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CeMAP 2 - MORT > Topic 3 > Flashcards

Topic 3 Flashcards

Mortgage regulation (89 cards)

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1
Q

What is a mortgage?

A

A loan secured against an asset, usually property, where the lender has legal rights over it until the loan is repaid.

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2
Q

What does ‘secured’ mean in the context of a mortgage?

A

It means there is a legal agreement giving the lender rights over the asset used as security if the borrower defaults.

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3
Q

What is a legal charge?

A

A legal agreement giving the lender rights over the property while the mortgage is outstanding, including the right to possession (via court).

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4
Q

Why are mortgage rates typically lower than unsecured loans?

A

Because the lender has the security of the property, reducing their risk.

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5
Q

Can a property have more than one legal charge?

A

Yes, a property can have multiple legal charges, such as a first charge and a second charge.

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6
Q

What is a first charge mortgage?

A

The first legal charge registered at the Land Registry, which takes repayment priority if the property is sold or repossessed.

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7
Q

What is a second charge mortgage?

A

A legal charge registered after a first charge, repaid only after the first charge is settled, and at higher risk of not being repaid.

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8
Q

Which body currently regulates the marketing and sale of mortgages in the UK?

A

The Financial Conduct Authority (FCA), since April 2013.

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9
Q

What is MCOB?

A

The Mortgages and Home Finance: Conduct of Business sourcebook, part of the FCA Handbook containing mortgage regulatory rules and guidance.

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10
Q

Name three types of finance covered under MCOB.

A

Regulated mortgages (including lifetime and second-charge), home reversion plans, and home purchase plans (Islamic mortgages).

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11
Q

What is the Mortgage Credit Directive (MCD)?

A

An EU directive (2014) setting minimum standards for residential mortgage regulation across member states, implemented in the UK from 21 March 2016.

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12
Q

How did the UK implement the MCD post-Brexit?

A

By incorporating most of it into MCOB and adapting existing UK rules; most of the MCD still applies as UK law.

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13
Q

What is a consumer buy-to-let (CBTL) mortgage?

A

A new category introduced under MCD to regulate buy-to-let mortgages where the borrower does not act as a business.

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14
Q

What are back book loans in the context of second charges?

A

Second-charge mortgages taken out before 21 March 2016 that now fall under MCOB if they meet current regulated criteria.

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15
Q

What is retained EU law (REUL)?

A

EU law absorbed into UK law post-Brexit via the EU (Withdrawal) Act 2018 and the EU (Withdrawal Agreement) Act 2020.

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16
Q

What was the purpose of the Financial Services and Markets Act 2023?

A

To replace retained EU law with UK-specific rules and give the FCA new duties and regulatory powers.

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17
Q

What is the difference between primary and secondary legislation?

A

Primary legislation is an Act of Parliament; secondary legislation is made by ministers under powers granted by primary legislation to add or amend details.

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18
Q

What is a regulated mortgage contract under the FCA?

A

A contract where a lender provides credit to an individual or trustees, secured on UK land, and at least 40% of the land is used as a dwelling.

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19
Q

Are mortgages on EEA land still regulated if entered into before Brexit?

A

Yes, if entered into before 31 December 2020, they are still considered regulated under the previous rules.

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20
Q

What is the significance of 31 October 2004 in mortgage regulation?

A

It is the date mortgages came under regulation by the Financial Services Authority; contracts before this date are not classified as regulated but may still follow MCOB rules voluntarily.

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21
Q

What are the two subcategories of regulated mortgages since 21 March 2016?

A

Regulated mortgages and MCD regulated mortgages.

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22
Q

What is an MCD regulated mortgage?

A

A mortgage entered into on or after 21 March 2016, subject to rules updated to meet the EU Mortgage Credit Directive.

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23
Q

Do remortgages qualify as MCD regulated mortgages?

A

Yes, because they are considered new contracts.

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24
Q

Where can you find the disclosure rules for MCD regulated mortgages?

A

In Chapter 5A of the MCOB sourcebook; standard regulated mortgage disclosure rules are in Chapter 5.

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25
Are buy-to-let mortgages regulated by the FCA?
No, unless they are consumer buy-to-let mortgages, which are regulated.
26
What are corporate mortgages and are they regulated?
Mortgages held by companies, and they are specifically excluded from FCA regulation.
27
What is a lifetime mortgage?
A loan for older homeowners to release equity, typically repaid when the borrower dies, moves into care, or sells the home.
28
What conditions must a lifetime mortgage meet to be regulated?
It must meet the regulated mortgage definition and only be available to older borrowers, with repayment deferred until specific life events occur.
29
What are typical repayment options for a lifetime mortgage?
Interest roll-up (no repayments), interest-only payments, or partial capital and interest payments with full capital repayment deferred.
30
What is an MCD-exempt lifetime mortgage?
A lifetime mortgage that remains regulated separately from MCD rules, introduced from 21 March 2016.
31
What is a retirement interest-only mortgage?
An interest-only mortgage for older borrowers where the loan is repaid only after specific life events such as death or moving into care, unless the borrower breaches the agreement.
32
When was the retirement interest-only mortgage category introduced?
In March 2018 by the FCA.
33
What key feature distinguishes a retirement interest-only mortgage from other interest-only mortgages?
Affordability is assessed on an interest-only basis without requiring a repayment vehicle.
34
What is explicitly excluded from being a retirement interest-only mortgage?
Interest roll-up mortgages.
35
What are the qualifying life events that trigger repayment of a retirement interest-only mortgage?
The borrower’s death, moving into care, or another specified life event.
36
What is a home purchase plan?
An arrangement where a provider buys a property and the home purchaser agrees to buy it from the provider over time or at the end of a specified term, while being entitled to occupy at least 40% of it.
37
How does a home purchase plan differ from a regulated mortgage?
In a home purchase plan, the provider owns the property and sells it to the buyer through instalments or a future payment, whereas in a mortgage, the buyer borrows money to buy the property in their own name and pays interest.
38
Why are Islamic home finance plans treated as home purchase plans under FCA rules?
Because Islamic law prohibits interest payments, so the provider earns profit through rent or resale instead of interest.
39
What are the two main structures of Islamic home finance plans?
The provider sells the property at a higher price with repayments over time (profit from price difference). The provider charges rent while the buyer makes capital repayments (profit through rent).
40
Who typically uses home purchase plans, especially Islamic finance plans?
Individuals seeking Sharia-compliant alternatives to conventional interest-bearing mortgages.
41
What is a home reversion plan?
A regulated arrangement where the provider buys all or part of a property at below market value, and the former owner lives there under a lifetime lease until death, entry into care, or the end of a set term.
42
What must a regulated home reversion plan allow the occupier to do?
Occupy at least 40% of the land as a dwelling.
43
When do most home reversion plans end?
On the occupier’s death or when they enter residential care.
44
What is the key condition of a regulated buy-to-let mortgage?
The borrower or a related person must never occupy the property as a dwelling; it must be let under a rental agreement.
45
What is a Consumer Buy-to-Let (CBTL) mortgage?
A BTL mortgage taken out by an ‘accidental landlord’—not for business purposes—and regulated under the CBTL framework.
46
What are examples of accidental landlords under CBTL rules?
a) Someone who inherits a property and rents it out. b) A homeowner who temporarily rents out their property due to relocation.
47
What is a business buy-to-let mortgage?
A mortgage for buying a rental property as part of a business; not regulated by the FCA if the borrower declares it's wholly for business.
48
What declaration must a business BTL borrower sign?
That the loan is wholly or predominantly for business purposes and they accept no CBTL protection.
49
What is a second-charge loan?
A secured loan using a borrower’s property as collateral, ranking behind the first-charge mortgage in priority.
50
When did second-charge mortgages move under MCOB regulation?
On 21 March 2016, following the implementation of the Mortgage Credit Directive (MCD).
51
What are ‘back book’ second-charge loans?
Loans taken out before 21 March 2016 that now fall under MCOB rules if they meet current criteria.
52
What qualifications must advisers of second-charge loans hold?
A Level 3 mortgage qualification.
53
What is the purpose of the MCOB sourcebook in the FCA Handbook?
It sets out rules and guidance for firms carrying out regulated mortgage activities.
54
What is covered in MCOB Chapter 1?
Application and purpose—explains which parts of MCOB apply and how it links to the wider FCA Handbook.
55
What are the key elements of MCOB Chapter 2?
General conduct of business standards, including clear, fair and not misleading communications and rules on inducements.
56
What does MCOB 2A focus on?
Mortgage Credit Directive (MCD) rules like remuneration, early repayment, tying practices, and foreign currency loans.
57
What does MCOB Chapter 3A regulate?
Financial promotions, banning cold calling and covering promotions of qualifying credit and home reversion plans.
58
What is the focus of MCOB 3B?
General information provision for MCD-regulated mortgages.
59
What does MCOB Chapter 4 cover?
Advising and selling standards including disclosure, independence, suitability, and non-advised sales.
60
What additional requirements are set out in MCOB 4A?
Additional MCD rules for mortgage intermediaries, including adequate explanations and extra disclosures.
61
What is addressed in MCOB Chapter 5?
Pre-application disclosure including timing and content of the Key Facts Illustration (KFI).
62
What does MCOB 5A require?
Pre-application disclosure under MCD, including the European Standardised Information Sheet (ESIS).
63
What does MCOB Chapter 6 cover?
Disclosure at the offer stage including the contents of the offer document.
64
What’s covered in MCOB 6A?
MCD disclosure at offer stage, including binding offers, reflection periods, and distance contracts.
65
What does MCOB Chapter 7 relate to?
Disclosure at contract start and after sale, including annual statements and variations.
66
What is the purpose of MCOB 7A?
Additional MCD disclosure including interest-rate change notifications and currency loan disclosures.
67
What does MCOB 7B deal with?
Information required for further advances under MCD.
68
What’s covered in MCOB Chapter 8?
Advising and selling standards for equity release (lifetime mortgages and home reversion plans).
69
What does MCOB Chapter 9 deal with?
Product disclosure requirements for equity release products.
70
What is the purpose of MCOB Chapter 10?
Calculation of the annual percentage rate (APR).
71
What is the focus of MCOB 10A?
MCD rules for the APRC (annual percentage rate of charge), including assumptions and formula.
72
What does MCOB Chapter 11 require?
Responsible lending and financing rules including assessing the borrower’s ability to repay.
73
What’s included in MCOB 11A?
Additional MCD responsible lending requirements such as affordability assessments and contract variation restrictions.
74
What does MCOB Chapter 12 regulate?
Charges including early repayment and arrears fees, which must be reasonable and cost-based.
75
What is addressed in MCOB Chapter 13?
Treatment of customers in arrears or facing repossession.
76
What does MCOB Chapter 14 cover?
MCD Article 3(1)(b) credit agreements.
77
What does MCOB Chapter 15 deal with?
Peer-to-peer (P2P) home finance activities.
78
What is the purpose of the Consumer Protection (Amendment) Regulations 2014?
To protect consumers from misleading or aggressive marketing and selling practices, particularly by professionals like estate agents.
79
Do the Consumer Protection (Amendment) Regulations 2014 apply to financial services or consumer credit?
No, these are covered by other regulations.
80
What are the three main features of the 2014 Consumer Protection Regulations?
A general ban on unfair commercial practices Assessment of misleading/aggressive practices based on their effect on the average consumer A ‘blacklist’ of practices that are always unfair
81
What constitutes a breach of these regulations in terms of information?
Failing to disclose important information or providing it in a misleading, unclear, or unintelligible way.
82
What is expected of estate agents under these regulations?
They must highlight important or unusual matters and avoid misleading omissions, like not disclosing a property's condition or exaggerating its size.
83
What happens if a business fails to follow a code of practice it has subscribed to?
It may be in breach of the Consumer Protection (Amendment) Regulations 2014.
84
Who is protected under consumer credit legislation?
‘Individuals’, including ordinary consumers, partnerships with 3 or fewer members, and unincorporated associations.
85
What are the key pieces of consumer credit legislation?
The Consumer Credit Acts of 1974 and 2006.
86
Who regulates consumer credit from 2014 onwards?
The Financial Conduct Authority (FCA), using rules in the Consumer Credit sourcebook (CONC).
87
What types of lending are covered by consumer credit legislation?
Unsecured loans, credit cards, and similar forms of credit.
88
Are regulated mortgage contracts covered by the Consumer Credit Acts?
No, they are exempt and regulated under MCOB instead.
89
Since when have second-charge mortgages been part of MCOB?
Since 21 March 2016, following the implementation of the Mortgage Credit Directive (MCD).

CeMAP 2 - MORT (14 decks)

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