CeMAP Applying Mortgage Advice Knowledge 3

Question 1

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

Accepted Answer

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

Answer

P60 for the last tax year

Answer

A letter from their employer confirming salary

Answer

Their most recent bank statement only

Question 2

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

Accepted Answer

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

Answer

Monthly payments will increase over the term

Answer

The interest rate is always variable

Answer

The property cannot be sold during the mortgage term

Question 3

What is the FCA's approach to mortgage prisoners?

Accepted Answer

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

Answer

They are not a regulatory concern

Answer

They must remain with their current lender indefinitely

Answer

The FCA requires all lenders to accept mortgage prisoner applications

Question 4

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

Accepted Answer

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

Answer

The interest rate will be higher on longer terms

Answer

The property value may decrease over 35 years

Answer

The lender may call in the mortgage early

Question 5

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

Accepted Answer

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

Answer

To show the initial promotional rate only

Answer

To indicate the maximum rate the lender can charge

Answer

To show the Bank of England base rate plus the lender's margin

Question 6

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

Accepted Answer

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

Answer

The client should declare bankruptcy to clear the debt

Answer

Surrender the property to the lender immediately

Answer

Wait until property prices recover before taking any action