What is a Mortgage?
A secured loan or an arrangement where an asset, typically property is used by the lender as security for the loan.
What is a legal charge?
The security against the property.
What are 1st and 2nd charge?
1st. The loan that is registered first
2nd. Registered after the first, higher rate of interest due to higher risk and is normally done by specialist lenders.
When did mortgages become regulated by MCOB?
October 2004. Before this they were not regulated.
What must apply for a mortgage to be regulated?
- It is for an individual or trustee
- Secured by legal charge
- 40% of the home must be used
What mortgages are not regulated?
- Companies (Ltd or Plc)
- Commercial mortgages (shops, offices)
- Most BTL’s
When did the Mortgage Credit Directive come in force?
March 2016.
What does the MCD include?
- MCOB rules
- Includes consumer BTL’s and second mortgages
What is a consumer BTL?
When someone becomes and actual landlord where they either:
-Inherit the property
- Moved but can’t sell previous one
- Moved in with partner so rents out the current property
What are the features of a Lifetime Mortgage?
- For those typically above 55
- MCOB regulated
- Advisors need the equity release exam
- Interest is rolled up and paid with capital upon death
What is a Home Reversion Plan?
- Where a property is sold to a provider who will allow you to stay with a lifetime tenancy
- Can only access if the person dies/moves or goes into care
- Only regulated by MCOB
What is a Retirement Interest Only Mortgage?
For those with interest only mortgages and had no repayment vehicle.
What are the 3 Mortgage P’s?
- Property
- Person
3.. Purpose
What is a private personal borrower?
- Either 1st or subsequent buyers
- Taken by single or multiple people
- All parties are liable for the full debt (jointly and severally liable)
What is a business BTL?
- BTL with the view to make money/let out
- Jointly and severally liable
- Loan determined by the rental income
- Rental needs to be 125% - 145% of the loan repayments (ICR)
- Not regulated
What are the features of a business borrower?
Only regulated if:
- 40% rule applies
- Sole purpose is to raise funds for use by small businesses.
- Can’t be a LLP as they’re not regulated
What is a business partnership?
A relationship between persons with a view of profit
- It is not a separate entity
- Jointly own the liabilities
- The lender will want to see the partnership agreement
What is a LLP?
Like lending to a company but the people don’t have direct liability for the debts
- Might ask for personal guarantees
- Mortgage is provided directly to the LLP
What is a corporate borrower?
Lending to a company.
What does it mean when a limited company is a separate legal entity?
Means it’s separate from shareholders and you can’t enforce debt on the shareholders.
What is a personal guarantee?
Offers more security for the lender as directors can be chased/held responsible.
What are the two documents which show the companies powers to borrow?
- Memorandum of association (powers of company)
- Article of association (powers of directors)
What is a specialised purpose vehicle?
- A company set up specialising in buying BTL/Commercial property
- More attractive for tax purposes
- BS’s have a max of 25% of assets held in loans to companies
What is a commercial borrower?
Lending to anyone for the purpose of purchasing commercial property
