Credit Assessment and Affordability Flashcards

What is the purpose of a Debt-to-Income (DTI) ratio in mortgage underwriting?

Answer: To measure total monthly debt obligations against gross monthly income

The DTI ratio compares a borrower's total monthly debt obligations to their gross monthly income to assess repayment capacity.

Which of the following would most likely IMPROVE a mortgage applicant's credit score?

Answer: Being registered on the electoral roll

Being registered on the electoral roll confirms address history and identity, which positively impacts credit scoring.

Under MMR rules, what must a mortgage adviser document to demonstrate compliance with affordability requirements?

Answer: Evidence of income verification and expenditure assessment

Advisers must document income evidence and a thorough expenditure assessment to show the mortgage is affordable under MMR rules.

A borrower has a County Court Judgment (CCJ) registered three years ago. How is this likely to affect their mortgage application?

Answer: It may restrict lender choice and increase the rate offered

A CCJ restricts the choice of lenders available and typically results in higher interest rates due to increased perceived risk.

What is 'income multiples' methodology in mortgage lending?

Answer: Using a set multiple of annual income to determine the maximum loan size

Income multiples methodology sets a maximum loan amount as a fixed multiple of the borrower's annual gross income.

Which body issues guidance on responsible lending and affordability for mortgage lenders in the UK?

Answer: The Financial Conduct Authority (FCA)

The FCA issues conduct rules and guidance on responsible lending, including affordability requirements under MCOB.