Credit Assessment and Affordability Flashcards
6 cards from real CEMAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Credit Assessment and Affordability flashcards as text
What does a lender's affordability assessment primarily evaluate when considering a mortgage application?
Answer: Whether the borrower can sustain mortgage repayments over the term
Affordability assessments determine whether a borrower can sustain mortgage repayments both now and if interest rates rise.
Which of the following is considered a 'hard' credit search?
Answer: A lender performing a full credit check upon mortgage application
A hard credit search is recorded on a borrower's credit file and occurs when a lender performs a full check upon application.
What is the typical maximum loan-to-income (LTI) multiple most mainstream UK lenders apply?
Answer: 4 to 4.5 times income
Most mainstream lenders cap borrowing at approximately 4 to 4.5 times the borrower's gross annual income.
Which regulation requires lenders to conduct a 'stress test' on mortgage affordability?
Answer: The Mortgage Market Review (MMR) 2014
The Mortgage Market Review (MMR) 2014 introduced mandatory affordability stress tests to ensure borrowers can cope with rate rises.
Which income type is typically treated most cautiously by mortgage lenders when assessing affordability?
Answer: Self-employed profit averaged over two years
Self-employed income is treated cautiously because it can fluctuate, and lenders usually average the last two to three years of accounts.
What does a credit utilisation ratio measure?
Answer: The percentage of available revolving credit currently in use
Credit utilisation ratio measures what proportion of available revolving credit (e.g., credit cards) is currently being used.