1Which of the following is true in relation to home reversion plans?
a)Interest will be rolled up if required
b)The plan holder can choose to receive cash or income but not both
c)The plan holder will not benefit financially from any improvements he makes to the property
d)The plan holder will retain ownership of the property
2What is the significance of a no-negative equity arrangement on a lifetime mortgage?
a)An annuity will be arranged, from which the interest must be paid
b)Mortgage payments can be suspended if the house is worth more than the total debt
c)The borrower will be required to sign an agreement to pay interest if the debt exceeds a predetermined level
d)The mortgage plus rolled-up interest cannot exceed the property value
3The MCOB Rules cover the requirements for an illustration for a further advance. Which of the following is true of such an illustration? It:
a)is not required to show the total borrowing
b)must be based on the amount of the further advance only
c)must be based on the new total lending
d)uses a different format from the illustration required for a new mortgage
4George and Freda are retired and own their own home outright. They wish to use some of its value to increase their income. Which of the following would be most appropriate to their need?
a)A deferred interest mortgage
b)A home reversion scheme
c)A shared ownership scheme
d)An equity share scheme
5In which of the following cases would closed bridging finance be appropriate?
a)Angela wishes to purchase a plot of land next to her current property so that she can build an extension
b)Anna has found a property to buy and is about to put her own house on the market
c)James has exchanged contracts on the sale of his own property but must complete on his new purchase within seven days
d)Laura is buying out her ex-husband from the property she lives in
6Malcolm has both a first and second charge on his property, but has not been able to make any payments on either loan recently. His mortgage lender is now exercising its power of sale. He also has an unsecured loan. Where does Malcolm fall in the order of priorities to receive any proceeds from the sale?
7.Oliver and Harriet are considering remortgaging their property, valued at £200,000, from the £160,000 variable rate loan to a £175,000 fixed rate deal in order to build a conservatory. What should they be wary of?
a)A new lender might impose a higher lending charge
b)The conservatory is unlikely to add any value to the property
c)The need to postpone the existing lender’s charge
d)They will have to pay early repayment charges on their existing mortgage
8Alan is a sales representative who drives around 40,000 miles a year visiting clients. He and his wife Linda, a full-time mum, have decided to move to a slightly cheaper area 10 miles away in order to buy a larger house to accommodate their young and expanding family. Which of the following is likely to be the least important factor in their deliberations?
a)Local medical facilities
c)The proximity to the railway station
d)The quality of local higher education
9Changing a capital repayment mortgage to an interest only mortgage with the same lender may require a:
a)deed of assignment
b)deed of variation
c)new mortgage contract
d)transfer of equity
10Leo and Karen are planning to divorce and Leo wishes to be released from the mortgage which they hold in joint names. Which of the following is correct?
a)Leo can be released immediately if Karen is in agreement
b)Leo is entitled to be released if the lender agrees, irrespective of whether Karen is in agreement
c)The lender can refuse the request even if Karen agrees to Leo’s release
d)The lender must agree if Leo’s release is part of the divorce agreementANSWERS:
1c) As ownership of the property passes to the reversion provider, any improvements to the property which increase its value will benefit the provider, not the planholder.
2d) Interest payments are made, the unpaid interest is accumulated and added to the outstanding capital value of the mortgage. The danger is that, over time, these amounts together could exceed the value of the property, creating negative equity. ‘No negative equity’ provisions offered by lenders cap debt at the value of the property.
3b) The illustration for a further advance under MCOB rules must be based on the further advance only.
4b) A home reversion scheme allows ownership of the property to be transferred to generate income. No interest would be paid to reduce the income.
5c) As James has a buyer for his existing property, he will use closed bridging if he completes his new purchase before completion of his sale.
6c) The lender with the first charge will have priority over that with the second charge. The lender with the second charge will be next in line. The third lender has no charge or relationship with the property, so has a claim against Malcolm, who ranks after the two lender charges in respect of the property.
7a) As the new loan amount would be 87.5% of the property value, it is in the area where a lender may wish to impose a higher lending charge. These are often made by lenders where the loan-to-value exceeds 75%.
8c) Alan is a driver and uses his car for work. Linda is a full-time mum and therefore does not commute. The closeness of a railway station does not appear to be a potentially significant issue.
9b) A change from capital repayment to an interest only mortgage with the same lender will be a formal change to the contract and, as such, it is likely that a deed of variation will be required.
10c) The lender has a right to protect its interest and can therefore refuse agreement, even if the potential remaining borrower is happy for the former joint borrower to be removed from the contract.