commercial assets can be held in loans to limited companies secured on land.
A commercial mortgage can be offered either to an individual or to a company, but will not be a regulated mortgage.
True or false?
True
What are the two categories of borrower specifically referred to by the FCA in MCOB?
They are ‘mortgage prisoners’ and vulnerable customers.
What is a mortgage prisoner?
‘Mortgage prisoners’ is a term to describe customers who have a regulated mortgage and may be prevented from changing to another arrangement with their existing lender or moving to another lender if they are subject to the standard affordability requirements under MCOB.
What is a vulnerable customer?
The FCA’s Occasional Paper No. 8 (2016) describes a vulnerable customer as someone who is “[. . .] especially susceptible to detriment as a result of their personal circumstances, particularly when a firm is not providing appropriate levels of care”.
An individual may be vulnerable because of a wide range of circumstances including (but not limited to) physical or mental disability, poor health, or weak numeracy and literacy skills. Their vulnerability might be short term, for example because of a job loss, a recent bereavement or release following a prison sentence.
Which of the following would the FCA not consider a vulnerable customer?
A) using the statutory right to buy;
B) entering a sale‐and‐rent‐back agreement;
C) equity‐release applicants;
D) customers whose main purpose is debt consolidation.
E) CBTL
E) CBTL - not a vulnerable customer
Which of the following is able to borrow?
A) Minors
B) Mentally incapacitated
C) Bankrupt
D) Very poor credit rating
E) Elderly
E) Elderly
Are potentially able to borrow
An individual can petition for their own bankruptcy regardless of how much they owe.
True or false?
True
In England, Wales and Northern Ireland, creditors can petition for a debtor’s bankruptcy if the debt is at least how much?
A) £2,000
B) £5,000
C) £10,000
B) £5,000
An undischarged bankrupt cannot borrow.
True or False?
False - there is no law preventing them, though in practice it would be VERY difficult.
A borrower must declare a previous bankruptcy regardless of whether the lender asks.
True or false
False.
A borrower must declare a previous bankruptcy if asked by the lender
Failure to declare a previous bankruptcy when asked can render the person guilty of what?
Fraud
How long does details of bankruptcy remain on a person’s credit file?
6 years
Define an Individual Voluntary Arrangement?
A formal agreement between a debtor and their creditors to make reduced payments towards their total debt over an agreed period, typically five years, after which the debt is deemed to be settled.
Define an Individual Voluntary Arrangement (IVA)?
A formal agreement between a debtor and their creditors to make reduced payments towards their total debt over an agreed period, typically five years, after which the debt is deemed to be settled.
What is Debt Relief Order (DRO)?
An order granted by the official receiver to a non‐property owning individual with debts of less than £30,000 and limited assets who cannot repay their debts. It prevents creditors from seeking repayment without the approval of a court while the DRO is in place; after 12 months the debts are usually written off.
If someone is an EPA (Enduring Power of attorney) it means:
A) They must have been appointed prior to 1/10/07
B) They must have been appointed after 1/10/07
A) They must have been appointed prior to 1/10/07
An LPA must be registered with who before it becomes effective?
The Office of the Public Guardian (OPG)
Helena and Cath have a £120,000 mortgage in their joint names on their flat, which they bought two years ago. Helena and Cath have split up, Helena has moved out and Cath has not been able to contact her about paying the mortgage.
Who will the lender hold liable if the mortgage payments are not made? (Assume that Helena and Cath own the flat on a joint tenancy basis.)
a) Cath for the whole amount, because she is the only person actually living in the flat.
b) Helena and Cath, but the lender will pursue Cath for the whole amount if Helena cannot be contacted.
c) Cath for 50 per cent of the outstanding payments and Helena for the remainder.
d) Cath for 50 per cent because she is only liable for half the amount borrowed.
b) Helena and Cath initially, but ultimately Cath for the whole amount because they have joint and several liability for the loan.
What are the three main reasons why a personal borrower might require a mortgage?
To purchase a family home;
to arrange additional finance on a second‐charge basis;
or to provide bridging finance.
