Melvin, a self$-$employed management consultant aged $55,$ is about to retire. He currently lives alone in a house valued at $175,000,$ on which he has a $50,000$ interest$-$only mortgage outstanding. The mortgage has two years of a three$-$year fixed$-$rate period remaining. He has exchanged contracts on the sale of the house but because the buyer is relocating from overseas, completion will be in three months' time.

He has seen a bungalow for sale near his current home in Manchester which is ideal for his retirement. The asking price is $220,000$ and he has made an offer of $210,000$ which has been accepted.

Melvin is seeking bridging finance to enable him to purchase the bungalow as soon as possible. He does not require a mortgage on the bungalow as he will use the equity in his house and a lump sum of $85,000$ from his personal pension plan, which is valued at $380,000,$ to fund the purchase. He has savings set aside to cover any fees associated with the sale and purchase transactions.

He has had offers of bridging finance for a three$-$month term from two lenders:

Southern Bank, which will charge interest at $0\mathrm{.}4\%$ per month with a $1\%$ arrangement fee.

Locality Building Society, which will charge an interest rate of $0\mathrm{.}5\%$ per month with a $0\mathrm{.}5\%$ arrangement fee.

Both lenders have agreed to roll$-$up interest on the loan, so no payments will be required from Melvin until the loan is repaid.

Although Melvin does not require a mortgage on the bungalow, he is anxious to ensure that it is insured for the correct value from the appropriate point.

$1.$ Which of the following is true of the finance that Melvin requires?

a$)$ It is likely to take several weeks for the funds to be made available.

b$)$ Lenders always consider it to be the highest risk form of lending.

c$)$ Melvin will be required to provide a personal guarantee as additional security.

d$)$ The interest rate will be lower than if the sale of his house was not agreed.

$2.$ What will be the regulatory status of the bridging finance if Melvin obtains it from either of the lenders quoted, on the basis they have offered?

It will be:

a$)$ a non$-$regulated commercial loan.

b$)$ an MCD$-$exempt bridging loan.

c$)$ an MCD regulated mortgage contract.

d$)$ regulated under the Consumer Credit Act $2006$ only.

$3.$ Assuming that Melvin uses his pension lump sum as a deposit, the most suitable and cost$-$effective form of bridging finance for Melvin would be the offer from:

a$)$ Locality Building Society, which would be a closed bridging loan.

b$)$ Southern Bank, which would be a closed bridging loan.

c$)$ Locality Building Society, which would be an open bridging loan.

d$)$ Southern Bank, which would be an open bridging loan.

$4.$ Under MCOB rules, which of the following is true regarding the lenders' need to assess whether Melvin can afford the bridging finance?

An affordability assessment:

a$)$ Is always required for bridging finance.

b$)$ will not be required if the finance is provided on the terms indicated.

c$)$ will only be required if Melvin has a poor credit history.

d$)$ will only be required if Melvin needs to extend the initial term of the finance.

$5.$ How much, if any, of the lump sum Melvin intends to take from his personal pension will be free from all taxes?

a$)$ Nil.

b$)38,000.$

c$)76,000.$

d$)85,000,$

$6.$ Assuming that Melvin purchases the bungalow before his house sale completes, which of the following is true regarding the stamp duty land tax $($SDLT$)$ payable?

a$)$ An SDLT surcharge will apply to the purchase, and it is non$-$refundable.

b$)$ He can apply for an SDLT surcharge refund if he sells his existing house within a maximum of $18$ months from the new purchase.

c$)$ He can apply for an SDLT surcharge refund if he sells his existing house within a maximum of $36$ months from the new purchase.

d$)$ No SDLT surcharge will apply to the purchase.

$7.$ In respect of costs and fees relating to the property transactions and his bridging finance, Melvin should be aware that:

a$)$ an early repayment charge is likely to be levied when his mortgage is repaid.

b$)$ he will incur a fee for a valuation of the house he is selling.

c$)$ no legal costs are likely in respect of the bridging finance.

d$)$ the arrangement fee for the bridging finance must always be paid upfront.

$8.$ From when should Melvin arrange buildings insurance on the bungalow?

From the date:

a$)$ completion takes place.

b$)$ contracts are exchanged.

c$)$ he physically moves into the property.

d$)$ his offer is accepted.

$9.$ The sum insured on the building insurance Melvin puts in place should be at least equivalent to the:

a$.$ forced sale value.

b$)$ open market value.

c$)$ purchase price.

d$)$ reinstatement value.

$10.$ Melvin may be charged a release fee when he:

a$)$ exchanges contracts for the bungalow purchase.

b$)$ receives the deeds to the bungalow.

c$)$ repays his mortgage.

d$)$ signs his bridging loan agreement.