Mortgage Product Types Flashcards
Sharia Mortgages - Ijara
Lease to own
Customer chooses property, agrees price.
Bank buys property and pays SDLT
property is then sold to client for same price under a promise to purchase agreement - repayments over a period of up to 25 years
Bank is registered owner until end of term
Client occupies property - pays monthly amount = rent & capital repayment
Rental element reviewed annually
Bank makes profit on the RENTAL element (Interest)
Ijara = expensive compared to normal mortgage, but cheaper than other Islamic mortgage Murabaha
Sharia Mortgages - Murabaha
Lender buys property at agreed price + SDLT and immediately sells it to the borrower at a higher price
Price paid by borrower depends on term of mortgage - usually up to 15 years
First payment of 20% made - followed by fixed monthly payments for rest of term
Property registered in name of borrower and lender holds a legal charge (similar to normal mortgages)
Murabaha costs more than Ijara
CAT Standard Mortgages
CAT = Charges Access Terms
Apply to:
Fixed, variable and capped rate loans
Variable and Trackers
Shared Ownership
low income, cannot obtain conventional mortgage
Rental payments to housing association, mortgage payments to a lender. Typically 50/50 split
Borrower is responsible for maintenance
SDLT is payable on FULL PRICE OF PROPERTY not just share purchased
Staircasing = purchase further shares when income sufficient. Some will enable full ownership.
Equity Share
Enables borrower to buy a share in the property and make lower mortgage payments, remaining share owned by the lender, developer or other provider
E.g. Mortgage of £100,000:
Interest on £70,000 at SVR
Interest on £30,000 at nil/reduced rate
In return the lender would take 20% stake of equity of the property when it is sold, or when borrower remortgages.
Equity Release
Lifetime Mortgages
Home Income Plans
Home Reversion Schemes
Equity Release - Lifetime Mortgages
Borrower raises a lifetime mortgage on property - a loan with their home as the security (making this a Lifetime MORTGAGE) (distinguish against Home Reversion)
Fixed rate
Capital released = can buy an annuity
Lending restricted to 25% to 55% LTV dependent on age
No regular payments of capital OR interest made
Interest rolls up - typical loan will double every 10 years
The property is sold when the borrower dies or sells property, proceeds pay off the loan balance and any surplus goes to estate
Most mortgages provide a no-negative equity promise - borrower will never owe more than value of property.
Drawdown:
- Lump sums can be drawn when required - £2000-£5000 typically
Interest only rolls up on funds drawn so interest-rollup is slower
Younger people can only borrow lower LTV%
Equity Release - Home Income Plans
Not common today - capital raised used to buy annuity
Mortgage interest deducted from annuity payment with difference paid as income to borrower
Provider usually allowed the borrower to take 10% cash and remainder was used to buy a lifetime annuity for borrower
Loan interest & annuity income fixed for LIFE of plan
Equity Release - Home Reversion Schemes
No mortgage created
Homeowner sells all or part of home in return for a discounted capital sum, an income or both.
Lifetime lease agreement - reversionary company and nominal rent is paid £1 - £12 p/a.
Price determined by LIFE EXPECTANCY OF HOMEOWNER
Provider must wait until death before proceeds can be realised
Reversion schemes provide more cash than Lifetime Mortgages
Regulated by FSA from 2007
Equity Release Council
applicants advised to seek Independent Legal Advice
Solicitor required to sign a certificate confirming applicants understand the implications of agreement.
No negative equity guarantee will be given by provider
Plan must be portable to another property
Borrower will be entitled to stay in their home for the rest of their lives.
Commercial Mortgages
Security of the loan is a commercial premises- shop, factory, etc.
Assessment will include the borrower’s track record in running the business, a business plan and expected impact of buying the property.
Provided by banks, B.S. & specialist lenders.
B.S. lending is limited to 25% on commercial property
