MRT1 · Mortgage Law, Practice and Application
LO5 asks you to explain the economy behind a mortgage recommendation: why prices and transactions move, how Bank Rate and swap rates reach the products you recommend, who lends and how they are funded, how buy-to-let is underwritten and taxed, and how MCOB developed. Expect short calculations (tracker payments, LTV, LTI, rental cover, Section 24) as well as cause-and-effect questions where the direction of the effect is the whole mark.
9 min read6 sections
Checked against: Walbrook (formerly LIBF) CeMAP qualification specification v14 (July 2026), MRT1 LO5 (AC5.1-5.5); Bank of England (Bank Rate, MPC, FPC Record July 2025, withdrawal of the affordability test from 1 Aug 2022); Bank of England Act 1998 ss12-13; Building Societies Act 1986 ss5-7; Mortgage Credit Directive Order 2015 art 4 and Sch 2; gov.uk (SDLT rates, Section 24, Renters' Rights Act 2025 guide, minimum energy efficiency standard, 2025 Mortgage Guarantee Scheme); MCOB 11.6, 11.8, checked 11 Oct 2026. Independent prep, not endorsed by Walbrook (formerly LIBF).
House prices and transaction numbers reflect demand and supply (Walbrook (formerly LIBF) CeMAP spec, MRT1 AC5.1). Questions usually give you one change and ask for the direction of the effect.
| Demand side | Supply side |
|---|---|
| Interest rates and mortgage payments | New homes completed by housebuilders |
| Employment, real incomes and confidence | Planning consents and land availability |
| Credit availability: LTV and LTI limits, lender appetite | Existing owners' willingness to sell |
| Taxes and schemes: SDLT, the Mortgage Guarantee Scheme | Landlords buying or selling rental stock |
Tax changes move timing. On 1 April 2025 the SDLT nil-rate band in England fell to £125,000 and first-time buyer relief became 0% to £300,000 with a £500,000 cap (gov.uk). Buyers rushed to complete before the date, then transactions dipped. The Mortgage Guarantee Scheme, permanent from July 2025, supports repayment mortgages above 90% and up to 95% LTV across the UK; interest-only loans are outside it.
Negative equity is the debt minus the current value. A £190,000 loan on a flat now worth £176,000 is £14,000 of negative equity, an LTV of 108.0%. These borrowers struggle to remortgage elsewhere.
Trap: Classing mortgage availability as a supply factor, or forgetting that SDLT is paid by the buyer.
Takeaway: Rates, jobs, incomes and credit drive demand. Building and planning drive supply. Tax deadlines shift when people complete.
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The Bank of England's Monetary Policy Committee sets Bank Rate at eight scheduled meetings a year. It has nine members: the Governor, three Deputy Governors, the Chief Economist and four external members appointed by the Chancellor (Bank of England Act 1998 s13). HM Treasury sets the target, currently 2% CPI inflation, at least once every 12 months (s12).
When inflation is above target and expected to stay there, cuts become less likely and rises more likely. Bank Rate has been 3.75% since 18 December 2025; the MPC held it on 17 September 2026 with CPI at 3.1%. Because Bank Rate can change at any meeting, exam questions usually say 'assume Bank Rate is X%'. Use the figure given.
The Financial Policy Committee is a different committee. It sets macroprudential measures such as the LTI flow limit, not Bank Rate.
Trap: Saying the MPC sets its own inflation target, or confusing the MPC with the FPC.
Takeaway: MPC sets Bank Rate to hit the Treasury's 2% CPI target. FPC handles financial stability, including the LTI flow limit.
