CeMAP Credit Assessment and Affordability 2 — Questions and Answers
Question 1: What is the purpose of a Debt-to-Income (DTI) ratio in mortgage underwriting?
- To calculate stamp duty liability
- To measure total monthly debt obligations against gross monthly income (Correct answer)
- To assess the property's rental yield
- To determine the loan-to-value ratio
Correct 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.
Question 2: Which of the following would most likely IMPROVE a mortgage applicant's credit score?
- Applying to multiple lenders simultaneously
- Closing all unused credit accounts
- Being registered on the electoral roll (Correct answer)
- Having a high balance on a credit card
Correct answer: Being registered on the electoral roll
Being registered on the electoral roll confirms address history and identity, which positively impacts credit scoring.
Question 3: Under MMR rules, what must a mortgage adviser document to demonstrate compliance with affordability requirements?
- Only the property survey report
- Evidence of income verification and expenditure assessment (Correct answer)
- The applicant's investment portfolio
- The surveyor's valuation only
Correct 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.
Question 4: A borrower has a County Court Judgment (CCJ) registered three years ago. How is this likely to affect their mortgage application?
- It has no effect after 12 months
- It will automatically result in a declined application
- It may restrict lender choice and increase the rate offered (Correct answer)
- It only affects unsecured credit applications
Correct 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.
Question 5: What is 'income multiples' methodology in mortgage lending?
- Multiplying gross income by the number of dependants
- Using a set multiple of annual income to determine the maximum loan size (Correct answer)
- Averaging income over multiple tax years
- Assessing income from multiple jobs separately
Correct 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.
Question 6: Which body issues guidance on responsible lending and affordability for mortgage lenders in the UK?
- The Prudential Regulation Authority (PRA)
- The Financial Conduct Authority (FCA) (Correct answer)
- The Competition and Markets Authority (CMA)
- The Office of Fair Trading (OFT)
Correct answer: The Financial Conduct Authority (FCA)
The FCA issues conduct rules and guidance on responsible lending, including affordability requirements under MCOB.
CeMAP Credit Assessment and Affordability 2
What is the purpose of a Debt-to-Income (DTI) ratio in mortgage underwriting?