Applying Mortgage Advice Knowledge Flashcards

A self-employed client applies for a mortgage. What documentation will typically be required to evidence income?

Answer: SA302 tax calculations and tax year overviews for 2-3 years

Self-employed applicants typically need SA302 tax calculations and corresponding tax year overviews from HMRC for the last 2-3 years.

What is the main risk to the borrower of an interest-only mortgage?

Answer: The full capital balance remains outstanding at the end of the term

With interest-only mortgages, the borrower only pays interest each month, leaving the entire original loan amount to be repaid at the end of the term.

What is the FCA's approach to mortgage prisoners?

Answer: The FCA has introduced modified affordability assessments to help them switch lenders

The FCA introduced modified affordability rules allowing lenders to apply a simpler assessment for mortgage prisoners seeking to switch to a better deal.

An adviser recommends a 35-year mortgage term to reduce monthly payments. What key risk must be disclosed?

Answer: The total amount of interest paid over the life of the mortgage will be significantly greater

While longer terms reduce monthly payments, the total interest paid over the full term is substantially higher, which the adviser must clearly explain.

What is the purpose of the Annual Percentage Rate of Charge (APRC) disclosed on mortgage illustrations?

Answer: To provide a standardised measure of the total cost of the mortgage for comparison purposes

The APRC is a standardised measure that includes all mandatory costs, enabling borrowers to compare the true cost of different mortgage products.

A client in negative equity wants to move house. What option might an adviser recommend?

Answer: A negative equity mortgage that allows the shortfall to be transferred to a new property

Some lenders offer negative equity mortgages that allow borrowers to port their shortfall onto a new property, enabling them to move.