Mortgage Knowledge Test

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Question 1

LIBOR has historically been one of the main interest rate benchmarks used in financial markets. It determines interest rates for financial contracts around the world but was phased out during 2023. What did Libor stand for?

London Interbank order rate

London interbank offered rate

London interbank open rate

London International one rate

Question 2

Which institution issues UK banknotes?

The Bank of England

The Treasury

The Royal Mint

The Government

Question 3

What is deflation?

A fall in the rate of inflation, ie prices are still rising, but less quickly than they were.

the rate of growth of the money supply is greater than the rate of growth of real goods and services.

A general fall in the price of goods and services. In other words, the inflation rate is below zero per cent – a negative inflation rate.

two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP).

Question 4

Who sets the Interest rates?

The Government

Bank of England’s Monetary Policy Committee (MPC).

A chosen team of Banking Executives

The King

Question 5

What are the 2 main regulatory bodies for financial services in the UK ?

Bank of England & The Government

Financial Services Authority (FSA) & Prudential Regulation Authority (PRA)

Financial Conduct Authority (FCA) & Prudential Regulation Authority (PRA)

Financial Reporting Council & Competition & Markets Authority

Question 6

A water bill is an example of;-

Committed expenditure

Basic essential expenditure

Basic quality of life expenditure

Cost of living expenditure

Question 7

What does an APRC allow a borrower to do?

How much they will pay each month

What interest rate they will pay on the mortgage

How long they will pay the mortgage for

Enables a prospective borrower to compare the true cost of borrowing from different lenders.

Question 8

In the first year of a capital repayment mortgage, repayments are mainly interest

True

False

Question 9

Capital repayment mortgages offer borrowers the possibility of a capital surplus at the end of the term.

True

False

Question 10

Greg has a capital repayment mortgage on which the interest rate has just increased. Greg's lender has agreed that he can maintain his monthly repayments at the level prior to the rate increase. What effect will this have?

The mortgage term will decrease.

The mortgage term will increase.

The mortgage term will not be affected.

Greg's lender will require him to make overpayments later in the term.

Question 11

Jenny's mortgage is on an annual review basis, and the last review was held on 31 December 2018, when the interest rate was 4 per cent. What would be the consequences if interest rates rose from 4 per cent to 5 per cent from July to December 2019?

The capital owed would have reduced on 1 January 2020.

The capital owed would have increased on 1 January 2020.

There would be no difference in the capital owed

Jenny's mortgage payments would reduce from 1 January 2020.

Question 12

Kristina has just arranged a discounted rate mortgage. This means that:

any arrangement fee will be refunded if the mortgage does not go ahead.

early repayment charges would not apply to the mortgage.

the interest rate will be at a discount from the Bank of England base rate.

the mortgage may be subject to an interest rate floor

Question 13

Shaun wishes to increase his existing £125,000 mortgage to £155,000 and is considering his options. His house is valued at £175,000. Which of the following costs is most likely to apply to a remortgage, but not a further advance?

A higher lending charge.

An arrangement fee.

Legal fees.

Stamp Duty Land Tax

Question 14

Which of the following is true where a remortgage is arranged as part of a debt consolidation programme?

It is likely to increase the risk of the property being repossessed.

The homeowner's overall borrowing risk will be reduced by securing the loans in this way.

The interest rate will be higher to reflect the reason for the additional borrowing.

The lender will never impose a higher lending charge.

Question 15

A survey shows significant work is required on a property's roof. The lender is likely to;-

require an undertaking

impose a retention

insist on additional buildings insurance

require a warranty

Question 16

If any individual buys a property intended for use as their main residence before selling their existing home, how long do they have to dispose of of their original property to claim back the SDLT?-

12 months

24 months

36 months

48 months

Question 17

Discounted-mortgage interest rates are guaranteed not to change for a defined period.

True

False

Question 18

Which of the following best describes a shared ownership scheme?

A property ownership model where multiple unrelated buyers collectively purchase a property, sharing both the costs and the living space.

A government-backed scheme where a buyer purchases a percentage of a property and pays rent on the remaining portion, with the option to buy more shares in the future

An arrangement where a property is owned by a group of investors who lease it to tenants, with profits distributed based on the percentage of ownership.

A financing method where a buyer takes a loan from multiple lenders, with each lender holding a proportional stake in the property.

Question 19

What is the minimum age for an Equity Release Mortgage?

70

65

60

55

Question 20

Which of the following is true of a typical sub-prime mortgage compared with a standard mortgage?

Interest rates are usually slightly lower

Arrangement fees tend to be higher

Maximum LTV tends to be higher

Range of interest only options is very limited

Question 21

28 year old Jane wishes to arrange an interest only mortgage, which she intends to pay off by the age of 53. Although she would like to do so earlier if she has sufficient funds. She will be able to make regular contributions to a repayment vehicle but also intends to make additional payments from her quarterly bonus scheme when she feels able to do so. Other than a savings account for her deposit, she has no other investments. Which product from those below would best meet her needs as a repayment vehicle?

A stocks and share ISA

A with profits endowment

A personal pension

A unit Trust

Question 22

A mortgage protection policy is appropriate for people with capital and interest mortgages.

True

False

Question 23

MCOB rules only apply to second charges taken out for business purposes if loan is for ?? or less?

£10,000

£15,000

£20,000

£25,000

Question 24

A stamp duty land tax return must be completed in how many days after completion?

10 days

14 days

30 days

40 days

Question 25

Upon a binding offer, how many days reflection period must be given to the borrower?

5 days

7 days

14 days

30 days

Question 26

Joe is planning to invest in a buy to let property when he gains access to his pension fund in August 2019 and is unsure whether to use a special purpose vehicle (SPV) or buy a property in his own name. Which of the following would be an important consideration for him?

The SPV will pay higher stamp duty land tax.

The SPV will be able to claim mortgage interest as a business expense in full

Holding the property in his own name will enable him to avoid paying income tax on rental income he does not withdraw from the business.

Joe would lose control of the property if he bought it through a SPV.

Question 27

Capital gains made on sale of a property by an SPV are subject to:

corporation tax

capital gains tax

income tax

stamp duty land tax

Question 28

Kristina has just applied for a mortgage to buy a flat in England under the Help to Buy Equity Loan scheme. Which of the following statements would mean that the application would be able to proceed?

Kristina already owns another flat

Kristina plans to let the flat to her friends

The flat is two years old

The purchase price is £595,000

Question 29

Nicky pays a reservation fee of £250 when applying for a five-year fixed-rate mortgage, with an extended early repayment charge. Which of the following statements is true?

Monthly payments will increase only when the Bank of England base rate changes.

The early repayment charge will always last for the fixed-rate period only.

The fee is not usually refundable if the application is subsequently cancelled.

The mortgage will automatically switch to a new fixed rate after five years.

Question 30

Which of the following is true regarding offset mortgages?

interest received from the offset savings is paid tax free to the mortgagor.

monthly mortgage payments reduce in line with savings held on a monthly basis.

mortgage is overpaid each month that savings are held in the offset account.

savings offset in the account are subject to interest penalties on early withdrawal.