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Review The Mortgage Policies Of Hsbc Bank Finance Essay

INTRODUCTION:

Home is the need of every human being and having their own home is dream of every human being. In the United Kingdom price of the houses are very high and it is not possible for every citizen to buy their own home without taking financial help from financial organization like banks or building societies. When bank or a building society helps someone financially by providing loan, so that a citizen is able to buy his/her own home is called mortgage. In other words we can say a mortgage represents a loan on a property or house that has to be paid over a specified period of time.

As financial help is always needed for smooth run of one’s life so for the convenience of the people there are many financial organizations such as banks help the people financially, who want to buy their own home and property. So mortgage was introduced by the banks, from which people can get financial help so that one is able to buy his/her own home and property. Mortgage system is very popular among the people of the United Kingdom because this is the only way to buy their own property. As we know that the mortgage is that sum of money which is borrowed from the Bank or Building Society for buying a property and that borrowed amount has to be paid back with principle plus interest within fixed time period. Today mortgage has great importance as it is the only way with the help of which people are able to buy their own property. This dissertation report is based on the theory of research over the mortgage system of HSBC Bank and specifying the various strategies and policies of their mortgage system. The purpose of this report is to critically evaluate the mortgage system of HSBC Bank.

Company Background:

HSBC Bank has its headquarters in London. HSBC took its name from the Hong Kong and Shanghai Corporation which was founded in 1865 to finance trade between China and Europe. HSBC is one of the largest banking and financial services organization in the world. HSBC has 8,000 offices globally. HSBC Bank is one of the major clearing banks in the United Kingdom having more assets than any other bank. The business ranges from the traditional High Street roles of personal finance and commercial banking, to private banking, consumer finance as well as corporate and investment banking. HSBC is listed on the stock exchanges of London, Hong Kong, New York, Paris having around 220,000 shareholders in 119 countries and territories.

HSBC has 1500 branches in United Kingdom. HSBC Bank plc is incorporated in England and Wales and established at 8 Canada Square, London E14 5HQ which is its Registered Office. This bank is regulated by the Financial Services Authority and is registered in the Financial Services Authority Register with the Registration Number: 114216. HSBC Bank is member of the Financial Ombudsman Scheme.

Literature Review:

“A mortgage is a conveyance of land or an assignment of chattels as a security for payment of a debt or the discharge of some other obligation for which it is given. This is the idea of a mortgage; and the security is redeemable on the payment or discharge of such debt or obligation, any provision to the contrary notwithstanding? (Stanley Wilde 1899) Per Lindley MR.

The mortgage is derived from the two words i.e. mort and gage which means “dead pledge?. The mortgage is usually signed by the borrower and agreed before a public notary and is recorded with the County Recorder. In the mortgage system if the mortgagor fails to pay the installment then the lender has right to close out the mortgage and can sale the property to get the payment for future.(Jack P Friedman, 2003 p.173-204)

The mortgage is a loan to finance for the purchase of real estate, with a specified interest rates and fixed payment time period. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan.

People can borrow money to buy a home and pay interest on the mortgage to the lender (Bank or Building Society). The Lender (Bank) uses borrower’s property as security for the loan. This term means that if the borrower fails to pay the monthly installment then lender (Bank) may repossess property.

An individual can apply for mortgage from any bank like HSBC, Lloyds TSB, Barclays, and Santander or from Nationwide (Building Society) or from Islamic Bank of Britain. The mortgage makes very easier to pay the huge amount in the monthly installment for the fixed time depends on the mortgage plan. (Jack Guttentag, 2004).

The mortgage which suits you the best depends on many parameters which mainly include your risk enduring capacity, your personal financial goals and capabilities and your income.

In the presence of so many options and offers present in the market it can surely become a daunting task to select the best mortgage option for you. Considering your dilemma we at finance-strategy.com came up with some useful tit bits which when kept in mind can surely help you make a wise decision towards taking a mortgage.

An adjustable rate mortgage is perfect for those situations where you have to stay in that house for a short period of time and when the interest rates in the market are low and are expected to stay so too during the coming times.

On the other hand a fixed rate mortgage fits those situations where in you decide to won that house for a longer period of time and the interest rates too are very high at the moment with chances of volatility in the near future. A fixed interest cushions you against these turbulent conditions.

The advantages and disadvantages of mortgages will surely take us a step closer towards deciding it for sure if taking a mortgage is the best solution for your situation.

Advantages:

The most important advantage associated with a mortgage is the fact that it allows us to retain the ownership of our property and at the same time helps us in getting financial aid too. There is no need for one to sell or let go of his property to seek some money in exchange. In a mortgage the lender does not receive any share in the ownership of the property but is only entitled to take back the principal amount and the interest accumulated on the principal amount lent by him to you. the lender can only claim ownership on your property in case you default on the repayment schedule.

The other benefit associated with mortgage is the fact that the interest payments on the mortgage are tax free in nature.

Since the schedules of repayment are pre fixed and decided it allows you to plan your financials and expenses accordingly thereby simplifying the entire process for you.

By availing a mortgage you now have access to cash flow which you were not having in normal conditions and can now use it to fulfill your needs and requirements.

Disadvantages:

The need of depositing collateral as security works out to be the biggest drawback of mortgages. It restricts the kind of people who can avail a mortgage as only home owners or other asset owners can do so. Also, in case that you default on your payment the lender has the right to claim the property deposited by you as collateral and then subsequently sell it off to claim back the loaned amount he had given you. You have to ensure while taking the mortgage that there is a clause mentioned therein that on repayment of the mortgage the lender has to release the ownership title submitted to him by you.

The lender as per his convenience can define several events which he mat term as a default and generally includes inability to pay back the loan, bankruptcy, insolvency or any breach in the mortgage agreement. Therefore the risk of you ending up losing your property increases substantially.

Repayment Of Mortgages

There are two methods of repaying mortgage, one can choose from these two methods according to one’s personal circumstances.

Capital Repayment:

With a capital repayment plan, monthly payment covers the interest charged on mortgage and it also reduces the outstanding balance each month in line with the term selected. With this repayment plan, one can ensure mortgage is fully paid off at the end of the mortgage period.

What we get with the repayment option:

Interest and capital repaid – monthly payment covers the interest and also reduces the total balance outstanding

Secure – providing all payments are made, the mortgage will be repaid in full at the end of the agreed mortgage term

Choose your repayment term – up to a maximum of 30 years.

Capital repayment is a repayment option on all of our mortgage products – fixed rate, tracker and discount mortgages.

Interest only:

With an interest only option, monthly payment covers only the interest charged on mortgage, freeing up cash to spend elsewhere or to invest to pay off mortgage at the end of the mortgage term.

By repaying only the interest on mortgage, monthly repayments are lower than with an equivalent capital repayment mortgage.

What we get with the Interest only option:

Interest only – the monthly payment covers just the interest and the original capital amount borrowed remains outstanding throughout the term of the loan

Lower monthly payments – because capital is not repayed, monthly payments will be lower than with a capital repayment mortgage

Long repayment term – up to a maximum of 40 years

Lower borrowing limit – up to a maximum of 75% of the purchase price or the valuation of property (whichever is lower)

Availability – Interest only loans are restricted to home buyers or customers remortgaging from a competitor. Not available to existing customers borrowing further funds.

Mortgage products of HSBC Bank

Fixed Rate Mortgages:

Repayments are fixed for the duration of the fixed term, and because it doesn't vary, monthly repayments remain the same regardless of what happens to interest rates

HSBC currently offers fixed-rate mortgages over 2 and 5 year periods. At the end of the period mortgage will revert to the HSBC Variable Rate unless borrower decide to move to another product

Feature

Fixed Rate

Interest Type

Fixed

Interest Calculated Daily

Yes

Unlimited over payments without incurring a charge

No

Early repayment charge

Yes

Extended tie in period

No

Exit fee

No

Can loan can be port if a person move home

Yes

In Fixed Rate Mortgages early repayment charge applies during the fixed rate period, and if we increase our standard monthly payment by more than 20% or repay, by any other method, the whole or any part of the mortgage, over and above your standard monthly payment during your fixed rate period

Tracker Mortgages:

The tracker interest we pay is an agreed percentage above the Bank of England's Base rate. As the base rate rises and falls, the tracker will track these changes, and so rise and fall accordingly. This will affect the monthly payments

HSBC Tracker mortgages are 'Lifetime' trackers, in that they track the Base rate for the lifetime of the loan. Therefore we do not have to worry about coming to the end of a deal, and subsequently switching, with the associated costs.

Should Base rates rise you can select to move to a fixed rate where booking fees may be payable.

Feature

Fixed Rate

Interest Type

Variable

Interest Calculated Daily

Yes

Unlimited over payments without incurring a charge

Yes

Early repayment charge

No

Extended tie in period

No

Exit fee

No

Can loan can be port if a person move home

Yes

Discount Mortgages:

A discount mortgage is a variable rate mortgage that offers an interest rate that is a discount off the HSBC Variable Rate for an agreed period (e.g. 2 years).

With a discount mortgage, monthly payments will go up and down as the HSBC Variable Rate rises and falls. The HSBC Variable Rate is a rate that is internally set by HSBC.

An early repayment charge applies during the discounted rate period, and if we increase our standard monthly payment by more than 20% or repay, by any other method, the whole or any part of the mortgage, over and above our standard monthly payment during your discounted rate period.

Feature

Fixed Rate

Interest Type

Variable

Interest Calculated Daily

Yes

Unlimited over payments without incurring a charge

No

Early repayment charge

Yes

Extended tie in period

No

Exit fee

No

Can loan can be port if a person move home

Yes

GOVT STATISTICS:

According to the government statistics the Mortgage Rescue Scheme used to monitor the statistics 'which usually gives information on the number of householders with having the mortgage difficulties. This scheme has two main elements:

'Government Mortgage to Rent' and ‘Shared Equity'

The figures which are presented by Government Office Region are usually based on this scheme and submitted to Local Government by local authorities and communities. Local authority figures do not contain estimates for missing returns. Information on the local authority response rate is provided alongside the reported figures for each period. Figures for different periods are shown on separate tabs in the workbook. This is under the Ministry of Justice and the council of mortgage lenders.

(www.communities.gov.uk/publications/corporate/statistics/mortgagerescuestatistics2010)

Mortgage and landlord possession statistics (NS) 13 March 2010

Quarterly National Statistics on possession actions issued in county courts by mortgage lenders and social and private landlords in England and Wales.

This is released quarterly by the ministry of justice and in relation with UK statistics authority.

Justification:

As having the field of banking I am quite interesting in reviewing the different strategies followed by the banks in the various fields. Moreover it is accessible for me to collect the information regarding my topic as my friend is serving for the both banks. From them I can get the required data regarding my dissertation. The reason behind choosing this topic is that I can get a direction for my future perspective by having the detailed study of this topic.

RESEARCH QUESTIONS:

The most important parts of the research needed to be covered are as follow:-

What are the major resemblances among commercial mortgage in the Britain?

What are the considerations customers should employ when choosing a mortgage product?

RESEARCH OBJECTIVES:

The below mentioned aims are set up on the foundation of planned research questions:

To study the different mortgage products of HSBC Bank

To recognize the important advantages of the HSBC mortgages over the other commercial mortgages system in the country,

To discover the suitable measure.

RESEARCH METHOD:

Research plan is very important the main component of the research method. In this research method we will give the fundamental sketch of complete research scheme. Research method is the basic initiation of the entire research in it will plan that the how and when the research will be completed and what actions are required to accomplish this task.

 This section aims to explain the type of research methods that would be used for the analysis of the proposed company. The results of the research would indicate the range of services that need to be offered, and the suitability of these services for the target market. Moore (2000) explains how the methods used will be influenced by constraints, such as time and money. It is important to consider all the methods available and choose a method that is most likely to achieve the objective of the research.

Inductive and deductive Approach:

RESEARCH OPINION:

In the research onion is used to define the whole process of research strategy in detail the generic research process ‘onion’ support the researchers and give them the direction to do work. (Saunders et al, 2000)

There are the different layers which represents the following aspects of the Research Methodology.

Research Philosophy

Research Approach

Research Strategy

Time Horizons

Data Collection Methods

Primary and Secondary Research

 Primary data is that type of information which is new and that hasn’t been used or collected before. On the other hand the secondary data is that information which has been collected earlier, by some other sources for their own purpose and can used by others for their convenience .(Saunders et al. 1997).

Secondary research is also very important for the establishment of data and the collection of data for the current issues and this also helps to discover the relevant studies which can be carried in the past time.

Advantages and disadvantages of primary and secondary research methods

Primary Research

Advantages:

This can be used by face to face conversation in the form of interviews or by the telephonic interview.

This is used by the help of technology by using mobile phones and through internet communication.

A large group of people can be cover in many areas.

Wider coverage of geographical areas.

This method is cheaper one. .

Disadvantages:

There are problems to prepare it.

The Questions put in this are generally easy to answer.

Lower response for the historic things.

Time consuming.

Secondary Research

Advantages:

This is time saving method.

This can be used by any firm for the research.

Sometime this depends upon the type of research which has to be conducted, for that case their advantages and disadvantages vary.

Probably accurate.

Disadvantages

The main disadvantage is that there is no up to date and is collected over the time. And there may be changes in that data which has to be updated.

Data may be in unsuitable format.

The data is free to all and there no competitive advantages the organisation (Ghauri and Gronhaug, 2002)

Qualitative and Quantitative Research

 The table below outlines the differences between qualitative and quantitative data:

 

Qualitative

Quantitative

This research is based on words which are expressed in meaning.

Based on derived from numbers and data.

Results collected are non-standardized and data require classification into categories and not in the numerical form.

Result of collection is in the numerical form and data is standardized.

Conceptualism is used for conduct the analysis.

Analysis conducted through there is use

      Of diagrams and statistics.

(Dey (1993); Healey and Rawlinson (1994), cited in Saunders et al (2003))

SELECTION OF METHOD:

As I have the topic of mortgage system it will be suitable for my topic if I will go through mixture of both approaches i.e. both secondary and primary resources. This will be helpful in collecting the relevant data according to the need and will be useful in going to the depth of the research. On my part it is valuable to go through by considering the research onion. Regarding this I will concern both approaches for my research given by (Saunders and Thornhill in 2000).

ETHICS:

The main source of data collection methods for my research is quantitative method which is useful for collecting the facts and figure for my research. Moreover I have contacts in the both banks for collecting the information. The manager Of HSBC Bank is in contact with me and he agreed to assist me in providing information as per my requirement.

In order to make my research more accurate I will use the secondary data and primary data sources as well. By this I can get all the information regarding the mortgage system of the both banks with the required form of data in order to take the comparison of the policies given by the both banks for the mortgage system they provided to their customers.

For the guidelines I will do all the work under my supervisor and take suggestion and help of my supervisor time to time to complete my dissertation.

SCOPE:

The topic of mortgage system has wider scope in the present time as there is a great demand for the mortgage products in the current market position. The theory of my topic is controllable therefore I can do better by keep in mind the wider scope of my study. Even this will help me in future to get the good job in Banking Industry.

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