The Mortgage Application Process Flashcards

What is the main purpose of anti-money laundering (AML) checks during the mortgage application process?

Answer: To verify the identity of the borrower and confirm that funds used are from legitimate sources

AML checks are legally required to verify the borrower's identity and confirm that any deposit or funds being used have a legitimate, traceable source.

When is a Higher Lending Charge (HLC) typically applied by a lender?

Answer: When the loan-to-value exceeds a certain threshold, often 75% or 90%

An HLC (formerly known as a Mortgage Indemnity Guarantee) is charged by some lenders when the LTV exceeds their threshold, to cover the increased risk of default.

A borrower's application is referred for manual underwriting after an automated assessment. What does this most likely mean?

Answer: The automated system could not make a definitive decision and a human underwriter will review it

A referral to manual underwriting means the automated scoring system flagged the case for human review, often because the application falls outside standard lending criteria.

Which of the following best describes a 'repayment' (capital and interest) mortgage?

Answer: Monthly payments cover both interest and capital, guaranteeing the mortgage is fully repaid at the end of the term

A repayment mortgage reduces the outstanding capital with each monthly payment so that, provided all payments are made, the loan is fully repaid at the end of the agreed term.

What is the significance of 'exchange of contracts' in the property purchase process?

Answer: The buyer and seller become legally bound to complete the transaction

At exchange of contracts, the transaction becomes legally binding and both parties are committed; withdrawal after this point can result in significant financial penalties.

Under the Consumer Credit Act, what is a key characteristic of a second charge mortgage regulated under its provisions?

Answer: The borrower has a 14-day right to withdraw after signing the agreement

Regulated second charge mortgages carry a 14-day cooling-off period under the Consumer Credit Act, during which the borrower can withdraw without penalty.

What does 'completion' mean in the context of a mortgage and property purchase?

Answer: The legal transfer of ownership occurs and the mortgage funds are released to the seller

Completion is the final stage of the property purchase when the mortgage funds are released, the purchase price is paid to the seller, and legal ownership passes to the buyer.