Equity Release - Demonstrate Competency
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Questions and Answers

What challenges do lenders face in meeting customer needs for equity release?

  • Meeting the needs of younger customers
  • Meeting the needs of customers with no health issues
  • Meeting the needs of vulnerable customers (correct)
  • Meeting the needs of customers with unlimited financial resources

    • What is the main difference between a capital repayment mortgage and an interest-only mortgage?

  • In a capital repayment mortgage, the debt reduces gradually, while in an interest-only mortgage, the debt reduces even slower until the end of the term.
  • In a capital repayment mortgage, the debt remains the same until the end of the term, while in an interest-only mortgage, the debt reduces gradually.
  • In a capital repayment mortgage, monthly payments only cover the interest on the debt, while in an interest-only mortgage, monthly payments reduce the debt.
  • In a capital repayment mortgage, monthly payments reduce the debt, while in an interest-only mortgage, monthly payments only cover the interest on the debt. (correct)

    • What is an annuity?

  • A lump sum payment in return for a guaranteed income for life (correct)
  • An arrangement to convert property equity into cash
  • A type of pension plan offered by employers
  • A financial product that provides high returns

    • Which regulator initiated the Mortgage Market Review?

    <p>The Financial Services Authority</p> Signup and view all the answers

    How does the interest charged in a lifetime mortgage with rolled up interest impact the debt?

    <p>It increases the debt due to compounding</p> Signup and view all the answers

    What is the minimum age requirement for most lifetime mortgage providers?

    <p>55</p> Signup and view all the answers

    Which type of plan allows a customer to borrow money and invest it to generate income?

    <p>Home income plans</p> Signup and view all the answers

    What was considered the most suitable vehicle for a home income plan in the past?

    <p>Annuities</p> Signup and view all the answers

    Which type of plan allows the homeowner to sell their property (or a proportion of it) to a reversion provider?

    <p>Home reversion plan</p> Signup and view all the answers

    What does a homeowner become in a home reversion plan?

    <p>Tenant</p> Signup and view all the answers

    What is the main difference between a lifetime mortgage and a home reversion plan?

    <p>Ownership of the property</p> Signup and view all the answers

    What is the role of the Financial Policy Committee (FPC)?

    <p>To have executive power over financial supervision at the Bank of England</p> Signup and view all the answers

    What is the aim of the new Consumer Duty introduced by the FCA?

    <p>To improve consumer outcomes by ensuring that all firms fully consider the needs of their retail clients</p> Signup and view all the answers

    What are the four key outcomes that firms must build into their operations when dealing with retail customers?

    <p>Communications, products and services, customer service, and price and value</p> Signup and view all the answers

    Which regulatory authority is responsible for conduct of business regulation of financial services firms, including smaller firms such as IFAs and insurance brokers?

    <p>Financial Conduct Authority (FCA)</p> Signup and view all the answers

    Which organization is responsible for authorizing providers of regulated mortgage contracts?

    <p>Financial Conduct Authority (FCA)</p> Signup and view all the answers

    Which of the following factors does a firm need to consider in order to determine if the benefits of a lifetime mortgage outweigh the drawbacks?

    <p>All of the above</p> Signup and view all the answers

    According to the text, when is an affordability assessment relevant for equity release customers?

    <p>When the mortgage requires repayments to be made</p> Signup and view all the answers

    According to the text, what records need to be kept by financial firms?

    <p>All of the above</p> Signup and view all the answers

    According to the text, what is the recommended approach for keeping records of equity release products?

    <p>Records to be retained for the expected term of the mortgage plus 3 years.</p> Signup and view all the answers

    Which document will provide you with information about the costs of the legal process?

    <p>Engagement and Terms of business letter</p> Signup and view all the answers

    What information will a client be given about their equity release plan?

    <p>All of the above</p> Signup and view all the answers

    Which type of equity release plan involves the sale of all or part of the property?

    <p>Home reversion plan</p> Signup and view all the answers

    What was the main short-term incentive for providers and advisers of home income plans in the 1970s?

    <p>Commission income</p> Signup and view all the answers

    Which type of companies are the main providers of homereversion plans?

    <p>Life assurance companies and specialist companies</p> Signup and view all the answers

    What percentage of the equity release market does homereversion plans account for?

    <p>Less than 1%</p> Signup and view all the answers

    Which factors can contribute to regional discrepancies in life expectancy in the UK?

    <p>Climate, lifestyle, financial position, and genetics</p> Signup and view all the answers

    Which age group is typically considered more suitable for homereversion plans?

    <p>Between 70 and 75</p> Signup and view all the answers

    What are the main requirements for equity release customers?

    <p>All of the above</p> Signup and view all the answers

    What is one potential drawback of using equity release to consolidate existing debt?

    <p>The total sum payable may increase significantly</p> Signup and view all the answers

    Which of the following is a concern for customers when considering equity release products?

    <p>The impact on eligibility for State benefits and grants</p> Signup and view all the answers

    What is a regulatory requirement for affordability checks in most lifetime mortgages?

    <p>Affordability checks are required regardless of the payment option chosen</p> Signup and view all the answers

    What could be a concern for equity release customers regarding set up costs?

    <p>The high costs of setting up the equity release plan</p> Signup and view all the answers

    Which type of equity release plan allows the customer to continue owning the property?

    <p>Lifetime mortgage</p> Signup and view all the answers

    Which equity release product can potentially reduce the value of the estate left to beneficiaries?

    <p>Both home reversion plan and lifetime mortgage</p> Signup and view all the answers

    Which equity release plan transfers all benefits of rising property values from the customer and their beneficiaries to the reversion provider?

    <p>Home reversion plan</p> Signup and view all the answers

    Which equity release option allows the customer to select the proportion of equity in the property to be protected when the property is eventually sold?

    <p>Lifetime mortgage</p> Signup and view all the answers

    What is the impact on the estate of a rolled up interest lifetime mortgage if the customer lives a long time?

    <p>The impact is the largest</p> Signup and view all the answers

    What is a potential concern for home reversion plan customers?

    <p>Change to tenant status is a dilution of rights</p> Signup and view all the answers

    Which age group is typically eligible for equity release products?

    <p>Over 55</p> Signup and view all the answers

    What is the eligibility requirement for equity release customers regarding their property's title?

    <p>They must have an unencumbered freehold, leasehold, or commonhold title</p> Signup and view all the answers

    Which type of mortgage allows customers to overpay or underpay depending on their cash availability?

    <p>Flexible mortgage</p> Signup and view all the answers

    What is the maximum percentage of the capital that can be repaid each year without penalty in many lifetime mortgages?

    <p>10%</p> Signup and view all the answers

    Which type of mortgage is designed for individuals with health problems or an impaired lifestyle?

    <p>Enhanced lifetime mortgage</p> Signup and view all the answers

    What is a benefit of an enhanced lifetime mortgage compared to a standard lifetime mortgage?

    <p>Higher borrowing amount</p> Signup and view all the answers

    Which of the following health conditions may be included in the eligibility criteria for an enhanced lifetime mortgage?

    <p>Parkinson's disease</p> Signup and view all the answers

    Which of the following is a characteristic of an annuity?

    <p>It involves investment of a lump sum to give an income.</p> Signup and view all the answers

    What determines the income generated for the whole period in an annuity?

    <p>The annuity rate at purchase.</p> Signup and view all the answers

    Which type of annuity provides inflation protection?

    <p>Escalating annuity.</p> Signup and view all the answers

    Which of the following is a factor that can affect annuity rates?

    <p>All of the above</p> Signup and view all the answers

    Which type of mortgage allows a customer to convert from making repayments to an interest roll-up mortgage?

    <p>Lifetime mortgage</p> Signup and view all the answers

    What is the requirement for a property in order to convert a mortgage to an interest roll-up mortgage?

    <p>Adequate level of remaining equity</p> Signup and view all the answers

    Which of the following is a key feature of a drawdown mortgage facility?

    <p>The borrower can choose to draw funds as and when they are required</p> Signup and view all the answers

    What is the main difference between a standard mortgage and a lifetime mortgage?

    <p>Eligibility criteria</p> Signup and view all the answers

    Which of the following is a potential risk when borrowing from relatives?

    <p>There is a possibility of personal problems arising</p> Signup and view all the answers

    What is a common characteristic of credit unions?

    <p>They are owned by members</p> Signup and view all the answers

    What happens to the property in a joint tenancy when one owner dies?

    <p>The property remains fully owned by the surviving owner</p> Signup and view all the answers

    Which type of document is required to confirm a customer's identity during the equity release application process?

    <p>Proof of address</p> Signup and view all the answers

    When is a Key Facts Illustration (KFI) issued during the equity release application process?

    <p>When it is clear that a specific proposition will go ahead</p> Signup and view all the answers

    Which type of ownership allows for unequal financial contributions to be reflected in the ownership of a property?

    <p>Tenancy in common</p> Signup and view all the answers

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