CeMAP MRT2 Repayment Methods & Interest Rate Options question: home at the end of the term and buy somewhere smaller

CeMAP MRT2Repayment Methods & Interest Rate Options

Hefin, 50, wants a £200,000 interest-only mortgage on his £500,000 main residence. His repayment strategy is to sell the home at the end of the term and buy somewhere smaller. Under MCOB 11.6.46E, what must the lender consider before accepting this strategy?

A Nothing more, because selling a main residence is always accepted as a credible strategy
B Whether local prices are forecast to rise enough by term end to fund the next home
C Whether the sale could repay the loan and still fund a cheaper home
D Only whether his income could also cover a capital-and-interest payment on the loan

Show the answer and explanation

Answer: C. Whether the sale could repay the loan and still fund a cheaper home

MCOB 11.6.46E(3) says that accepting the sale of the customer's main residence as a strategy, without considering whether it could both repay the loan and allow the customer to buy a cheaper home to live in, tends to show a breach of MCOB 11.6.41R. Relying on future price rises is itself listed as unacceptable in MCOB 11.6.46E(1). Testing capital-and-interest affordability is not what the strategy rule asks.

Common mistake

Accepting 'I'll sell up' without checking there is enough equity left to rehouse the customer.

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Related CeMAP MRT2 questions

Ifan has a £150,000 interest-only mortgage at the lender's SVR minus 1%, capped at 5.5%. The SVR rises from 6% to 7%. What is his monthly payment after the rise?Emrys, 72, and Branwen, 69, apply jointly for a retirement interest-only mortgage. Emrys's pension provides most of their income and pays no spouse's pension; Branwen has a small pension of her own. What does MCOB 11.6.15G say the lender should consider?Stella takes a £280,000 bridging loan to buy her next home before selling her mortgage-free current home. Interest is 0.75% a month (simple) on the £280,000 advance, rolled up for 6 months, and a 2% arrangement fee is added to the amount owed. Her current home then sells for £310,000 after costs. How much is left after the bridge is repaid?

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