CeMAP The Mortgage Application Process 4 — Questions and Answers
Question 1: What is a 'Decision in Principle' (DIP) search most likely to leave on a credit file?
- A hard footprint that remains for 12 months
- A soft footprint that is not visible to other lenders, or a hard search depending on the lender (Correct answer)
- No record whatsoever
- A flag that the borrower has been declined
Correct answer: A soft footprint that is not visible to other lenders, or a hard search depending on the lender
Some lenders conduct a soft search for a DIP (not visible to other lenders), while others perform a hard search that leaves a footprint; the approach varies by lender.
Question 2: A property is valued at £300,000 and the borrower has a deposit of £45,000. What is the Loan-to-Value (LTV) ratio?
- 15%
- 75%
- 85% (Correct answer)
- 90%
Correct answer: 85%
The loan required is £255,000 (£300,000 minus £45,000 deposit), giving an LTV of 255,000 ÷ 300,000 = 85%.
Question 3: Under MCOB, which of the following is a lender's obligation when a mortgage application is declined?
- Provide the applicant with a written explanation of every reason for decline
- Inform the applicant of the decline and, where a credit reference agency was used, tell the applicant which agency (Correct answer)
- Refund all application fees immediately
- Offer an alternative product at a higher interest rate
Correct answer: Inform the applicant of the decline and, where a credit reference agency was used, tell the applicant which agency
MCOB requires lenders to tell declined applicants that a credit reference agency was consulted and to name that agency, allowing applicants to check their file.
Question 4: What does 'conveyancing' refer to in the mortgage process?
- The physical survey of the property by a chartered surveyor
- The legal transfer of property ownership from seller to buyer (Correct answer)
- The process of registering the mortgage with the FCA
- The lender's internal underwriting assessment
Correct answer: The legal transfer of property ownership from seller to buyer
Conveyancing is the legal process carried out by solicitors or licensed conveyancers to transfer legal ownership of a property from one party to another.
Question 5: Which type of mortgage interest rate remains the same for the entire term of the mortgage?
- Tracker rate
- Discount rate
- Full-term fixed rate (Correct answer)
- Standard Variable Rate (SVR)
Correct answer: Full-term fixed rate
A full-term fixed rate mortgage fixes the interest rate for the entire mortgage term, providing certainty of payment throughout the life of the loan.
Question 6: What is the role of a mortgage underwriter in the application process?
- To value the property on behalf of the lender
- To assess the borrower's creditworthiness and decide whether to approve the application (Correct answer)
- To register the mortgage charge at the Land Registry
- To advise the borrower on the most suitable mortgage product
Correct answer: To assess the borrower's creditworthiness and decide whether to approve the application
An underwriter is the lender's specialist who evaluates the risk of the application by reviewing income, credit history, and property details before approving or declining.
Question 7: A borrower is applying for a 'Help to Buy: Equity Loan' in England. What percentage of the property price does the government lend under this scheme (outside London)?
- 10%
- 20% (Correct answer)
- 25%
- 40%
Correct answer: 20%
Under the Help to Buy: Equity Loan scheme in England (outside London), the government lends up to 20% of the property purchase price, enabling buyers to access better mortgage rates.
CeMAP The Mortgage Application Process 4
What is a 'Decision in Principle' (DIP) search most likely to leave on a credit file?