Dissertation On Review The Mortgage Policies Of HSBC Bank
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INTRODUCTION:
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.
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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.
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.
Disclaimer
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.
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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.
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.
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.
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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)
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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