LIBF CeMAP (Certificate in Mortgage Advice and Practice) — All Questions

Under Article 61 of the Regulated Activities Order, a loan is a 'regulated mortgage contract' where it is secured by a mortgage on land in the UK, the borrower is an individual or trustee, and:

• a.The property is used solely for commercial or agricultural purposes, with no dwelling situated on the land at all
• b.The borrower is a limited company
• c.At least 40% of the land is used, or intended to be used, as a dwelling by the borrower or a related person✓
• d.The loan exceeds £1 million

A regulated mortgage contract requires that at least 40% of the mortgaged land is used, or intended to be used, as or in connection with a dwelling by the borrower or a related person (RAO 2001, Article 61). Lending to companies, and most pure buy-to-let, falls outside this definition.

A buyer purchasing a flat is told the title is 'leasehold'. This means the buyer:

• a.Owns the right to occupy the property for a fixed term granted by the freeholder✓
• b.Owns only the contents of the flat
• c.Owns nothing until the mortgage is repaid
• d.Owns the land and the building on it outright and indefinitely, with no ground rent payable to anyone

Leasehold ownership gives the right to occupy the property for a fixed term under a lease granted by the freeholder, often with ground rent and service charges. Freehold, by contrast, is outright ownership of the property and land for an indefinite period.

A property is subject to both a first and a second legal charge. If the property is sold following repossession, the sale proceeds are applied:

• a.Equally between the two lenders in proportion to the amounts they each advanced to the borrower
• b.To the first-charge lender in full before the second-charge lender receives anything✓
• c.To the borrower first
• d.To the second-charge lender first

Legal charges rank in order of priority: the first charge is repaid in full from the proceeds before the second-charge lender receives anything. This is why second-charge lending carries greater risk and typically a higher interest rate.

Two co-owners hold a property as beneficial joint tenants. On the death of one owner, that owner's interest:

• a.Passes automatically to the surviving co-owner by the right of survivorship✓
• b.Is sold by the lender
• c.Passes under the deceased's will to a chosen beneficiary
• d.Reverts to the freeholder

Under a joint tenancy the right of survivorship applies: the deceased's interest passes automatically to the surviving joint tenant, outside the will. Under a tenancy in common, each owner instead has a distinct share that passes under their will or the intestacy rules.

A lender arranges a basic mortgage valuation of a property. The primary purpose of that valuation is to:

• a.Give the buyer a detailed report on every defect
• b.Set the stamp duty payable
• c.Guarantee the buyer against future repair costs
• d.Confirm to the lender that the property is adequate security for the loan✓

A mortgage valuation is carried out for the lender to confirm the property is worth enough and is suitable security for the loan. It is not a detailed condition report; a buyer wanting that should commission a RICS HomeBuyer report or a full building survey.