CeMAP Module I 3

Question 1

What is the role of the Prudential Regulation Authority (PRA) in regulating building societies?

Accepted Answer

The PRA sets prudential standards for building societies including capital requirements, liquidity rules, and governance standards to ensure their financial soundness

Answer

The PRA supervises building societies alongside banks, setting capital, liquidity, and governance requirements to ensure they can withstand financial stress.

Question 2

What are the key features of the UK's deposit protection scheme for mortgage borrowers who also hold savings?

Accepted Answer

The FSCS protects eligible deposits up to £85,000 per person per authorised firm, which includes savings held with a mortgage lender

Answer

The FSCS protects eligible deposits up to £85,000 per person per authorised firm — this includes savings accounts held with the same institution that provides the mortgage.

Question 3

What is a retail distribution review and how has it affected the mortgage advice market?

Accepted Answer

The RDR reformed how financial advice is paid for and qualification requirements, influencing standards across financial services including mortgage advice

Answer

While the RDR primarily targeted investment advice, its principles of transparency in charging and higher qualification standards have influenced the broader financial advice sector including mortgage advice.

Question 4

What is the significance of the Bank of England's stress testing for mortgage affordability?

Accepted Answer

Stress tests assess whether borrowers can afford mortgage payments if interest rates rise significantly, protecting against future payment shock

Answer

Stress testing ensures borrowers can afford repayments not just at the initial rate but at elevated rates, protecting the financial system from rate-rise defaults.

Question 5

What is demutualisation and why is it relevant to the mortgage market?

Accepted Answer

It is the conversion of a mutual building society into a shareholder-owned company, which can change the organisation's priorities and product range

Answer

Demutualisation converts a mutual building society into a company, changing its ownership from members to shareholders and potentially altering its approach to mortgage lending.

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

CeMAP Module I 3