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Training
9. Harry and Rebecca are considering taking
Society Acts, Eastern Counties must check A- Even though the new rate is lower than the
advantage of their existing lender's latest
the adequacy of the security by reassessing existing rate, the borrower will not benefit
fixed rate deal by switching from their
the property to ensure that it continues to immediately as he has had to pay £750
variable rate mortgage. They will not raise
offer sufficient security. costs.
any additional capital and the mortgage
B- Whilst a re-assessment of the security, the B- At 4 months on the new rate, the borrwer
would represent 82% LTV compared to the
property, is required, this need not be by an will have paid £120,000 @ 5% ÷ 3 = £2,000 +
original 94%. Which of the following would
external valuer. £750 for the costs. On the existing rate he
be true of their proposed action?
C- A property assessment will be needed. will only have paid £120,000 @6.5% ÷ 3 =
A - It is likely to be less costly to arrange
This need not extend to a formal valuation, £2,600
than a remortgage.
particulary if the original loan-to-value was C- The cost of the existing arrangement over 6
B - The switch is likely to be cost free.
not high. months is £120,000 @ 6.5% = £7,800 ÷ 2 =
C - They may have to pay another higher
D- A property assessment will be needed. £3,900. The cost of the new loan over 6
lending charge.
This need not extend to a formal valuation, months is £120,000 @ 5% = £6,000 ÷ 2 =
D - They would have to allow for
particulary if the original loan-to-value was £3,000 + £750 initial costs.
conveyancing costs.
not high. D- At 13 months on the new rate the borrower
Q4 - Correct answer: D will have paid (£120,000 @ 5%)/12 x13 =
10. What is the position when a joint borrower
A - The total cost here is £80,000 @ (i) 3.5% (ii) £6,500 + £750 costs. This will be cheaper
wishes to be released from his commitment
6.2% and (iii) 6.2%. Thus £2,800 + £4,960 + than the existing rate but it is not the
due to an impending divorce? The lender:
£4,960 = £12,720. This is higher than earliest point.
A - cannot refuse under any circumstances.
option D. Q8 - Correct answer: D
B - is likely to refuse if it believes that the
B - The total cost here is £80,000 @ (i) 4.5% (ii) A- As circumstances are always fluid, there
remaining borrower will be unable to
4.5% and (iii) 6.2% plus £399. Thus £3,600 would be no reason for the lender's checks
meet the mortgage repayments.
+ £3,600 + £4,960 + £399 = £12,559. This is to be any less stringent.
C - should recommend the remaining
higher than option D. B- The existence of life policies is independent
borrower move to a cheaper property.
C - The total cost here is £80,000 @ (i) 5.15% of mortgage arrangements, even if used in
D - will not be able to act until the decree
(ii) 5.15% and (iii) 5.15% + £199. Thus conjunction with them.
absolute is obtained.
£4,120 + £4,120 + £4,120 + £199 = £12,559. C- The higher lender charge (Mortgage
This is higher than option D. Indemnity Guarantee single payment) is not
D - The total cost would be £80,000 @ (i) 5.2% refundable.
ANSWERS & JUSTIFICATIONS
(ii) 4.2% and (iii) 6.2%, plus £50. Thus D- Moving home is an expensive exercise,
£4,160 + £3,360 + £4,960 + £50 = £12,530. including costs for solicitors, surveys and
All other options exceed this amount. other mortgage-related costs.
Q1 - Correct answer: C
Q5 - Correct answer: B Q9 - Correct answer: A
A - An increase in capital or income raised as
A - There seems to be no reason for a A - Whilst lenders often impose charges when
a result of home reversion or lifetime
requirement of any type of bridging finance borrowers switch from their existing deal, it
mortgage plans have the potential to affect
here. No property is being purchased by is still likely to be cheaper than going
State benefits, e.g. Pension Credit, etc.
the seller of the land. through the full purchase process and costs
B - All plans which follow the SHIP Code of
B - Open bridging applies when a purchaser of with a new lender.
Practice offer a no negative equity
a new property has yet to find a purchaser B - Lenders often impose charges when
guarantee.
for the existing property, but intends to borrowers switch from their existing deal,
C - A generally acknowledged advantage of
proceed immediately. such as arrangement fees, early
home reversion schemes is that usually
C - Closed bridging would apply where an redemption charges and a valuation fee.
more funds are raised than under lifetime
existing property already has achieved a C - As they are staying with their eixsting
mortgages, assuming all other
firm buyer. lender, Harry and Rebecca would not be
circumstances are the same.
D - There is no evidence that Mary is selling an expected to pay a further higher lending
D - Ownership of the property on a home
existing property, so bridging does not charge.
reversion plan is passed to the reversion
appear to be an issue. D - As there is no change of lender, any charge
provider.
Q6 - Correct answer: B imposed by the lender would not relate to
Q2 - Correct answer: A
A- Tacking relates to charges against a additional conveyancing costs.
A- Annie will be too young to start a home
property where there are multiple loans. Q10 - Correct answer: B
income plan because the interest will roll-
The way interest is calculated is not A - If a joint borrower wishes to be released
up for her lifetime, creating too great a
relevant. from a mortgage contract, the lender has
debt.
B- Drawdown allows further tranches of the right to the final say as to whether this
B- Whether or not Annie has children would
money to be taken by the borrower, is acceptable or not.
not be a significant factor in determining if
eliminating the need for multiple borrowing B - The lender's primary interest is that the
a home income plan is suitable for her.
and priority of charges to which tacking mortgage continues to be serviced. If the
C- It is possible for a lump sum, as well as
relates. lender has doubts about the remaining
income, to be secured through a home
C- Early repayment charges relate to payments borrower achieving this, then the request
income plan.
contracted with the borrower, to be made if for release is likely to be refused.
D- There is no transfer of ownership under a
a loan is repaid early. Tacking relates to C - Whilst this may or may not be a solution
home income plan, unlike home reversion
charges against a property where there are for the borrower, the lender's interest
plans, where the reversion provider
multiple loans. relates primarily to ensuring the existing
becomes the new owner.
D- Fixed rates of interest are not relevant. The mortgage is properly serviced.
.Q3 - Correct answer: A
tacking is concerned with changed priorities D - The lender is guided by the financial
A- In keeping with prudent lending practice
where multiple loans are taken out. realities and is not obliged legally to await
and the requirements of the Building
Q7 - Correct answer: C the decree absolute.
November 2009 Mortgage Introducer www.mortgageintroducer.com
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