U6: T27 - TRANSFERRING MORTGAGES

Question 1

Nicola has not made any changes to her current mortgage, which started in 2012, and is now considering whether to switch to a different arrangement with her current provider. In what circumstances would her lender not be able to apply the transitional arrangements in MCOB 11.7 regarding an affordability assessment? Where Nicola wants to:

a) increase the borrowing to pay for the mortgage arrangement fee.
b) increase the borrowing to fund essential repairs.
c) increase the borrowing to build an extension.
d) reduce her mortgage with a small capital payment.

Answer 1

C) Her current lender will not need to carry out a full affordability assessment, providing she is not increasing her borrowing other than to cover application fees or to pay for essential repairs or maintenance.

Question 2

The facility to transfer a mortgage product to a new property during the term of a special deal, without incurring charges, is called:

a) transfer of equity.
b) redemption.
c) portability.
d) remortgaging.

Answer 2

c) portability.

The facility to transfer a mortgage product to a new property during the term of a special deal, without incurring charges, is called portability.

Question 3

A transfer of equity occurs when a mortgage or block of mortgages is sold by one lender to another. True or false?

Answer 3

False: transfer of equity is the addition or removal of a borrower from the mortgage deed.

Question 4

The terms and conditions of a mortgage contract can be changed by the lender without the borrower’s agreement. True or false?

Answer 4

False: contract terms can only be changed with the consent of both parties.

Question 5

Removing a borrower from a mortgage deed cannot be done without the lender’s permission. True or false?

Answer 5

True: removing a borrower from the deed may result in a fundamental change in the remaining borrower’s ability to pay the mortgage.

Question 6

Alan and Ann are divorcing and Ann is going to take over their interest‐only mortgage. What would be an appropriate course of action in relation to their joint endowment policy?

Answer 6

Alan and Ann are not obliged to make any changes to their endowment policy but as the policy is designed to repay the mortgage, and Ann is now solely responsible for the mortgage, it would be appropriate to transfer the policy to Ann.

Question 7

Jack and Tom have a joint mortgage on their flat, with Jack’s mother as guarantor. The couple have split up and Tom wants to be released from the mortgage. Does Jack’s mother have to be informed of Tom’s request?

Answer 7

Yes. Changes to terms and conditions may affect the likelihood of a guarantee being called in and the guarantor must therefore agree to any such changes.

Question 8

SDLT is always payable if a new owner is added to the property and the mortgage. True or false?

Answer 8

False: SDLT is only payable if the total of any consideration plus the share of any mortgage taken on by the new owner exceeds the nil‐rate band. When one person is removed from ownership as a result of a court order or agreement between the partners in a divorce, judicial separation or dissolution of a civil partnership, the transfer will be exempt from SDLT.

Question 9

Releasing a borrower from their mortgage obligations when the mortgage is repaid is known in England and Wales as:

a) discharge.
b) redemption.
c) completion.
d) vacation.

Answer 9

d) vacation

Vacation is the technical term in England and Wales for the release from obligation when the mortgage is repaid (‘discharge’ in Scotland).

Question 10

What is meant by the term ‘a clog on the equity of redemption’?

Answer 10

‘A clog on the equity of redemption’ is a condition that, in the opinion of the courts, has been imposed deliberately to prevent or discourage a borrower from paying back a loan. In such cases, the court can set aside the condition, thereby allowing the borrower to make early redemption.

Question 11

Consider the situation where an existing borrower wishes to vary the terms of, or replace, an existing mortgage with the same lender, either on the original property or a new property. Does a lender have to carry out an affordability assessment for an existing customer in these circumstances?

Question 12

Define Portability

Answer 12

The facility to transfer an existing mortgage to a new property during the term of a special deal without penalty.

Question 13

What is contained in MCOB 7.6?

Answer 13

Regulator considerations

Question 14

When a party is added to a mortgage, the lender must provide them with?

A) KFI
B) ESIS

For:
C) Their portion of the loan
D) The Whole Loan

Answer 14

B) ESIS
D) The Whole Loan

Question 15

What is contained in MCOB 7A.3

Answer 15

Early Repayment Disclosure

Question 16

Alice and Terry took out their mortgage with Generous Building Society in March 2012. Mike and Maria took out their mortgage with Prudent Bank in December 2014, and neither couple has increased their borrowing. Both couples now wish to switch to a better mortgage deal with their existing lender, and neither will increase their borrowing beyond adding the arrangement fee to the loan. Which of the following is true?

A) Neither couple’s lender is required to carry out an affordability assessment.
B) Only Alice and Terry’s lender is required to carry out an affordability assessment.
C) Only Mike and Maria’s lender is required to carry out an affordability assessment.

Answer 16

C) Only Mike and Maria’s lender is required to carry out an affordability assessment.

Transitional arrangements in MCOB 11.7 allow lenders to waive the requirement to assess and prove affordability if the new arrangement is to vary the terms of, or replace, an existing (non-MCD) regulated mortgage taken out before 26 April 2014, providing certain criteria are met. The main requirement is that the amount of borrowing does not increase, other than to cover product or arrangement fees for the new contract. The ability to waive the affordability assessment does not apply to MCD regulated mortgages; as Mike and Maria’s mortgage was taken out after 26 April 2014, the transitional arrangements do not apply to them.

Question 17

For which of the following reasons would remortgaging not be a sensible option?

A) Building an extension.
B) Buying a car.
C) Refurbishing a kitchen.

Answer 17

B) Buying a car.

Financing non-property purchases, such as a car, can be attractive at the time, as mortgage rates are generally lower than other forms of borrowing. However, the borrower will be repaying the increased borrowing to the end of the mortgage term; this could mean the car is financed for upwards of 20 years, even though it will lose value rapidly

Question 18

Which of the following is least likely to happen when consolidating an unsecured debt into a remortgage?

A) The borrower’s equity in the property will be reduced.
B) The total interest payable will be roughly the same.
C) There will be a higher risk of repossession on default.

Answer 18

B) The total interest payable will be roughly the same.

Moving unsecured loans to a mortgage will reduce the equity in the property, which in turn will increase the risk of repossession if the borrower cannot keep up the mortgage payments. As the term of unsecured loans is generally much shorter than a mortgage, moving such debts to a mortgage is likely to result in interest being paid for a much longer period and a consequent increase in the total payable.

Question 19

Joe has 3 years remaining on a 5-year fixed-rate mortgage for £100,000. The mortgage carries an early repayment charge of 2% but has a portability option. Joe is moving to a different part of the country where property prices are lower, and he needs a new mortgage of £80,000. Assuming he stays with his existing lender, it is most likely he:

A) will have to take out a new fixed-rate mortgage for £80,000 and pay an early repayment charge of £400.

B) will have to redeem the existing mortgage and pay an early repayment charge of £2,000.

C) can transfer £80,000 of the existing mortgage to the new property and pay an early repayment charge of £400.

Answer 19

C) can transfer £80,000 of the existing mortgage to the new property and pay an early repayment charge of £400.

Portability allows a borrower to take an existing mortgage to a new property, subject to the lender’s current affordability criteria and lending policies. If the new property requires a higher mortgage, the existing amount can be transferred on the same terms, but any additional borrowing will be on a current mortgage deal offered by the lender. If the new property requires a smaller mortgage, the mortgage can usually be transferred, but early repayment charges will usually apply to the difference between the original new mortgage and the new borrowing.

Question 20

True or false: Paul and Emily are divorcing, and Emily wants to remain in their flat and take over the mortgage. Paul has no automatic right to be released from the mortgage

Answer 20

True

Question 21

True or false: Paul and Emily are divorcing, and Emily wants to remain in their flat and take over the mortgage. The agreement must be subject to a court order

Answer 21

False

Question 22

True or false: Paul and Emily are divorcing, and Emily wants to remain in their flat and take over the mortgage. Stamp duty land tax will apply to the transfer.

Answer 22

False

Transfers of equity on divorce are free from SDLT

Question 23

True or false: Paul and Emily are divorcing, and Emily wants to remain in their flat and take over the mortgage. The lender’s agreement is not required if the transfer is registered at the Land Registry.

Answer 23

False

Question 24

True or false: Paul and Emily are divorcing, and Emily wants to remain in their flat and take over the mortgage. Paul must agree to the arrangement.

Answer 24

True

Question 25

If a person is added to an existing MCD regulated mortgage contract, the lender must provide them with a European Standardised Information Sheet (ESIS). It must:

A) meet the requirements for pre-application disclosure detailed in MCOB 5.

B) illustrate the details for the individual’s share of the mortgage.

C) use the exact wording and format detailed in MCOB.

Answer 25

A) meet the requirements for pre-application disclosure detailed in MCOB 5.

The ESIS must meet the pre-application requirements outlined in MCOB 5, but the lender can change words and add or remove information to reflect the change of the customer’s circumstances, to avoid misleading information. The ESIS must show information for the whole of the mortgage.

Question 26

Annie owns her house, valued at £350,000, and has a mortgage of £150,000. She will soon marry Adam, who will move in with her.

No SDLT is payable as transferring equity on marriage is exempt. True or false?

Answer 26

False.

There is no SDLT exemption for marriage, only for separation.

Question 27

When a mortgage is created, the deed contains a ‘legal date of redemption’. This is usually:

A) six months after the mortgage starts.

B) at a date mutually agreed between lender and borrower.

C) the agreed end date of the mortgage.

Answer 27

A) six months after the mortgage starts.

Either party to the mortgage has the right to ask for early redemption after the legal date of redemption, although the lender will usually only do so if the borrower has breached the conditions of the mortgage.

Question 28

Which of the following is true of part-redemption of a mortgage?

A) The lender must automatically credit the payment to the account as soon as it is made.

B) The lender may not credit the payment to the account immediately unless asked to do so.

C) Most lenders will credit the payment as advance monthly mortgage repayments.

Answer 28

B) The lender may not credit the payment to the account immediately unless asked to do so.

The lender may not credit the payment to the account immediately, and some lenders will not credit it until the end of the year unless the borrower requests otherwise. A lender may credit a small additional payment as an advance monthly payment, unless the borrower states otherwise, but the lender is unlikely to use larger sums in that way.

Question 29

Voluntarily increasing the monthly payment on a standard variable-rate repayment mortgage will:

A) reduce the mortgage term.
B) reduce the capital payable over the term.
C) result in early repayment charges.

Answer 29

A) reduce the mortgage term.

Increasing the monthly repayments will reduce the term. The same amount of capital will be paid overall, but as it will be repaid more quickly, the total interest will be lower. Overpaying is unlikely to result in early repayment charges unless the overpayments are excessive.