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Mortgages

Unit 22. Mortgages. Facilitator Support Materials for Mortgages. Unit Aim. To enable learners to understand robust credit assessment processes for mortgage lending; understand different types of mortgages and different methods of repayment available to borrowers. .

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Mortgages

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  1. Unit 22 Mortgages Facilitator Support Materials for Mortgages

  2. Unit Aim To enable learners to understand robust credit assessment processes for mortgage lending; understand different types of mortgages and different methods of repayment available to borrowers. This unit is 20 Guided Learning Hours

  3. Unit Description Learners will be introduced to mortgage lending policy and procedures. Mortgage lending is about assessing credit worthiness and the learners will appreciate that the decision to grant a loan for the purpose of house purchase is no different from any other lending decision, but the sums involved can be quite substantial representing a major long-term commitment for the individual borrower and invariably the customer’s contribution is substantially lower than that of the lender. To provide a level of comfort, the lending banker will take security over the property on which the loan is being granted.

  4. Unit Description Continued • Traditionally, mortgage lending was the preserve of building societies, but since the 1980s banks actively pursue this market and the learner will be introduced to the different types of mortgages now available. • To conclude the unit, learners will see for themselves what a difficult area arrears and debt management present to a lender.

  5. Learning Outcome 1: Understand mortgage lending policy and procedures Amplification of the Learning Outcome: Sound lending policy: required levels of business in certain sectors; desired levels of profitability

  6. Amplification of the Learning Outcome Continued: • Credit assessment process:who can and who cannot borrow; loan to value; conduct of a customer’s accounts; evidence of savings; income and expenditure profile; conduct of previous mortgage or tenancy agreement; previous credit history; employment and salary; condition and value of the property; defined logical process; mnemonic based tools eg CAMPARI — Character, Ability, Margin, Purpose, Amount, Repayment and Insurance (Security)

  7. Assessment Criteria for Learning Outcome 1 Assessment Criteria: 1.1 Explain the procedures a lender must follow to form a view of the borrower’s ability to service and repay a mortgage loan Open discussion with Learners 1.2 Discuss common mortgage lending policies Open discussion with Learners

  8. Learning Outcome 2: Understand the different types of mortgages Amplification of the Learning Outcome: Different types: capital and interest loans; interest only loans; ISA mortgages; personal pension mortgages; variable rate; fixed rate; capped rate; discounted rate mortgages; cashback mortgages; flexible mortgages and current account mortgages; sijara and murabha methods Mortgage repayment vehicles: Endowment policies; personal pension plans; ISAs; potential for products not to repay the capital and options available to a customer facing a shortfall

  9. Assessment Criteria for Learning Outcome 2 Assessment Criteria: 2.1 Explain the main features of commonly available mortgages Open discussion with Learners 2.2 Explain the three most common products customers use as mortgage repayment vehicles Open discussion with Learners 2.3 Discuss the possible solutions to common mortgage repayment problems Open discussion with Learners

  10. Learning Outcome 3: Understand mortgage debt management Amplification of the Learning Outcome: Options available to a lender to assist a borrower in arrears: rescheduling payments; accepting interest-only payments; extending the term; surrendering or selling of the endowment policy and lending more Possessions and disposals: last resort in recovery situations; adverse publicity eg a family with young children have no home to go to; state of the market; saleability of the property and forced sale below market value

  11. Assessment Criteria for Learning Outcome 3 Assessment Criteria: 3.1 Explain what options are available to a lender to assist a customer in arrears Open discussion with Learners 3.2 Discuss the reasons why possessions and disposals of property are a lender’s last resort in recovery situations Open discussion with Learners

  12. Appropriate Books Retail Banking, Book One (England and Wales), chapter; Mortgage Lending, pages 244-261

  13. Appropriate websites www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingDebt/DebtsAndArrears/DG_10013261 www.mortgages.co.uk

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