Cemap 3 Full Text

Synoptic Paper Booklet

CeMAP® Module 32013/14

9 781845 169978

ISBN 978-1-84516-997-8

These learning materials are up-to-date for examinationsfrom 1 October 2013.

The Institute of Financial Services may, from time-to-time, makeadditional amendments to these learning materials. The latestamendments can be located with the PDFs of this manual within

www.myifslearning.com.

It is your responsibility to ensure that you have the up-to-date learning materials for your examination.

Synoptic Paper Booklet

CeMAP® Module 32013/14

The Institute of Financial Services is a division of the ifs School of Finance, a registered charity incorporated by Royal Charter.

Published by the Institute of Financial Services, a division of the ifs School of Finance, a registered charityincorporated by Royal Charter.

The Institute of Financial Services believes that the sources of information upon which the book is basedare reliable and has made every effort to ensure the complete accuracy of the text. However, neither theInstitute, the author nor any contributor can accept any legal responsibility whatsoever for consequencesthat may arise from any errors or omissions or any opinion or advice given.

All rights reserved. No part of this publication may be reproduced in any material form (includingphotocopying or storing it in any medium by electronic means and whether or not transiently or incidentallyto some other use of this publication) without the prior written permission of the copyright owner exceptin accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of alicence issued by the Copyright Licensing Agency Ltd. Applications for the copyright owner’s writtenpermission to reproduce any part of this publication should be addressed to the publisher at theaddress below:

ifs School of Financeifs House4–9 Burgate LaneCanterburyKentCT1 2XJ

T 01227 818609F 01227 784331E [email protected] www.ifslearning.ac.uk

Typeset by John SmithPrinted by Elanders Ltd.

© ifs School of Finance 2013

ISBN 978-1-84516-997-8

Contents

Synoptic Paper Booklet – Introduction vii

CeMAP® Syllabus xix

Mortgage Conduct of Business Rules MCOB 1

Synoptic Paper Questions – England and Wales 1

Synoptic Paper Answers – England and Wales 29

Synoptic Paper Questions – Scotland 57

Synoptic Paper Answers – Scotland 85

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Certificate in Mortgage Advice and Practice (CeMAP®) Synoptic examination booklet – introduction

What is a synoptic examination?

The synoptic examination is based upon the knowledge you will have acquiredfrom studying modules one and two. We therefore recommend that you passthe first two modules before attempting the synoptic examination. Synopticmeans that the examination is based upon case studies with a series ofquestions based upon each. You will not have sight of the case studies prior tothe start of the examination.

The structure of CeMAP®

CeFA® and CeMAP® modules are divided into units as follows.

Module 1 (common module for CeFA® and CeMAP®)UK Financial Regulation

Unit 1 Introduction to Financial Services Environment and Products

Unit 2 UK Financial Services and Regulation

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CeMAP®Module 2 Mortgages

Unit 3 Mortgage Law, Policy, Practice and Markets

Unit 4 Mortgage Applications

Unit 5 Mortgage Payment Methods and Products

Unit 6 Mortgage Arrears and Post Completion

CeMAP® Synoptic exam (case study based)

CeFA® Module 2 Investment and Risks

Unit 3 Principles of Investment

Unit 4 Investment Products

CeFA® Module 3 Retirement Planning and Protection

Unit 5 Protection

Unit 6 Retirement Planning

CeFA® Synoptic Exam (case study based)

Updates

The syllabuses and study materials for CeFA® and CeMAP® are updatedannually, with updated materials being published in July for examinations takenfrom the following September. For 2013/14 there is no separate update foreach module to be used alongside the existing edition of the text. Instead, thenew edition indicates in the margin where a change has been made.Amendments to the text are the result of changes to the syllabus and theChancellor’s last Budget.

Materials are designed by the Institute of Financial Services to support learnersin their studies and as such they have been prepared to cover the requirementsset out in the syllabus for the subject you are studying. The questions inexaminations are based upon the content and learning outcomes documentedin the syllabus. All questions, live and specimen, are references to the syllabus. Itis therefore very important that you fully familiarise yourself with the content

Synoptic paper booklet introduction

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of the syllabus for this module/unit, both at the outset of your preparation foran assessment and as a reference point as you progress towards attempting atest. To help you in this, syllabus has been made easy to access from a number ofdifferent sources. It is printed in full at the front of the learning materials, or canbe obtained on request from Institute FE Customer and Student Enquiries on+44(0) 1227 818609 (option 1). Please make sure you have access to a syllabusas you begin to work towards the examination.

It is your responsibility to ensure that you have the up-to-datelearning materials for your examination.

Policies and proceduresFor the policies and procedures governing the conduct of the examinations andfor information on booking your examination please refer to the Institute ofFinancial Services website: www.ifslearning.ac.uk.

SyllabusThe syllabuses for the two knowledge modules of CeMAP® are printed withinthis booklet at page xix. This should be familiar to you if you have already passedthese two exams. Although the Institute has determined the number of unitsand modules required to complete our qualification, the topics and learningoutcomes are the result of the consultation process embarked upon by the FSAand the Skills Council. Therefore, while in keeping with other awarding bodieswe have had input into the review process, the Institute is not solely responsiblefor determining the full range of topics that appear in the syllabus.

The content of this bookletThis booklet is based around a complete ‘shadow’ or ‘mock’ paper for the newsynoptic examination. When studying for the previous modules you will havereceived a study manual which, if you worked through methodically, will haveprovided you with the knowledge applicable to the exam for that module. Thesynoptic exam requires you to apply that knowledge to case study scenarios.It does not require you to learn new knowledge content, therefore there is nostudy manual for this paper.

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When working through the study manuals you will have come across somestudy exercises, including some based on given scenarios. These were includedas a study aide to help you assimilate the knowledge, they were notrepresentative of exam style questions. However, the shadow paper providedin this booklet is a true representation of the live exam both in terms of thenumber of case studies and the style, format and number of questions. It hasbeen produced using the same quality assured process that creates the livebank of questions from which your final examination will be drawn. It has beenseen and approved by the Examiner as being a fair representation of a real liveCeMAP® synoptic exam. Although there will be similarities in relation to topicsand themes covered none of the case studies or questions that appear in thisshadow paper are copied from the live bank. As the name implies, a shadowpaper is produced alongside and in a similar way to the live questions whilstremaining separate from them. Additional shadow papers are available for you to buy if you would like further practice before taking the final exam (seethe FE Customer and Student Enquiries contact number under AdditionalSupport).

Please note that this booklet is to be inserted within one of the binders youwill have received when studying for a previous module.

Preparing for the synoptic exam

The synoptic examination for CeMAP® is a two-hour paper and contains sixcase studies. Each one is accompanied by ten multiple-choice questions.

The case studies and questions may be based on any part of the CeMAP®

syllabus, although the majority will require you to apply knowledge of thematerial covered in module two. It is important therefore that you make sureyou are familiar with the knowledge required to pass all the previous modules.

It is advisable to review your knowledge of the previous modules, particularlyif it was some time since you took the examination. If the study manual youhave for a previous module is not the current version you are advised todownload the latest material from the Institute of Financial Services website.Alternatively if you wish to purchase a new, up-to-date study manual or checkwhether the one you have is still current, contact our FE Customer andStudent Enquiries department on 01227 818609 (option 1).


x © ifs School of Finance 2013

Read the whole of each case study very carefully before you attempt toanswer the questions. It may help to:

t underline any key words;

t set out the information given, on a separate sheet of paper as a table ora diagram.

It is important to understand the context of the case study and identify the keyprinciples or issues it addresses. One way of doing this is to review the casestudy using the same criteria you would use as part of a fact find whenassessing the needs of a customer to whom you might be offering advice. Youshould look out for details such as:

Family details

Income and expenditure

Taxation

Policies/protection/pensions

Assets

Liabilities

Risk

Aspirations

Needs

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UK financial regulation

The Conservative–Liberal Democrat coalition government has madefundamental changes to the system of financial regulation in the UK. Thechanges are detailed in the Financial Services Act 2012, which focuses onchanging the structure and delivery of regulation within the financial servicessector. The Financial Services Act came into effect from 1 April 2013.

The headline points are as follows.

t The ‘tripartite’ system of regulation, introduced by the Labourgovernment in 1997, comprising the Bank of England, the FinancialServices Authority and the Treasury, is discontinued.

t The FSA has been abolished.

t Three new bodies have been created: the Financial Policy Committee(FPC) within the Bank of England and the Prudential RegulationAuthority (PRA) will be a subsidiary of the Bank of England. Both havepowers relating to the regulation of financial services. A further body,the Financial Conduct Authority, has been created.

t There is an independent complaints system with a single complaintssystem operating across the FCA and PRA.


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The Bank of England

The Bank is responsible for protecting and enhancing financial stability. TheChancellor of the Exchequer has ‘limited statutory power’ to issue directionsto the Bank of England at times of financial stress. It is also responsible for theoversight of payment systems, settlement systems and clearing houses.

The Financial Policy Committee (FPC)

The FPC, established at the Bank of England, has overall responsibility formacroprudential regulation of financial services. It is charged with identifying,monitoring and taking action to reduce and prevent systemic (large-scale)issues that could threaten the whole of or large parts of the economy orfinancial markets.

The FPC is chaired by the Governor of the Bank of England and is accountableto Parliament.

The FPC has no direct regulatory responsibility for particular types of regulatedfirm but has a number of powers to remedy threats to systemic stability.

An interim FPC was created in February 2011 in order to carry outpreparatory work for the establishment of the permanent body.

The remit of the FPC also includes the investigation of systemic risk, even ifthe risk originates outside the UK.

The Prudential Regulation Authority (PRA)

The PRA is a subsidiary of the Bank of England, and it has a general objective topromote the safety and soundness of individual firms in the financial servicessector. It is responsible for microprudential supervision of individual firms that are‘systemically important’; this includes banks, insurers and some investment firms.

It will aim to ensure that firms carry out their business in a way that minimisesthe risk of business failure and will also aim to minimise the adverse effects ofany failure on the UK economy as a whole.

The PRA is independent from the Bank of England and FPC with regard to day-to-day regulation.

The board of the PRA has the Governor of the Bank of England as Chairman.

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The Financial Conduct Authority

The FCA took over most of the FSA’s former roles and responsibilities,notably the FSA’s market conduct function (with the exception ofresponsibility for systemically important infrastructure, which sits with theBank of England). The FCA is responsible for conduct of business regulationacross the financial services sector including;

t those businesses regulated by the PRA in relation to prudentialmatters;

t prudential regulation of those firms not regulated by the PRA.

Key responsibilities include the protection of consumers and ensuring thosewithin the financial services sector comply with the relevant rules.

The FCA has a strategic objective to ensure that ‘relevant markets’ functionwell.

The FCA has the following operational objectives:

t to provide appropriate protection for consumers;

t to protect and enhance the integrity of the UK financial system;

t to promote effective competition in the interests of consumers.

The FCA and PRA can create ‘threshold condition codes’ and vary firms’permissions on their own initiative. It is intended that the threshold codes willbe stronger than the statutory guidance previously given by the FSA.

Notes for students

Please note that all Institute of Financial Services assessments in the area ofregulation are based on fact and standing legislation. Students will not,therefore, be assessed on aspects of regulation that are not confirmed byunderpinning legislation.

The Institute will publish updates to its learning materials for key regulatoryissues and will advise students, in a reasonable timeframe, of the dates whenthis content will be assessed.


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Support services

In addition to the study manual you also have access to the following services.

Our website www.ifslearning.ac.uk for all general enquiries and updateinformation on the qualification structure.

The FE Customer and Student Enquiries team is available to assist in helpingcandidates who need further information and guidance. To ensure that yourquery is fully understood and dealt with appropriately, we strongly encourageyou to contact us in writing, by fax or email.

To contact FE Customer and Student Enquiries:Tel: 01227 818609Email: [email protected]: 01227 784331

ExaminationsTo book examinations – the hotline number is 0870 6081915

Please note that if you are re-sitting an exam you will first need to registeryour re-sit with the Institute of Financial Services: this can be done bycontacting Institute FE Customer and Student Enquiries on 01227 818609(option 1).

Examination Results Analysis SheetOn completion of the examination, candidates will receive their ‘ExaminationResults Analysis Sheet’. This will contain their details and mark. Candidates willalso find a list of the syllabus areas they may have answeredincorrectly. References to the study manuals are not provided. The listis designed to assist candidates to identify any gaps in their knowledge and tosteer them towards the areas to revisit before attempting the examination again.

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A sample analysis sheet is provided below.


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Additional SupportThe following are available at additional cost to enhance your prospects ofpassing the examinations. These are NOT intended to be used as areplacement for your study manual. Many financial services companiessubscribe to some or all of these products, so it is advisable for you to checkwith whoever handles your companies’ training needs to establish whetherthey currently have access to these products. Otherwise please direct yourqueries to our FE Customer and Student Services number 01227 818609(option 1).

Shadow papers – available for each unit and module in printed form. Thesemirror the live exam for style, coverage of learning outcomes, etc. Each issupplied with a full list of answers.

Online Subject Expert Support – an online forum to which subscriberscan post technical and study-related queries relevant to the syllabus. A subjectmatter expert with experience in training students for CeFA® and CeMAP®

examinations will post a reply. You can also use this service to communicatewith others studying your module.

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Competence Development Tool – this popular eLearning tool featurescomplete specimen question banks for every module with feedback linkingevery question to the study text. It is updated every year in line with thesyllabus. There are separate editions for CeFA® and CeMAP®. The CDT will beavailable online from 1 September, providing subscribers with 12 months’access to the most up to date edition, including any update that occurs duringthe subscription period. In addition, all subscribers receive the current CDRom version.

Training courses – the Institute of Financial Services does not formallyrecognise any providers of training for regulatory qualifications. However, thereare external providers of training that offer varying types of trainingprogrammes and some employers provide their own internal training. Wesuggest that when considering an external course of any type, you research theprovider’s website and request testimonials from previous customers.


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DisclaimerThese learning materials have been designed by theInstitute of Financial Services to support students intheir studies and in particular to help them prepare fortheir assessment(s). The assessments are based upon thecontent and learning outcomes documented in theaward/module/unit syllabus, which is printed in full at thefront of the learning material.

The learning materials have been prepared to cover therequirements of this syllabus and a comprehensiveknowledge and understanding of the content of theselearning materials should allow students to be successfulin the assessment(s).

Because some of the topics within the syllabus are inter-related and the learning materials are written in a stylethat is intended to explain concepts and engage the userin active learning, there are occasional instances where itis not possible to find a specific reference point to answereach question. This is particularly true of questionsrelating to case studies where the application ofknowledge is being tested.

Here, a candidate’s knowledge of all preceding modules isrelevant and consequently questions may relate to morethan one point in the learning materials.

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UK Financial RegulationCertificate for Financial Advisers (CeFA®) andCertificate in Mortgage Advice and Practice(CeMAP®)

Module 1 – Syllabus

Learning Outcomes


On completion of this part of the module, candidates will be expected to:

Demonstrate an understanding of:

1 the purpose and structure of the UK financial services industry

2 the main financial asset classes and their characteristics, covering pastperformance, risk and return

3 the main financial services product types and their functions

4 the main financial advice areas

5 the process of giving financial advice, including the importance of regularreviews of the consumer’s circumstances

6 the basic legal concepts relevant to financial advice

7 the UK taxation and social security systems and how they affect personalfinancial circumstances

8 the impact of inflation, interest rate volatility and other relevant socio-economic factors on personal financial plans.

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Unit 2 UK Financial Services and RegulationOn completion of this part of the module, candidates will be expected to:

Demonstrate a knowledge of:

1 the main aims and activities of the Financial Conduct Authority (FCA),and its approach to ethical conduct by firms and individuals

2 how other non-tax laws and regulations impact upon firms and theprocess of advising clients.


1 the regulator's approach to regulating firms and individuals

2 how the regulator's rules affect the control structures of firms and theirrelationship with the regulator

3 how the regulator's Conduct of Business rules apply to the process ofadvising clients/customers

4 how the Anti-Money Laundering regulations apply to dealings with clients/customers

5 the main features of the rules for dealing with complaints andcompensation

6 how the Data Protection Act 1998 affects the provision of financial adviceand the conduct of firms generally.

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Detailed Syllabus

Key: K = Knowledge. U = Understanding. An = Analyse. As = Assess. A = Apply.


Attainment Level Outcome Indicative Content

Demonstrate 1 The purpose and structure of U1.1 The function of the financial services an under- the UK financial services industry in the economy – transferring standing of: industry funds between individuals, businesses

and government – risk management

U1.2 The main institutions/organisations – markets, retail institutions, wholesale institutions, credit unions

U1.3 The role of the EU and of the UK government – regulation, taxation, economic and monetary policy, provision of welfare and benefits

U1.4 The purpose and position of clearing and settlement organisations

2 The main financial asset classes U2.1 Cash deposits and money marketand their characteristics, instrumentscovering past performance, risk and return U2.2 Government securities and

corporate bonds – fixed interest and index linked

U2.3 Equities

U2.4 Real estate – residential and commercial

U2.5 Commodities

U2.6 Foreign exchange

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3 The main financial services U3.1 Direct investment – cash, government product types and their functions securities and corporate bonds, equities

and property, commercial money marketinstruments

U3.2 Collective investments – structure, tax and charges – OEICs/unit trusts, investment trusts, life assurance contracts, offshore funds

U3.3 Derivatives – their structure and purpose

U3.4 Mortgages and other loans – personal and commercial

U3.5 Pensions

U3.6 Structured products

U3.7 Protection products – life and general

4 The main financial advice areas U4.1 Budgeting

U4.2 Protection

U4.3 Borrowing and debt

U4.4 Investment and saving

U4.5 Retirement planning

U4.6 Estate planning

U4.7 Tax planning

5 The process of giving financial U5.1 The nature of the client relationship, advice, including the importance confidentiality, trust and consumer of regular reviews of the protectionconsumer’s circumstances

U5.2 The information required from consumers and methods of obtaining it

U5.3 Factors determining how to match solutions with consumer needs and demands

U5.4 How to assess affordability and suitability

U5.5 The importance of communication skills in giving advice and how to adapt advice to customers with different capacities and needs

U5.6 The importance of monitoring and review of consumers’ circumstances

U5.7 Information for consumers and when it should be provided (outline only)


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6 The basic legal concepts relevant U6.1 Legal persons – individuals, wills, in financial advice intestacy, personal representatives (and

administration of estates), trustees, companies, limited liabilities, partnerships

U6.2 Contract, capacity to contract

U6.3 Agency

U6.4 Real estate, personal property and joint ownership

U6.5 Powers of attorney, enduring power ofattorney and lasting power of attorney

U6.6 Insolvency and bankruptcy, IndividualVoluntary Arrangements (IVAs), CVAs

7 The UK taxation and social U7.1 Concept of residency/domicilesecurity systems and how they affect personal financial U7.2 UK Income tax system – liability to circumstances income tax, allowances, reliefs, rates,

grossing up interest and dividends, employed and self-employed income, self-assessment deadlines, priorities for taxing different classes of income, gift aid, Give As You Earn

U7.3 Capital gains tax – liability to CGT, disposals, death, deductions, losses, main reliefs and exemptions, calculation of chargeable gains

U7.4 Inheritance tax – liability to IHT, main exemptions, calculation of IHT liabilities

U7.5 Corporation tax

U7.6 Stamp duty, land tax and stamp duty reserve tax on securities

U7.7 VAT and Insurance Premium Tax

U7.8 Withholding tax

U7.9 National insurance

U7.10 Social security benefits

8 The impact of inflation, interest U8.1 Definition of inflation, deflation,rate volatility and other relevant disinflationsocio-economic factors on U8.2 The difference between fixed and personal financial plans variable interest rates and their impact

U8.3 The impact of socio-economic factorsand how they affect the affordability, suitability and performance of financial products in both the long and short term

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Unit 2 UK Financial Services and Regulation


Demonstrate 1 The main aims and activities of K1.1 The FCA’s statutory objectives, roles a knowledge the Financial Conduct Authority activities and powersof: (FCA) and its approach to ethical

conduct by firms and individuals K1.2 The FCA’s principles for businesses and approved persons – how they reflect the need for ethical behaviour by firms and approved persons, FCA guidance

K1.3 The approach to, and requirements for, treating customers fairly

K1.4 Arrangements, systems and controls for senior managers

K1.5 The fit and proper test for approved persons

K1.6 The prevention of financial crime

2 How other non-tax laws and K2.1 The Office of Fair Trading and the regulations are relevant to Consumer Credit legislationfirms and to the process of advising clients K2.2 The Competition Commission

K2.3 The Pensions Regulator

K2.4 Unfair Contract Terms; Advertising Standards Authority; Banking Code

K2.5 EU directives

3 The role of oversight groups K3.1 The role of internal and external auditors, trustees and compliance function


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Demonstrate 1 The regulator’s approach to U1.1 Authorisation of firms, an under- regulating firms and individuals regulated activities & standing of: regulated investments, firms’ status

U1.2 Capital adequacy and liquidity

U1.3 Supervision and the risk based approach

U1.4 Discipline and enforcement including notification requirements

U1.5 Regulatory developments eg Retail Distribution review (RDR)

2 How the regulator’s rules affect U2.1 Approved persons and controlledthe control structures of firms functionsand their relationship with the regulator U2.2 Reporting and record keeping

U2.3 Training and competence rules

3 How the regulator’s Conduct U3.1 Advertising and financial promotion of Business Rules apply to the rulesprocess of advising clients/customers U3.2 Types of client

U3.3 Information about the firm’s services, including client agreements

U3.4 Status of advisers and status disclosure to customers, specific rules for independent financial advisers and whole of market advisers

U3.5 Identifying client circumstances and needs

U3.6 Suitability of advice

U3.7 Execution only, non-advised sales, and statements of demands and needs

U3.8 Charges and commissions

U3.9 Cooling off and cancellation

U3.10 Product disclosure and risk disclosure statements

U3.11 Simplified advice on the stakeholder suite of products

U3.12 Regulatory rules for mortgage advice (MCOB) – status disclosure, initial disclosure document, charges, suitability, product disclosure, cancellation

U3.13 Regulatory rules for general insurance advice (ICOB) – status disclosure, initial disclosure document, charges, suitability, product disclosure, cancellation

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Demonstrate 4 How the Anti-Money Laundering U4.1 Definition of financial crime andan under- regulations apply to dealings with proceeds of crimestanding of: clients/customers

U4.2 Money laundering regulations and offences, the Terrorism Act 2000, Proceeds of Crime Act 2002

U4.3 Client identification procedures

U4.4 Record keeping requirements

U4.5 Reporting procedures

U4.6 Training requirements

U4.7 Enforcement

U4.8 The role of the Financial Action Task Force and the Serious Organised Crime Agency (SOCA)

5 The main features of the rules U5.1 Consumer rights and remedies, for dealing with complaints and including awareness of their compensation limitations

U5.2 Firms’ internal complaintsprocedures

U5.3 The Financial Ombudsman Service (FOS)

U5.4 The Financial Services Compensation Scheme (FSCS)

U5.5 The Pension Ombudsman

6 How the Data Protection Act U6.1 Definitions in the Data 1998 affects the provision of Protection Act financial advice and the conductof firms generally U6.2 The data protection principles

U6.3 Enforcement of the Data Protection Act


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MortgagesCertificate in Mortgage Advice and Practice(CeMAP®)

Module 2 – Syllabus

Learning Outcomes

Unit 3 Mortgage Law, Policy Practice and MarketsOn completion of the module, candidates will be expected to

Demonstrate a knowledge of:

1 the FCA definition of different types of mortgages and equity release

2 the house-buying process, the key parties involved and their roles

3 the principal types of property defect that surveys can identify andunderstand their implications when seeking a mortgage, including theoptions available to consumers

4 the process and implications of buying property at auction

5 the common types of borrower and how their main mortgage relatedrequirements may differ and what factors may disqualify people fromborrowing.


1 the main requirements of the Mortgage Conduct of Business Rules andthe legislation affecting mortgages

2 the economic and regulatory context for giving mortgage advice.

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Unit 4 Mortgage ApplicationsOn completion of the module, candidates will be expected to


1 the role of a Mortgage Adviser and the importance and principles ofproviding advice, including the key factors affecting the advice given

2 the implications for consumers of 'gazumping' and 'gazundering'

3 the purpose of additional security, including the role of guarantors

4 the fees and charges involved in arranging a mortgage, identify wherethese apply, the services they cover, when they become due, which arerefundable and how the opportunity for refunds diminishes as theprocess nears completion

5 the principal factors affecting the value of property, including theirimplications for consumers seeking mortgages and when consumersshould be referred for specialist advice

6 the different forms of valuation and survey and which might beappropriate for different properties and/or the borrower's circumstances

7 the need to obtain Local Authority planning consent for housedevelopment/extensions.

Unit 5 Mortgage Payment Methods and ProductsOn completion of the module, candidates will be expected to


1 the key features of the different types of mortgage repayment options andtheir benefits and drawbacks for different types of borrower

2 the key features of the common types of mortgage product and interestrate options

3 the structure and features of other types of mortgage

4 the main features and functions of different forms of life assurance andother insurances (eg mortgage payment protection insurance (MPPI), life,accident and sickness insurance (ASU), building insurance, contentsinsurance) associated with arranging a mortgage.


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Unit 6 Mortgage Arrears and Post-CompletionOn completion of the module, candidates will be expected to


1 the principles and procedures associated with raising additional moneyand the circumstances when further borrowing might be appropriate

2 the principles, procedures and costs associated with transferringmortgages

3 the principles of using mortgages within debt consolidation arrangements

4 the implications for the borrower of the non-payment of mortgages,other breaches of the Mortgage Deed, non-payment of building insuranceand the options available

5 the legal rights/remedies available in respect of non-payment fromborrowers

6 the main provisions made by the State to assist consumers in difficultiesover the repayment of mortgages.

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Detailed Syllabus

Key: K = Knowledge. U = Understanding. An = Analyse. As = Assess. A = Apply.

Unit 3 Mortgage Law, Policy Practice and MarketsAttainment Level Outcome Indicative Content

Demonstrate 1 The regulatory definition of different K1.1 Regulatory definitions as given ina knowledge types of mortgages and equity release the Handbookof:

2 The house-buying process, the England/Waleskey parties involved and their K2.1a Role of estate agent/valuer/ roles conveyancer/legal adviser;

K2.2a Process to contract exchange/completion and when a contract becomes binding;

OR

ScotlandK2.1b Role of estate agent/valuer/legal

adviser;

K2.2b Conditional/unconditional offer;

K2.3b Private bargain/private treaty;

K2.4 Acceptance/ completion/conclusion of missives;

3 The principal types of property K3.1 Main property defects;defect that surveys can identify and understand their implications K3.2 How property defects may affect when seeking a mortgage, the lending decision and/or including the options available require immediate remedial works.to consumers

4 The process and implications K4.1 Requirement for funding (ie cash/ of buying property at auction mortgage commitment) to be in

place up front;

K4.2 Contracts exchanged, with associated deposit, on the day

5 The common types of borrower K5.1 Private/residential borrowers;and how their main mortgage related requirements may differ K5.2 Intermediary/business/commercialand what factors may disqualify borrowers (outline only);people from borrowing

K5.3 Those who cannot borrow:t undischarged bankrupts; t mentally incapacitated; t minors


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Demonstrate 1 The main requirements of the U1.1 National House-Building Council an under- Mortgage Conduct of Business guaranteesstanding of: Rules and the legislation affecting

mortgages U1.2 Property Misdescriptions Act

U1.3 Contract Law

U1.4 Principles of Agency

U1.5 Consumer credit law

U1.6 Legal obligations and guarantors

U1.7 Lenders Rights and Borrowers Covenant

U1.8 Financial Services and Markets Act 2000 (including the Mortgage Conduct of Business Rules andMortgage market Review)

England/Wales/Northern Ireland:

U1.9 Property Law ORScotland:

U1.10 Policies, as determined by the Scottish Executive, affecting the mortgage process and property market in Scotland

U1.11 Matrimonial Homes Act (eg single borrowers require an affidavit)

U1.12 Tenancy Act

U1.13 Mortgage Rights Act

U1.14 Statutory Repair Act

U1.15 Bankruptcy Act (refers to ‘sequestrian’ in Scotland)

U1.16 Land Tenure Reform Act

U1.17 Feu disposition (reference Land Certificate in England/Wales)

U1.18 Court decree (reference County Court Judgment in England/Wales)

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2 The economic and regulatory U2.1 The property market and the main context for giving mortgage conditions that affect itadvice

U2.2 Interest rates and their drivers

U2.3 The UK mortgage lending sector

U2.4 Mortgage regulation: MCOB and its implications for the mortgage adviser

Unit 4 Mortgage Applications

Attainment .Level Outcome Indicative Content

Demonstrate 1 The role of a Mortgage Adviser U1.1 Affordabilityan under- and the importance and principlesstanding of: of providing advice, including U1.2 Suitability

the key factors affecting theadvice given. U1.3 Risk

U1.4 Term of mortgage

U1.5 Principles of ethical advice, including regulatory guidance (for example, Treating Customers Fairly)

U1.6 Methods of verifying information supplied by consumers

U1.7 Methods of checking that mortgage solutions match consumer immediate and long term needs and circumstances

2 The implications for consumers U2.1 Gazumpingof ‘gazumping’ and ‘gazundering’

U2.2 Gazundering

3 The purpose of additional security, U3.1 The requirement for guarantorsincluding the role of guarantors to be advised to seek independent

legal advice

U3.2 Higher lending charges and othertypes of security (life policies and collateral)


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4 The fees and charges involved in U4.1 Reservation feesarranging a mortgage, identify where these apply, the services U4.2 Application feesthey cover, when they become due, which are refundable and U4.3 Arrangement/booking feeshow the opportunity for refunds diminishes as the process nears U4.4 Lenders reference feescompletion

U4.5 Land Registry fees

U4.6 Valuation fees

U4.7 Estate agent fees

U4.8 Legal/solicitors fees

U4.9 Stamp Duty Land Tax

U4.10 Local Authority searches

U4.11 Bankruptcy searches

U4.12 Telegraphic transfer costs

U4.13 Environmental searches, eg flooding, mining

U4.14 Mortgage exit administrationfees

U4.15 Survey fees, HIPs and other specialist reports

U4.16 Title indemnity fees

U4.17 Higher lending charge

U4.18 Brokers fees

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© ifs School of Finance 2013 xxxv

Demonstrate 5 The principal factors affecting the U5.1 Type of propertyan under- value of property, including theirstanding of: implications for consumers U5.2 Location

seeking mortgages and when consumers should be referred

U5.3 Building materials and any

for specialist advicerestrictions

U5.4 Age of property

U5.5 Freehold/commonhold/leasehold (England & Wales)

U5.6 Tenure

U5.7 Multiple use

U5.8 Vacant possession

U5.9 Reinstatement value

U5.10 Whether it is insurable; including but not limited to risk offlooding/subsidence/heave

U5.11 Planning permission

U5.12 Building regulations

U5.13 Contract guarantees

U5.14 Listed/heritage

U5.15 Easements, including but not limited to rights of way

U5.16 Due diligence enquiries, including but not limited to outstanding disputes

U5.17 Covenants.

6 The different forms of valuation U6.1 Forms of valuation and or survey and survey and which might be (basic valuations, homebuyer’s appropriate for different report, building survey, full properties and/or the borrower’s structural survey)circumstances U6.2 Requirements of lenders

U6.3 Rights of the consumer

7 The need to obtain Local Authority U7.1 The legal basis of local authorityplanning consent for house planning proceduresdevelopment/extensions

U7.2 The main procedures in obtaining local authority planning consent

U7.3 Development limitations that apply to different categories of listed buildings


xxxvi © ifs School of Finance 2013

Unit 5 Mortgage Payment Methods and Products


Demonstrate 1 The key features of the different U1.1 Capital and interest repayment an under- types of mortgage repayment (repayment mortgages)standing of: options and their benefits and

drawbacks for different types U1.2 Interest payment (interest only of borrower mortgages)

U1.3 Implications for the consumer of the under-performance of repayment options

U1.4 Repayment vehicles used in conjunction with interest-only mortgages – endowmentpolicies; pension arrangements; ISAs; OEICs; Unit Trusts, Investment Trusts

2 The key features of the common U2.1 Standard variable rate mortgagestypes of mortgage product and interest rate options U2.2 Tracker mortgages (variable

rate/LIBOR/base rate tracker mortgages)

U2.3 Fixed rate mortgages

U2.4 Capped rate (including capped and collared) mortgages;

Discounted rate (including cash back/gift) mortgages

Low start mortgages

U2.5 Equity release mortgages (links to mortgage/home reversion schemes)

U2.6 Flexible mortgages

U2.7 All in one/current account mortgages/offset mortgages, including drawdown facilities

U2.8 CAT marked mortgages

U2.9 Hybrid arrangement products, for example – ‘part and part’ mortgages

U2.10 The performance and volatility of fixed and variable interest rates for different types of borrower

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3 The structure and features of U3.1 Commercial mortgagesother types of mortgage

U3.2 Equity release including home reversion plans

U3.3 Low start mortgages

U3.4 Self build mortgages

U3.5 Mortgages in excess of 100% of property value

U3.6 Foreign currency mortgages

U3.7 New build mortgages

U3.8 Buy to let mortgages (including types of tenancy)

U3.9 ‘Right to buy’ Council property mortgages

U3.10 Shared appreciation mortgages

U3.11 Shared ownership mortgages (Housing Association)

U3.12 Equity share mortgages; includingHomebuy schemes

U3.13 Adverse credit/sub-prime mortgages (for ‘non-conforming’ or ‘non-status’ borrowers, with, eg CCJs/arrears/discharged bankruptcy)

U3.14 Sharia–compliant mortgages (also known as Islamic mortgages)

4 The main features and functions U4.1 Life assurance; Pension termof different forms of life assurance assuranceand other insurances (eg mortgage payment protection insurance U4.2 Accident/sickness/critical illness/(MPPI), life, accident and sickness unemployment/redundancy insurance (ASU), building insuranceinsurance, contents insurance)associated with arranging a U4.3 Income Protection insurancemortgage

U4.4 Buildings and contents insurance

U4.5 Waiver of premium benefit


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Unit 6 Mortgage Arrears and Post-completion


Demonstrate 1 The principles and procedures U1.1 Equity release products an under- associated with raising additional standing of: money and the circumstances U1.2 Further advances

when further borrowing mightbe appropriate U1.3 Draw down facilities

U1.4 Release of part security

U1.5 Remortgages, second mortgages

U1.6 Bridging loans

U1.7 Charging structures

U1.8 Legal implications

2 The principles, procedures and U2.1 Transfer of mortgage to a new costs of transferring mortgages lender

U2.2 Implications of property moves

U2.3 Converting one mortgage to another

U2.4 Removing or adding one party from or to a joint mortgage

U2.5 Implications of redeeming a mortgage before/at the end of its term

U2.6 Making additional/lump sum capital repayments on a mortgage, during its term

3 The principles of using mortgages U3.1 Relationship between costs/within debt consolidation penalties/repayments/termarrangements

U3.2 Risk to the consumer associated with consolidation

U3.3 Risks associated with moving loans from unsecured to secured status

U3.4 Draw down facilities

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© ifs School of Finance 2013 xxxix

4 The implications for the borrower U4.1 When to provide a mortgage of the non-payment of mortgages, warning, ensuring that this is other breaches of the Mortgage understoodDeed, non-payment of building insurance and the options U4.2 Possible courses of action available available (eg Scotland mortgage to rent

scheme)

U4.3 Regulatory requirements regarding the treatment of those in arrears

U4.4 Mortgage Rights Act (Scotland)

5 The legal rights and remedies U5.1 Role of Citizens Advice andavailable to lenders in respect other agenciesof non-payment from borrowers

U5.2 Rights of subrogation of insurers to pursue borrowers

U5.3 Legal remedies for the lender on default

6 The main provisions made by U6.1 Income Support for Mortgage the State to assist consumers Interest (ISMI)in difficulties over the repayment of mortgages U6.2 52 week linking rule


xl © ifs School of Finance 2013

Holistic Assessment of Knowledge andUnderstanding Covered in Units 1–6Certificate in Mortgage Advice and Practice(CeMAP®)Module 3 – Syllabus

Learning Outcomes

Unit 7 Holistic assessment of knowledge and understanding covered in Units 1–6

Demonstrate an ability to analyse consumers’ circumstances and suitablemortgage solutions taking account of any existing arrangements

Demonstrate and ability to apply suitable mortgage solutions to specificconsumers’ circumstances

Demonstrate the ability to identify consumers’ needs and demands andrecommend suitable and affordable mortgage solutions, using their knowledgeand understanding of

t the advice process

t the UK finance industry, and the regulatory and ethical framework forgiving mortgage advice

t the different types of mortgage solution and the criteria for determiningtheir suitability and affordability

The holistic paper will test analysis, synthesis and evaluation.

© ifs School of Finance 2013 xli

Detailed Syllabus

Unit 7 Holistic assessment of knowledge and understanding covered in Units 1–6


Demonstrate 1 Consumers’ circumstances and 1.1 Factors shaping consumers’ an ability to suitable mortgage solutions circumstances and borrowing analyse: taking account of any existing purposes

arrangements1.2 How to assess affordability and

suitability

1.3 How to assess the long termperformance of mortgage products

1.4 Methods of identifying and reviewing suitable product solutions

1.5 How to assess the impact of newsolutions on existing arrangements

Demonstrate 1 Suitable mortgage solutions 1.1 The range of solutions available to an ability to to specific consumers’ suit different types of circumstanceapply: circumstances

1.2 The criteria for matching solutionsto consumer needs and demands

1.3 How to explain interest rates,volatility and related technicalmatters to lay people

1.4 Factors influencing the way in which recommendations arepresented

1.5 How to check consumers’understanding of recommendations

1.6 Consumer rights and the regulatory requirements apply to the provision of investment advice

Demonstrate the ability to identify consumers’ needs and demands and recommend suitable andaffordable mortgage solutions, using their knowledge and understanding of

t the advice process

t the UK finance industry, and the regulatory and ethical framework for giving mortgage advice

t the different types of mortgage solution and the criteria for determining their suitability andaffordability


xlii © ifs School of Finance 2013

© ifs School of Finance 2013 1

The FCA’S Mortgage Conduct of Business Rules

MCOB


Introduction

The Financial Services Authority (FSA) took over the regulation of mortgagesales from 31 October 2004. The Financial Services Bill (2012) amended theBank of England Act 1998, the Financial Services & Markets Act (2000) and theBanking Act (2009). From a mortgage perspective the main change was thetransfer of regulation from the FSA to the Financial Conduct Authority (FCA)for the sale and marketing of mortgages. The regulations now apply to all‘Home Finance Activities’, which include:

t Regulated mortgage contracts (including lifetime mortgages)

t Home purchase plans

t Home reversion plans

t Regulated sale and leaseback arrangements

For the purpose of this study text we will focus on the rules applying toregulated mortgage contracts.

The following are excluded from regulation by the FCA:

t second charges;

t corporate mortgages, ie loans to companies.

To be more precise, the FCA now regulates the sale and administration ofhome finance activities that satisfy each of the following critieria:

t the lender is providing the plan to an individual or trustee;

t in the case of a mortgage, the borrower’s obligation to repay themortgage is secured by a first legal mortgage on land (other thantimeshare accommodation) in the UK;

t at least 40% of that land is used, or is intended to be used, as or inconnection with, a dwelling by the individual or by a related person.

A related person means either

t the borrower’s spouse; or

t the borrower’s parent, brother, sister, child, grandparent or grandchild.

© ifs School of Finance 2013 3MCOB

For ease of reading we will use the term ‘mortgage’ as a generic term for homefinance unless otherwise stated.

A mortgage contract will be classed as a regulated contract only if the threecriteria described above are satisfied at the time the contract is entered into.

Contracts that were entered into before 31 October 2004 cannotsubsequently be regarded as regulated mortgage contracts, even if they satisfythe required criteria.

The majority of residential mortgages will meet the above criteria, as well assome commercial mortgages where the borrower or related person occupiesat least 40% of the land as a dwelling.

The structure of the MCOB sourcebook2.1 The Mortgage Conduct of Business Rules (MCOB) are a separate

sourcebook within the FCA Handbook. They comprise 13 chapters, whichare summarised as follows.

Chapter Title What does it include?

MCOB 1 Application and Purpose t helps firms understand whichparts of the MCOB rules applyto them

t provides guidance on theapplication of other parts of theFCA Handbook

MCOB 2 Conduct of Business t general requirements that apply Standards: General throughout the mortgage

sourcebook

t communications must be clear,fair and not misleading

t rules on inducements

MCOB 3 Financial Promotions t content requirements forqualifying credit promotions

t rules banning unsolicited real-time promotions (cold calling)


4 © ifs School of Finance 2013MCOB

MCOB 4 Advising and Selling t the initial disclosure documentStandards

t independence

t suitability of advice

t non-advised sales

MCOB 5 Pre-application Disclosure t timing and content of the keyfacts illustration (KFI)

MCOB 6 Disclosure at the Offer t content of the offer documentStage

MCOB 7 Disclosure at Start of t start of contract information Contract and After Sale requirements

t annual statements

t information requirements forpost-sale contract variations(such as further advances)

MCOB 8 Equity release: t a tailored regime for advising and Advising and Selling selling lifetime mortgagesStandards

MCOB 9 Equity release: t tailored product disclosure Product Disclosure requirements for lifetime

mortgages

MCOB 10 Annual Percentage Rate t how to calculate the APR

MCOB 11 Responsible Lending and t a requirement for lenders to responsible financing of check the consumer’s ability to home purchase plans repay

MCOB 12 Charges t charges in key areas (forexample, arrears and earlyrepayment charges) must bereasonable, based on the cost tothe lender

t charges must not be excessive

MCOB 13 Arrears and Repossessions t information requirements for fairtreatment of borrowers inarrears and facing repossession

The structure of the MCOB sourcebook

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The key points of each of these chapters (except 8, 9 and 10) that areconsidered to be most relevant to this qualification are produced in a simplifiedformat in the following pages. Paragraphs shown in bold type represent actualRules, whereas those shown in ordinary type represent either aninterpretation of, or commentary on, those Rules.

Chapter 1Application and purpose1.1 The purpose of this chapter is to set out:

t to whom the MCOB Rules apply

t within what territorial limits the Rules apply

t the activities to which the Rules apply.

1.2 The MCOB Rules apply to every firm that carries on regulated mortgageactivities.

1.3 The application of the Rules is expressed by reference to four types offirm, ie:

t home finance lenders

t home finance administrators

t home finance arrangers

t home finance advisors

1.4 The MCOB Rules apply if the customer of a firm carrying on regulatedmortgage activities is resident in:

t the United Kingdom, or

t another European Economic Area (EEA) State and the regulatedactivity is carried on from an office maintained by the firm in the UK.

1.5 The Rules also apply to those business loans where the customer is not alarge business customer. A large business customer is defined as one witha turnover (or group turnover if part of a group) of more than £1m a year.

1.6 Only regulated mortgage contracts entered into on or after 31 October2004 are subject to the MCOB Rules. Any variation made to a contractthat was entered into before that date will not be subject to the Rules,but the provisions of the Consumer Credit Act 1974 may apply instead.



1.7 It is the responsibility of a firm that, before entering into a contract, itmust establish whether the contract will be regulated and thereforesubject to the MCOB Rules.

1.8 If, however, a firm mistakenly treats a contract as unregulated when it isin fact a regulated contract, then the firm must as soon as possible

t contact the customer and provide a statement to the effect that thecontract is regulated and subject to the MCOB Rules, and stating theposition with regard to any redress or compensation

t provide a statement that the Consumer Credit Act 1974 will notcontinue to apply to the contract, if this was originally the case.

Chapter 2Conduct of business standards – general

2.1 This chapter applies to:

t all regulated home finance activities;

t those activities that are carried on after a regulated mortgage contracthas come to an end following the sale of a repossessed property.

Prescribed terms2.2 In any communication to a customer, a firm must:

t describe any early repayment charge as an ‘early repayment charge’and not use any other expression to describe such a charge;

t describe any higher lending charge as a ‘higher lending charge’ and notuse any other expression to describe such a charge;

t describe any lifetime mortgage as a ‘lifetime mortgage’; and

t describe any home reversion plan as a ‘home reversion plan’.

Communication of information2.3 When a firm communicates information to a customer, it must take

reasonable steps to communicate it in a way that is clear, fair and notmisleading.

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2.4 When considering how to comply with this Rule, a firm should take intoaccount the level of the customer’s knowledge of the regulated mortgagecontract to which the information relates.

2.5 This Rule covers all forms of communication with customers, ie oralstatements, written statements, telephone calls and correspondence.

Inducements2.6 The purpose of the following Rule is to ensure that firms conduct business

with integrity, act in the interests of customers and treat them fairly.

2.7 A firm must take reasonable steps to ensure that it, and any person actingon its behalf, does not:

t offer, give, solicit or accept an inducement, or

t refer any actual or potential business in relation to a regulatedmortgage contract to another person if it is likely to conflict with thefirm’s duty to its customer.

2.8 A firm must not operate a system of giving or offering inducements to amortgage intermediary whereby the value of the inducement increases ifthe intermediary achieves set business targets.

2.9 A mortgage lender must quantify in cash terms any material inducementit offers to a mortgage intermediary or third party.

This quantification must take account of any subsequent payments made to theintermediary or other third party whilst the customer’s regulated mortgagecontract remains in place.

Accessibility of records2.10 The records that a firm is required to keep by the MCOB Rules must be

readily accessible for inspection by the FCA.

2.11 Records are deemed to be ‘readily accessible’ if they are available forinspection within two business days of the request being received.



Chapter 3Financial promotion

3.1 This chapter applies to every firm that approves a qualifying creditpromotion, ie a financial promotion for a regulated mortgage contract aswell as a promotion for qualifying credit.

3.2 An example of a qualifying credit promotion that complies with theMCOB Rules detailed in this chapter is shown below.

ABC ASSOCIATES

Finance Broker

With access to hundreds of products from most main lenderswe’re sure to find the right solution for you.

Need advice on what’s best?No problem – all our staff are fully-trained

Our charges are usually just £250.

Call us today on

0800 000 000

Your home may be repossessed if you do not keep up repayments on your mortgage.

3.3 Certain qualifying credit promotions are exempt from the MCOB Rules.Essentially, these are promotions that contain only one or more of thefollowing:

t the name of the firm;

t a logo;

t a contact point, ie address, email address, telephone or fax number;

t a brief, factual statement of the firm’s main business.

3.4 This chapter distinguishes between real time and non-real time qualifyingcredit promotions.

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A real time qualifying credit promotion is one that is communicated in thecourse of a personal visit or telephone conversation.

A non-real time qualifying credit promotion is one made by letter, email or thatis contained in a newspaper, journal, magazine, website or television or radioprogramme.

3.5 A non-real time qualifying credit promotion must contain the name of thefirm and either an address or a contact point from which an address canbe obtained eg an email address or telephone number.

3.6 A firm must be able to show that it has taken reasonable steps to ensurethat a non-real time qualifying credit promotion is clear, fair and notmisleading.

3.7 A non-real time qualifying credit promotion that includes a comparisonmust:

t use a comparison that meets the same needs or is intended for thesame purpose

t not discredit or denigrate the services or activities of a competitor

t not take any unfair advantage of the reputation of a competitor

t not create any confusion in the market place between the firm and acompetitor.

3.8 It is recommended that firms should avoid the use of small print to qualifyclaims that are made in a prominent way in a non-real time promotion.

3.9 If a non-real time promotion includes information on the firm’sperformance, interest rates or market conditions then such informationshould be relevant and recent.

3.10 A non-real time qualifying credit promotion that promotes a product thatis conditional upon the customer obtaining further products or servicesmust prominently state the compulsory nature of these purchases.



Required risk statements3.11 A non-real time promotion must always include the statement ‘Your

home may be repossessed if you do not keep up repayments on yourmortgage’.

3.12 If the mortgage is to be denominated in a currency other than sterling,the following statement must be included in the promotion

‘Changes in the exchange rate may increase the sterling equivalent ofyour debt’.

3.13 The prominence of relevant information is essential in ensuring that acommunication is clear, fair and not misleading.

Annual percentage rate (APR)3.14 If a non-real time qualifying credit promotion contains price information,

it must also:

t state the APR

t express the APR as follows ‘the overall cost for comparison is x% APR’

t clearly distinguish the APR from any other rate quoted, but ensuringthat no other information is placed between the two figures.

The firm is not required to explain the basis on which the APR is calculated,or to provide a figure for the total charge for credit.

Solicited and unsolicited real time qualifying credit promotions3.15 A solicited real time qualifying credit promotion is one that is made in the

course of a personal visit or telephone call that was initiated by thecustomer.

3.16 A firm must not make an unsolicited real time qualifying credit promotionunless the customer has an established existing customer relationshipwith that firm and expects to receive such unsolicited promotions.

3.17 In interpreting this Rule it is important for firms to remember that anexempt unsolicited promotion is not prohibited (see paragraph 3.3).

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Form of real time qualifying credit promotions3.18 A firm must ensure that an individual who makes a real time qualifying

credit promotion on the firm’s behalf:

t does not contact the customer at an unsocial hour, unless previouslyagreed;

t does not contact the customer on an unlisted telephone numberunless the customer has previously agreed to such calls on thatnumber;

t identifies himself and the firm he represents;

t checks that the recipient wishes him to proceed if the time andmethod of communication were not previously agreed;

t terminates the communication if the recipient does not wish him toproceed;

t does so in a way in which is clear, fair and not misleading;

t does not make any untrue claims.

3.19 An unsocial hour means:

t before 9am or after 9pm on Monday to Saturday;

t at any time on a Sunday or other days or times when the firm is awarethat the customer would not wish to be called.

3.20 The Rule detailed above in paragraph 3.18 also applies to call centreoperators who initiate communication with customers.

Records3.21 A firm must make an adequate record of each non-real time qualifying

credit promotion. The record must be retained for at least one year fromthe date the promotion was last communicated.

3.22 Records can be kept in such form as the firm chooses, provided it isreadily accessible for inspection by the FCA.



Chapter 4Advising and selling standards

4.1 The whole of this chapter applies to all mortgage lenders, mortgageadvisors and mortgage arrangers.

4.2 The purpose of this chapter is to ensure that:

t customers are adequately informed about the nature of the servicethat they may receive from a firm in relation to regulated mortgagecontracts;

t if any advice is given, it is suitable for the customer.

4.3 A firm must take reasonable steps to ensure that the scope of the servicegiven to a customer, and the regulated mortgage contracts offered, isbased on a selection from one of the following:

t the whole market;

t a limited number of mortgage lenders;

t a single mortgage lender.

Whole of market4.4 A firm which states that it gives information or advice to customers on

regulated mortgage contracts from the whole market must not give suchinformation or advice unless it has considered a sufficiently large numberof regulated contracts that are generally available from the market.

4.5 Every firm that offers customers a selection from the whole market mustmake sure that its analysis and knowledge of the market is kept up-to-date.

4.6 The ‘whole market’ approach can be satisfied by a firm using a panel oflenders, although the panel should comprise lenders representative of thewhole market.

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Independence4.7 When providing information or giving advice to a customer on regulated

mortgage contracts, a firm must not imply that it is acting independentlyunless it intends to:

t provide that service wholly or predominately based on the wholemarket, and

t enable the customer to pay a fee for the provision of that service.

4.8 It is acceptable for a firm that sells investments and regulated mortgagecontracts to act independently for one but offer only a limited range forthe other. In such circumstances, the firm must ensure that all of itscommunications are clear, fair and not misleading so that customers fullyunderstand the nature of the services provided.

4.9 It is also acceptable for a firm to provide a customer with other paymentoptions, such as a combination of a fee and commission.

From 26 April 20144.10 The firm must disclose the range of products it will offer advice from and

the way it will be paid. ‘Information only’ will not be an option the firmcan offer as a standard service.

4.11 Firms are required to state whether there are any limitations on theservice they can offer. This is intended to make sure the customerunderstands whether the firm offers only its own products, productsfrom a restricted range or products from an unlimited range.

4.12 The firm must include either a list of the names of all the mortgagelenders whose products it is offering or state the number of mortgagelenders whose products it is offering and that the customer has the rightto request a list of those lenders.



Initial disclosure requirements4.13 A firm must ensure that, on first making contact with a customer other

than by telephone, and it anticipates giving personalised information oradvice on a regulated mortgage contract, it:

t establishes with the customer whether it will provide advice orinformation;

t establishes with the customer how much he will pay for that advice orinformation;

t provides the customer with an initial disclosure document.

An initial disclosure document does not have to be provided if a previouslyissued document is still likely to be accurate and appropriate for the customer.

The Initial Disclosure Document must be in the prescribed format.

4.14 It is the mortgage lender’s responsibility to provide the initial disclosuredocument in a direct sale. Where a number of firms are involved in atransaction, those firms are expected to take reasonable steps to establishthat the customer has been provided with an initial disclosure document.

4.15 If a firm is certain that the proposed contract will not be a regulatedmortgage contract then an initial disclosure document need not be provided.

4.16 Where initial contact with the customer is by telephone, the followinginformation must be provided at the outset:

t the name of the firm and the commercial purpose of the call;

t the scope of the service provided by the firm (see paragraph 4.3);

t if the scope of the service is not based on the whole market, that thecustomer can request a copy of the list of mortgage lenders whoseregulated mortgage contracts are offered;

t whether or not the firm will provide the customer with advice onthose regulated mortgage contracts it offers.

All the above information must be confirmed in writing.

4.17 If the telephone call has not led the firm to conclude that the customeris ineligible for any of its regulated mortgage contracts, the firm must sendto the customer a copy of the required initial disclosure document withinfive business days of the telephone call.

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From 26 April 20144.18 The information can be provided in a manner and medium that is

appropriate to the channel used, and can be in a format designed by thefirm. For spoken interaction the information can be given orally, whilst foronline and other non-interactive channels it must be included as part ofthe information provided in the appropriate medium.

Advised sales4.19 A firm must take reasonable steps to ensure that it does not make a

personal recommendation to a customer to enter into a particularregulated mortgage contract unless that contract will be suitable for thatcustomer.

4.20 The above Rule also applies where a firm gives a personalrecommendation to vary an existing regulated mortgage contract.

4.21 A regulated mortgage contract will be deemed to be suitable if, havingregard to the facts disclosed by the customer, the firm has reasonablegrounds to conclude that:

t the customer can afford to enter into the regulated mortgagecontract;

t the contract is appropriate to the needs and circumstances of thecustomer;

t the contract is the most suitable of those that the firm is able to offerwithin the scope of the service provided.

4.22 The firm must explain to the customer that the assessment of whetherhe can afford to enter into a regulated mortgage contract based on:

t current interest rates, which might rise in the future;

t the customer’s current circumstances, which might change in thefuture.

4.23 No personal recommendation must be made if there is no regulatedmortgage contract from within the scope of the service provided by thefirm that is appropriate to the needs and circumstances of the customer.

4.24 This means that if a firm offers regulated mortgage contracts from eithera limited number of lenders or from a single lender, it is not acceptable



to recommend a mortgage that almost meets the customer’s needs onthe basis that it does not offer a product that fully meets those needs.

4.25 If a firm makes a personal recommendation to a customer to enter intoa regulated mortgage contract, the main purpose of which is toconsolidate existing debts, the following matters must also be taken intoaccount in determining the suitability of the contract:

t the cost associated with increasing the period over which the debt isto be repaid

t whether it is appropriate for the customer to secure a previouslyunsecured loan

t if the customer is known to have payment difficulties, whether it wouldbe more appropriate for him to negotiate an arrangement with hiscreditors than to take out a regulated mortgage contract.

4.26 In assessing whether a customer can afford to enter into a particularregulated mortgage contract, a firm should consider:

t information provided by the customer about his income andexpenditure, and any other resources he has available

t any likely change to the customer’s income, expenditure and resources

t the costs that the customer will be required to meet once anydiscount period comes to an end.

4.27 In assessing whether a particular regulated mortgage contract isappropriate to a customer’s needs and circumstances, a firm shouldconsider whether

t the customer’s requirements meet the eligibility criteria of thecontract, eg the amount of required advance and the loan-to-valueratio

t the customer should have an interest-only or repayment mortgage, ora combination of the two

t the customer has a preference for a particular mortgage term

t the customer has a preference or need for stability in monthlypayments

t the customer has a preference or need for monthly payments to bereduced at the outset, eg for a discounted rate mortgage

CeMAP® Module 3


t the customer intends to make early payments

t the customer has a preference or need for any other features of amortgage contract, eg payment holidays.

4.28 The above Rule does not require a firm to provide advice on regulatedinvestments.

4.29 It is important to note that the assessment of suitability should not belimited to types of regulated mortgage contract that a firm offers. It is notacceptable to recommend the product that is closest to meeting acustomer’s needs and circumstances if the firm does not have access toproducts which would be fully appropriate to those needs andcircumstances.

For example, a firm that only offers sub-prime products should notrecommend one of these products to a customer with an unblemished creditrecord.

Record keeping4.30 A firm must make and retain a record:

t of all information provided by the customer, including that relating tohis needs and circumstances;

t that explains why the firm has concluded that its personalrecommendation satisfies the suitability requirements.

The record must be retained for a minimum period of three years from the dateon which the personal recommendation was made. There is no requirement tokeep a record if the customer decides not to make an application.

Non-advised sales4.31 If a firm arranges a regulated mortgage contract without giving a personal

recommendation, it must ensure that all the questions it asks thecustomer about his needs and circumstances are scripted in advance.

4.32 Information provided to a customer in a non-advised sale must be clear,fair and not misleading. The scripted questions should also be clear, fairand not misleading.



4.33 If, in the course of a non-advised sale, a firm decides that a customer isconsidering a regulated mortgage contract that is inappropriate for thatcustomer, the firm should tell the customer to seek advice. This wouldmean that the firm would be paying due regard to the customer’sinterests and treating him fairly.

4.34 A firm must ensure that all staff using scripted questions:

t are trained in the use of the script

t understand the difference between what constitutes a personalrecommendation and what does not.

4.35 A firm must make, and keep up to date, a record of all scripted questionsused. The record must be made on the date on which the questions arefirst used.

The record must be kept for one year from the date that the questions werereplaced by up-to-date ones.

From 26 April 20144.36 The principle built into the April 2014 rule changes is that borrowers

should always receive qualified advice, which removes the option for afirm to offer an information only service.

4.37 In the interest of customer freedom of choice, the regulator has definedthree broad exceptions, where individuals can opt for execution only,provided they have done so at their own request and they understand theconsequences of losing the protection of the advice process:

t High Net Worth and professional customers;

t Where the service is through ‘non-interactive’ channels, such asinternet or postal sales;

t In the interests of freedom of choice, those considering equity releaseor debt consolidation will be able to reject advice offered andpurchase another product on an execution only basis.

4.38 In addition, those customers who are looking to vary the terms of anexisting mortgage, either with their current lender or by moving to a newlender may be dealt with on an execution only basis as long as the loanamount will not increase.

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4.39 A high net worth customer is defined as one with a minimum annual netincome of £300,000, or minimum net assets of £3m. In the case of jointapplicants at least one of them must meet the definition in their ownright. The firm must satisfy itself that the customer meets therequirements for treatment as a high net worth customer and keeprecords of the sale for at least three years from the start of the contract.

4.40 Lenders can apply higher-level requirements to high net worthcustomers, based on three main factors;

t Disclosure – lenders can use a tailored approach, which primarilyfocuses on the wording used;

t Advice – interactive sales may be conducted on an execution-onlybasis, provided the customer has confirmed in writing that they areaware of the consequences of losing the protections of the rules onsuitability;

t Responsible lending – lenders can be a little more flexible in theassessment of affordability

4.41 A professional customer is defined as someone who has worked in thefinance sector for at least a year, in a professional position that requiresknowledge of the product or arrangements to be arranged, and who thefirm reasonably believes to be capable of understanding the risks involvedin the proposed arrangements. As long as the firm is satisfied that it hasevidence that the customer meets the criteria, it can deal with thecustomer on an execution only basis. Records of the sale must be keptfor at least three years from the start of the contract.

4.42 A regulated mortgage for business purposes is a mortgage where themortgage will be secured on a property that meets the requirements fora regulated mortgage (40% of the land occupied as a main residence, etc),but the sole purpose of the loan, remortgage or further advance is toraise additional money for the use of a business. MCOB will apply if thebusiness has annual turnover below £1m (i.e not a large business). Thelender must have seen a business plan or other evidence that the loan isfor business purposes, and the evidence must be kept for at least threeyears from the date it was obtained.

4.43 Firms are expected to provide advice wherever the sales process involvesinteractive dialogue, except for high net worth mortgage customers,professional customers and loans solely for a business purpose where thecustomer has positively opted not to receive advice.



4.44 If a customer has rejected the advice given and wishes to take out adifferent mortgage on an execution-only basis, the firm can arrange thatas long as the MCOB rules on execution-only sales are satisfied.

4.45 Execution only sales can normally be arranged only in cases where:t there is no spoken or other interactive dialogue between the firm andthe customer during the sale; or

t if there is spoken or other interactive dialogue between the firm andthe customer during the sale the customer is a high net worthmortgage customer or a professional customer or the loan is solelyfor a business purpose. If any of these apply the customer mustpositively elect to proceed on an execution-only basis;

t the customer has rejected advice, identified the product he wants,provided the firm with details about the chosen product and positivelyelected to proceed with an execution-only sale, as described above.

4.46 With the exception of loans to high net worth customers, professionalcustomers or mortgages solely for business purposes, a firm must notenter into or arrange an execution-only sale if:t the customer is intending to use it to exercise a statutory “right tobuy” their home; or

t the main purpose of the customer’s entering into it is to raise fundsfor debt consolidation; or

t there is spoken or other interactive dialogue between the firm and thecustomer at any point during the sale.

4.47 Borrowers seeking to vary the terms of an existing mortgage, either withtheir existing lender or by moving to a new lender, can do so on anexecution only basis as long as the new arrangement does not involveextra borrowing, other than to cover any product or arrangement fees.

4.48 Records of execution only sales must be kept for three years from thestart of the contract, and must include the details given by the customerabout the mortgage product chosen and details of any rejected advice.

4.49. Interest only mortgages are addressed in two parts of the 2014 MCOB –4.7a Advised Sales and 11.6 Responsible Lending. MCOB 4.7a requires afirm to make sure that the customer demonstrates he has arranged aclearly understood and ‘credible’ repayment strategy that the lender hasassessed at the time to have the potential to repay the capital at the endof the term. The lender is not required to provide advice on that strategy.

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Chapter 5Pre-application disclosure

5.1 A customer must be provided with an illustration before he submits anapplication to a mortgage lender.

5.2 An illustration must be provided if a firm:

t makes a personal recommendation to a customer to enter into aregulated mortgage contract, or

t provides information to a customer that is specific to the amount thathe wants to borrow, or

t provides the means for a customer to make an application to it.

t has already provided an illustration and the terms of the proposedmortgage have materially changed between then and the application. Arevised illustration must be given before an application is made.

5.3 The purpose of this chapter is to ensure that, before a customer submitsan application, he is supplied with information that makes clear:

t the features of the regulated mortgage contract for which anapplication is to be made;

t any linked borrowing or tied products that will be required;

t the price that the customer will be required to pay.

5.4 A firm must be able to show that it has taken reasonable steps to ensurethat any illustration it issues is clear, fair and not misleading.

5.5. An illustration on a particular regulated mortgage contract issued by, oron behalf of, a mortgage lender, must be an accurate reflection of thecosts of that contract.

5.6 A mortgage intermediary must take reasonable steps to ensure that anillustration which it issues, or which is issued on its behalf by any firmother than a mortgage lender, is no more than 1% or £1, whichever is thegreater, below the actual figures charged by the lender for:

t the total amount that must be repaid

t the amount to be paid for each £1 borrowed

t the amount to be paid by regular monthly instalments



t the amount by which the monthly instalment would increase followinga 1% increase in the interest rate charged.

In addition, the APR quoted in the illustration must not be understated bymore than 0.1%.

5.7 There are no restrictions on figures being quoted higher than thoseactually charged by the lender. However, this should not be purposelydone in order to make one contract look more expensive than another.

5.8 In providing an illustration to a customer, a firm must explain to thecustomer the importance of reading and understanding it.

This Rule can be satisfied by drawing the customer’s attention in a face-to-facemeeting of the importance of reading and understanding the illustration,or by referring to this in a covering letter sent with the illustration.

5.9 If a customer accesses a quotation on the Internet, the following warningmust be displayed prominently on each page on screen

‘This information does not contain all of the details you need to choose amortgage. Make sure that you read the separate illustration before you makea decision.’

Record keeping5.10 A firm must make an adequate record of each illustration it issues. The

record must be retained for a year from the date of the customer’sapplication.

5.11 The record should contain the following information;

t the date on which the illustration was provided to the customer;

t the date of the customer’s application;

t how the illustration was provided, eg by post or accessed on awebsite.

5.12 A firm is not required to keep a record of any illustration that is issuedto a customer where he does not apply to enter into that particularcontract.

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Tied products5.13 If an illustration provided to a customer does not contain an accurate

quotation or reasonable estimate of the payments the customer will berequired to make in connection with any tied product, then:

t an accurate quotation must be provided as soon as possible after anapplication has been made, and before an offer of advance is issued;

t the customer has a right to withdraw his application for a period ofseven days from receipt of the quotation for the tied product;

t the quotation for the tied product must be accompanied by a noticeexplaining that the customer can withdraw his application within sevendays from receipt and receive a full refund of any fees paid.

Timing5.14 An illustration for a regulated mortgage contract must be provided

before the customer submits an application for that particular contract.

5.15 An illustration for a regulated mortgage contract must be issued at thepoint at which any personal recommendation is made to the customer. Ifthe personal recommendation is made by telephone, the illustration mustbe provided within five business days.

5.16 An illustration must also be provided if a firm provides writteninformation that is specific to the amount that the customer wishes toborrow on a particular regulated mortgage contract.

5.17 A firm must not accept fees or commission a valuation until the customerhas had the opportunity to consider an illustration.



No preference expressed on method of repayment5.18 If a customer expresses no preference between a repayment and an

interest-only mortgage, the firm must:

t provide an illustration for a repayment mortgage;

t make the customer aware that the illustration has been prepared onthis basis.

Format and content of an illustration

5.19 An illustration provided to a customer must:

t contain all the material set out in the specimen illustration (seebelow);

t follow the prescribed template;

t use font sizes and typefaces that make it sufficiently legible to a typicalcustomer.

An illustration must not contain any material other than that prescribed in theRules.

5.20 It is not acceptable for an illustration to contain information relating tomore than one regulated contract, ie comparisons between differentproducts must not be made.

Format of the illustrationThe standard format and content of an illustration is shown below. It isfollowed by explanatory notes for each section.

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Personalised illustration for:

Date produced:

Insert details of how long the illustration is valid for, and if appropriate whenthe mortgage needs to commence by

This is not a legally binding mortgage offer and it does not oblige (name ofmortgage lender) to provide you with the mortgage described in thisillustration.

1. About this illustration

We are required by the Financial Conduct Authority (FCA) – the independentwatchdog that regulates financial services – to provide you with thisillustration.

All firms selling mortgages are required to give you illustrations like this one,that contain similar information presented in the same way.

Ensure that you obtain other illustrations if you want to compare thismortgage with mortgages from other lenders.

2. Which service are we providing you with?

We recommend, having assessed your needs, that you take out this mortgage.

We are not recommending a particular mortgage for you. However, basedon your answers to some questions, we are giving you information about thismortgage so that you can make your own choice.

3. What you have told us

4. Description of this mortgage



5. Overall cost of this mortgage

The total amount you must pay back, £...including the amount borrowed is

This means you pay back £... for every £1 borrowed

The overall cost for comparison is ...%APR

6. What you will need to pay each (insert frequency of payments)

This box is required only where all or part of the mortgage is an interest-only mortgage. It must be deleted for repayment mortgages.

Cost of repaying the capital

This section is required only for deferred interest rate mortgages.

This table shows the effect of the deferred interest being added to the amountyou owe. Where the interest rate is variable: The amounts in the table couldbe considerably different if the interest rate changes.

Year Interest Amount of Remaining debt Remaining debt deferred deferred interest before deferred with deferred

that is added to interest is added interest addedthe mortgage

7. Are you comfortable with the risks?

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8. What fees must you pay? Fee amount

Fees payable to (insert name of mortgage lender) Insert amount of each fee

Other fees Insert amount of each fee

9. Insurance Insert frequency ofpayments for premiumquoted payments

Insurance you must take out through (insert Insert amount(s) if name of mortgage lender or mortgage appropriateintermediary)

Insurance you must take out as a condition of Insert amount(s) if this mortgage but that you do not have to appropriatetake out through (insert name of mortgage lender or mortgage intermediary)

This box is required only where quotations Insert amount(s)for optional insurance are provided in the illustration

Optional insurance

10. What happens if you do not want this mortgage any more?

Early repayment charges

What happens if you move house?

11. What happens if you want to make overpayments?

12. Additional features



13. Using a mortgage intermediary

(This section is required only when the illustration is provided to a customerby, or on behalf of, a mortgage intermediary. If the illustration is provided by amortgage lender, this section must be removed and Section 14 must berenumbered Section 13)

14.Where can you get more information about mortgages?

The Money Advice Service publishes useful guides on choosing a mortgage. Theseare available free through its website: www.moneyadviceservice.org.uk, orby calling 0300 500 5000. The website also provides Comparative Tables to helpyou shop around.

Your home may be repossessed if you do not keep up repayments onyour mortgage

For foreign currency mortgages add the following risk warning:

Changes in the exchange rate may increase the sterling equivalentof your debt

Section 1 – about this illustration

5.21 The prescribed text shown in the specimen illustration must be included.

Section 2 – which service are we providing you with?

5.22 The appropriate ‘check box’ must be marked prominently to indicate thelevel of service provided to the customer.

Section 3 – what you have told us

5.23 The following information must be included:

t the amount of the loan required;

t the price of the property to be purchased;

t the mortgage term;

t whether the contract is to be an interest-only or repaymentmortgage, or a combination of the two.

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Any other relevant information given by the customer can also be included.

5.24 Any fees and other charges that are to be added to the loan must beshown clearly after the amount of the loan

5.25 Similarly, any insurance premiums that are to be added to the loan mustalso be shown clearly.

5.26 If the customer is required to pay any fees or charges, but these are notbeing added to the amount to be borrowed, the following text must beadded after the loan amount.

‘No fees have been added to this amount but the fees you need to pay areshown in section 8.’

5.27 If no fees or charges are required to be paid by the customer, and noinsurance premiums are being added to the loan, the following text mustbe added after the loan amount

‘We do not charge any fees for this mortgage.’

5.28 If the illustration is in respect of a contract that is part interest-only andpart repayment, it must show the amount that is being borrowed on eachbasis.

5.29 At the end of Section 3 of the illustration a statement must be includedmaking it clear that any changes to the information obtained from thecustomer, or any change to the property valuation, could alter theillustration, and encouraging the customer to ask for a revised illustration.

Section 4 – description of this mortgage

5.30 This section of the illustration must

t state the name of the lender providing the mortgage

t provide a description of the interest rate type (eg fixed, discounted,capped etc) and the rate of interest to be charged

t unless the interest rate applies for the full term of the loan, confirmthe period during which it will apply and the date on which it ends

t where there is more than one interest rate type or rate of interest,specify the amount of the loan to which each applies



t if the customer is obliged to buy a tied product or take out a linkedcurrent or savings account, state the details of the products required

t where the interest rate, payments or terms and conditions of thecontract reflect the customer’s adverse credit history, include thefollowing text

‘The terms of this mortgage reflect past or present financial difficulties.’

Section 5 – overall cost of this mortgage

5.31 In the case of an interest-only mortgage, the following text must beinserted

‘However, it excludes any payment that you may need to make into a separatesavings plan to build up a lump sum to repay the amount borrowed.’

5.32 In the case of a repayment mortgage, the following text must be inserted

‘With a repayment mortgage you gradually pay off the amount you haveborrowed, as well as the interest, over the life of the mortgage.’

5.33 This section of the illustration must show:

t the total amount to be repaid, ie the amount borrowed plus allinterest charged;

t the amount to be repaid per £1 borrowed, ie the figure given abovedivided by the amount borrowed;

t the overall cost for comparison, ie the APR.

5.34 At the end of this section the following text must be included:

‘Unless the interest rate is fixed throughout the term of the mortgage, thefigures given in this section will vary following interest rate changes.’

Section 6 – what you will need to pay each month

5.35 This section must contain:

t the amount of the loan on which the illustration is based, including allfees, charges and insurance premiums that have been added to it;

t the date on which the mortgage is expected to start;

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t the number of monthly payments;

t whether the interest rate is fixed or variable;

t the interest rate charged on the mortgage at the time the illustrationis issued;

t the amount of each monthly instalment at the interest rate quoted.

An example of how this last piece of information can be presented is asfollows. Assume a mortgage term of 25 years, where the interest rate is fixedfor the first five years. The information shown will be:

60 payments at a fixed rate of x%

followed by

240 payments at a variable rate, currently y%.

5.36 In the case of a deferred interest mortgage, the following text must beinserted:

‘The deferred interest will be added to your mortgage.’

5.37 For an interest-only mortgage, the following text must be inserted underthe heading ‘Cost of repaying the capital’

‘You will still owe (insert the amount of the loan) at the end of the mortgageterm. You will need to make separate arrangements to repay this. Whencomparing the payments on this mortgage with a repayment mortgage,remember to add the payment that you may need to make into a separatesavings plan.’

5.38 If the customer is required to take out a repayment vehicle that is a tiedproduct then this section must include the appropriate details and anaccurate quotation or a reasonable estimate of the payments to be made.

If a quotation cannot be provided it must be clearly stated that it is notavailable at present but will be provided as soon as possible. If the quotation isfound to be unacceptable, then the application can be cancelled with a fullrefund of all fees.



Section 7 – are you comfortable with the risks?

5.39 Under the heading ‘What if interest rates go up?’ this section must include

t if the interest rate is fixed throughout the mortgage term, anexplanation that monthly payments will not vary

t if the interest rate is fixed for part of the term, an explanation of howincreases in the interest rate charged will affect the customer’smonthly repayments

t if the interest rate is capped or collared, or both, and this appliesthroughout the mortgage term, an explanation that this is the case.

t if the interest rate is capped or collared , or both, and this applies foronly part of the mortgage term, an explanation of how increases in theinterest rate charged will affect the customer’s monthly payments

t the following statement in respect of the effect of increases in theinterest rate charged, ie:

t ‘The monthly payments shown in this illustration will increase by £xfor each 1% increase in the interest rate charged.’

t the following statement under the heading ‘What if your income goesdown?’

t ‘You will still have to pay your mortgage if you lose your job or if illnessprevents you from working. Think about whether you could do this.’

5.40 The amount by which the customer’s payments would increase followingan interest rate increase (see 5.39) must be calculated using:

t the total amount borrowed, or

t the amount outstanding from the earliest date at which the ratecharged can vary, eg on a fixed rate mortgage, this would be the dateon which the fixed rate ends; and

t the interest rate charged at the date the illustration was issued.

5.41 The following text must be included at the end of this section:

‘The FCA’s guide entitled ‘You can afford your mortgage now, but what if…’,will help you consider the risks.

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Section 8 – what fees must you pay?

5.42 This illustration must:

t itemise all fees that are included in the APR calculation, excluding anycompulsory mortgage payment protection insurance;

t include the following statement:

‘You may have to pay other taxes or costs in addition to any fees shown here.’

Fees to be itemised in this section include a fee to re-inspect the propertyfollowing completion of works (if known at the time the illustration isissued), and any fee payable when the loan is fully repaid.

5.43 The fees payable to the lender must be shown separately to any otherfees payable. Other fees include those charged by a mortgageintermediary for giving advice and arranging a mortgage.

5.44 The following information must be provided for each fee included in thissection:

t a description of the fee;

t the amount payable;

t to whom the fee is payable, where it is not payable to the lender;

t when the fee is payable;

t whether or not it is refundable;

t whether the fee is accurate or estimated.

5.45 If a fee is to be added to the loan, this should also be stated.

5.46 If a higher lending charge is payable by the customer, the followingstatement must be included

‘A higher lending charge is payable because you are borrowing x% of theproperty’s price or value (estimated if not known when issuing theillustration).’

5.47 A lender must provide a tariff of charges on request by the customer.



Section 9 – insurance

5.48 This section must include details of any:

t insurance product which is a tied product;

t insurance product required as a condition of the mortgage which isnot a tied product;

t insurance products that are optional.

It must be clearly stated from whom any tied insurance product must bepurchased, ie the lender or the mortgage intermediary.

5.49 The following information must also be included in respect of each tiedinsurance product:

t for how long the customer is obliged to purchase the insurance;

t an accurate quotation or reasonable estimate of the paymentsrequired;

t details of when the payments for such insurance change, eg if they arereviewed annually.

5.50 If the customer is not required to take out any tied insurance productthen this must be clearly stated in this section.

5.51 If the lender or intermediary makes a charge where the customer decidesnot to purchase a compulsory insurance product through the lender orintermediary, this must be clearly stated. The amount of the charge andthe frequency with which it is payable must also be stated.

5.52 If the customer has asked for any insurance premiums to be added to theamount borrowed, the following statement must be included

‘The annual insurance premium will be added to your mortgage account. Thiswill increase the amount you owe’.

This statement must also give the period within which the premium can bepaid before interest is charged on it.

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Section 10 – what happens if you do not want this mortgage any more?

5.53 The following information must be included under the heading ‘Earlyrepayment charges’:

t whether the customer is not permitted to repay the mortgage early;

t whether any early repayment charges are payable, and, if so, when;

t an explanation of any other fees that are payable if the mortgage isrepaid early, and the current level of those fees;

t an explanation of the basis on which early repayment charges arecalculated, including details of any cashback or other incentives thatmust be repaid;

t the maximum amount of any early repayment charge payable.

5.54 Under the heading ‘What happens if you move house?’ details must beprovided of whether the mortgage is portable on moving house and if anyconditions or restrictions will apply.

Section 11 – what happens if you want to make overpayments?5.55 This section must include details of any restrictions that apply to lump

sum and regular overpayments, together with a statement as to whetheror not the amount of the loan on which interest is calculated is reducedimmediately on receipt of any lump sum or regular overpayment.

If such recalculation of interest is not immediate, details must also be includedof when the recalculation will be made.

Section 12 – additional features5.56 This section must include details of any additional features under the

following headings:

1 UnderpaymentsDetails of the circumstances in which underpayments can be made andwhether any conditions apply.

2 Payment holidaysDetails of the circumstances in which payment holidays can be taken andwhether any conditions will apply.



3 Borrow backDetails of the circumstances in which the customer can borrow back anymoneys overpaid and whether any conditions will apply.

4 IncentivesDetails of any incentives, eg cashback. If a cashback is provided, the amount ofthe cashback and when it will be paid must also be provided.

5 Additional borrowing available without further approvalDetails of the circumstances in which the customer can increase the amountof the loan on which the illustration is based without further approval by thelender, eg if there are drawdown facilities.

6 Additional secured borrowingDetails of the circumstances in which additional secured lending is offered.

7 Unsecured borrowingDetails of the circumstances in which unsecured lending is offered.

8 Credit cardThis must state whether a credit card is offered with the mortgage.

9 Linked current accountWhether a linked current account is compulsory or optional and anexplanation of the interest rates that apply under different circumstances tothe account. The firm providing the linked current account, if not the mortgagelender, must also be stated.

10 Linked savings accountWhether a linked savings account is compulsory or optional and the interestrate paid if it differs from the interest rate charged on the mortgage. The firmproviding the linked savings account, if not the mortgage lender, must also bestated.

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5.57 If any of the additional features under headings 5, 6 and 7 apply, then thefollowing information must also be given:

t the maximum additional amount available;

t the total resulting debt that the customer could incur, including theamount of the original loan;

t the monthly payments on this total debt;

t whether the additional borrowing must also be repaid in full if theoriginal loan is repaid in full;

t if early repayment charges apply to the additional amount borrowed.

Section 13 – using a mortgage intermediary

5.58 If the illustration is issued to a customer by, or on behalf of, a mortgageintermediary the following information must be provided:

t the amount payable by the lender to the intermediary;

t the name of the lender who will make the payment, and the name ofthe mortgage intermediary who will be paid.

5.59 If the amount payable by the lender to the intermediary is £250 or less,the intermediary need only state that the amount is no more than £250,unless the customer requests the actual amount.

5.60 The amount payable by the lender must include:

t any procuration fee; and

t a cash value for any material non-cash inducements.

Section 14 – where can you get more information about mortgages?

5.61 This section must be renumbered Section 13 if the illustration is notprovided by, or on behalf of, a mortgage intermediary.

5.62 This section must include the following text

‘The Money Advice Service publishes useful guides on choosing a mortgage.These are available free through its website: www.moneyadviceservice.org.uk,or by calling 0300 500 5000. The website also provides Comparative Tables tohelp you shop around.’



5.63 The name, address and contact point of the firm providing the illustrationmust be given under the heading ‘Contact details’.

5.64 The following text must be prominently displayed after the contactdetails:

‘Your home may be repossessed if you do not keep up repayments on yourmortgage.’

Chapter 6Disclosure at the offer stage

6.1 This chapter applies only to mortgage lenders and where an offer hasbeen made by a firm to a customer with a view to the firm

t entering into a regulated mortgage contract; or

t varying the terms of a regulated mortgage contract by:

– adding or removing a party,

– making a further advance, or

– switching all or part of the mortgage from one type of interest rateto another.

6.2 This chapter does not apply to regulated lifetime mortgage contracts.

6.3 If a firm offers to enter into a regulated mortgage contract with acustomer, it must provide an offer document containing an illustration.The offer must be based on the information set out in the illustration.

Records6.4 A firm must make an adequate record of each offer document it issues,

and this record must be retained for a year from the date of issue.

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Amendments to the illustration6.5 The illustration provided as part of the offer document must be suitably

adapted and revised to reflect that the firm is making an offer to thecustomer.

The following text must be included under the heading ‘About this offerdocument’ in Section 1 of the illustration:

‘You are not bound by the terms of this offer document until you have signedthe legal charge.

You should compare this offer document with the illustration given to youbefore you applied for this mortgage to see how the details may have changed.’

6.6 The heading ‘Which service are we providing you with?’ must be replacedby ‘Which service did we provide you with?’ The wording under this textshould be amended to read:

t we have recommended, having assessed your needs, that you take outthis mortgage;

t we have not recommended a particular mortgage for you. You mustmake your own choice whether to accept this mortgage offer.

The appropriate box alongside these options should be marked prominently toindicate the level of service provided.

6.7 Where all or part of the mortgage is on an interest-only basis, theillustration that forms part of the offer document must:

t clearly state that the payments cover only interest, and not the capitalborrowed;

t state the repayment vehicle the customer intends to use where thesedetails are known – if the firm does not know how the customerintends to repay the capital, it must be clearly stated that therepayment vehicle is unknown and the customer provided with a clearreminder of the need to put suitable arrangements in place;

t include a reminder to the customer to check regularly theperformance of any investment used as a repayment vehicle to seewhether it is likely to repay the capital at the end of the mortgageterm.



6.8 In adapting and revising the original illustration a firm must:

t avoid amending the format where possible as this could result in theillustration that forms part of the offer document being difficult tocompare with the original illustration;

t use, where possible, the same headings, order of information andlanguage that appeared in the original illustration.

6.9 The illustration that forms part of the offer document must form anintegral part of that document. It must not be a separate document.

Other information contained in the offer6.10 A firm must ensure that the offer document contains a prominent

statement:

t of the period for which the offer is valid;

t explaining that once the mortgage has been completed there will beno right of withdrawal;

t explaining that the customer will have a right to repay the mortgagein accordance with the terms of the contract;

t explaining the consequences that might arise from the customer notentering into the contract, eg any fees that have been paid that will notbe reimbursed.

6.11 A firm must ensure that under the heading ‘Contact details’, informationis given on how to complain to the firm about the services it has providedand whether or not complaints may subsequently be referred to theFinancial Ombudsman Service.

6.12 The offer document must be accompanied by a tariff of charges that couldbe incurred.

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Chapter 7Disclosure at start of contract and after sale

7.1 This chapter applies if a firm

t enters into a regulated mortgage contract with a customer; or

t administers a regulated mortgage contract entered into with acustomer; or

t arranges or advises on or makes a further advance or other variationto the terms of a regulated mortgage contract entered into with acustomer.

Disclosure requirements7.2 A firm must provide the customer with the following information before

the first mortgage payment is made:

t the amount of the first payment required;

t the amount of subsequent payments if different from the first payment;

t the method by which payments will be collected, eg by direct debit;

t the date of collection of the first and subsequent payments;

t confirmation of which, if any, associated insurance or investmentproducts have been purchased through the firm;

t the premiums for any insurance or investment products purchasedthrough the firm, and confirmation of whether these premiums are tobe collected with the mortgage payment or separately;

t whether the mortgage contract allows overpayments orunderpayments to be made;

t confirmation of whether the mortgage is repayment or interest-only,or a combination of both;

t if the mortgage is interest-only, a reminder to check that anyrepayment vehicle is in place if this has not been provided by the firm;

t what the customer should do if he falls into arrears, ie make earlycontact with the firm, and drawing the customer’s attention to thearrears charges set out in the tariff of charges, and the firm’s addressand telephone number of a contact point.



Record keeping7.3 A firm must make an adequate record of the information disclosed to

each customer at the start of the mortgage, and retain this record for ayear from the date the information is provided to the customer.

Annual statements7.4 A firm must provide the customer with a statement at least once a year

covering the mortgage and any tied products purchased through the firm.

7.5 The annual statement must contain the following:

t a clear statement of whether the mortgage is interest-only orrepayment, or a combination of both;

t a prominent reminder, where the mortgage is interest-only, of whetherthe monthly payment includes the premiums on any repayment vehicleand that they should check the performance of any such investment;

t details of the following transactions during the period since the laststatement was issued:

– the date and amount of each payment made,

– the amount of each payment that was due,

– the rates of interest charged,

– the amount of interest charged,

– any other amounts or fees charged;

t a reminder that the customer should contact the firm if he is unableto make regular monthly payments

t the amount owed by the customer on the date the statement is issued

t the remaining mortgage term

t the date on which any early repayment charges cease to apply

t a revised tariff of charges if changes have been made since the lastannual statement was issued and these have not previously beennotified to the customer.

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Further advances7.6 Before a customer submits an application to a lender for a further

advance on an existing regulated mortgage contract, or for a furtheradvance that will be regulated, the firm must provide the customer withthe required illustration detailed in Chapter 5 – pre-applicationdisclosure.

7.7 The illustration must

t be based on the amount of the further advance only

t use the term ‘additional borrowing’ in place of the term ‘mortgage’throughout the illustration

t include a clear statement explaining the total amount that thecustomer will owe if he takes out the additional borrowing, and whatthe new monthly payment will be.

Rate switches7.8 Covers change of interest rate type – requires new illustration for the

whole loan.

Addition or removal of a party to the contract7.9 A firm is not required to provide an illustration where the removal of a

party is due to the death of that party, and no other party is to be addedto the mortgage.

7.10 In all other cases, before a customer submits an application to add orremove a party to a mortgage, a firm must provide any customer who willremain or become a party to the mortgage with the illustration detailedin Chapter 5 – pre-application disclosure.

7.11 For the purposes of the previous two paragraphs, a guarantor is notregarded as a party to a regulated mortgage contract.

7.12 The following text must be included in Section 2 of the illustration underthe heading ‘Which service are we providing you with?’

‘We are providing you with an illustration for the addition/removal of aparty/parties to this mortgage. You must make your own choice about whetherchanging the parties to this mortgage is right for you.’



Changes to the monthly payment7.13 If a customer requests, or agrees to, a change to the monthly payment on

a regulated mortgage contract, a firm must provide the customer with thefollowing information before the change in monthly payment takes effectt the amount outstanding at the date the change is requested;t the new payment due and the date from which it will take effect;t the new interest rate to be charged and the date from which it willtake effect;

t details of any charges that apply for changing the monthly payment;t if the mortgage is to be changed from repayment to interest-only, aprominent reminder that the customer should have in placearrangements to repay the capital.

7.14 The above Rule will apply in the following cases:t if the customer requests a change to the term of his mortgage;t the lender has agreed to capitalise arrears;t a fixed, discounted or capped rate period is coming to an end.

Chapter 8Equity ReleaseChapter 8 applies to the advising on and arranging lifetime mortgages andhome reversion plans, both of which require specialist qualifications foradvisers. Apart from a general understanding of this type of product CeMAPcandidates will not have to demonstrate detailed knowledge of the area. ThisMCOBs summary covers the basic requirements.

8.1 The general rules on mortgage advice and suitability apply to equityrelease, so will not be repeated here. However, where the plan does notrequire regular payments during the applicant’s lifetime, the rules onaffordability are not applicable.

8.2 The firm must take into account the effect the plan will have on thecustomer’s tax position and eligibility for state benefits as part of thesuitability assessment. It must also consider whether alternative methodsof meeting the customer’s objectives may be more suitable.

8.3 With regard to non-advised sales, the provider must cover the same areaswhen helping the customer to select a product.

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Chapter 9Lifetime mortgages: product disclosure

9.1 Product disclosure follows the principles for general mortgage advicewith adaptations to allow for the different features of the products, suchas the effect of rolling up interest and the effect of house price changes.

Chapter 10Annual Percentage Rate

10.1 This chapter deals with the complexities of the annual percentage rate(APR) calculation. This is not considered to be an essential requirementof this qualification, although an explanation of the fundamentals of thisparticular topic is given in the study material for Unit 5 of CeMAP®Module 2.

Chapter 11Responsible lending

11.1 This chapter applies to mortgage lenders but only where the lender:

t enters into a regulated mortgage contract with a customer; or

t makes a further advance on an existing regulated mortgage contract.

11.2 A lender must be able to show that, before deciding to enter into aregulated mortgage contract with a customer, account was taken of thecustomer’s ability to repay.

11.3 A lender must make an adequate record to demonstrate that it has takenaccount of the customer’s ability to repay. The record must be retainedfor a year from the date on which the regulated mortgage contract isentered into.

11.4 The Rules described in paragraphs 11.2 and 11.3 apply where a furtheradvance is made on a regulated mortgage contract.



Responsible lending policy11.5 A mortgage lender must put in place, and operate in accordance with, a

written policy setting out the factors it will take into account in assessinga customer’s ability to pay.

A lender must make and keep up-to-date an adequate record of its responsiblelending policy. If the policy is changed, a record of the previous policy must beretained for a year from the date of the change.

From 26 April 201411.6 The basic principles have been tightened.

t Before entering into, or agreeing to vary, a regulated mortgagecontract or home purchase plan, a firm must assess whether thecustomer (and any guarantor of the customer's obligations under theregulated mortgage contract or home purchase plan) will be able topay the sums due; and

t the firm must not enter into the transaction unless it can demonstratethat the new or varied regulated mortgage contract or home purchaseplan is affordable for the customer (and any guarantor).

This requirement does not apply if the new arrangement is to vary the termsof an existing mortgage or replace an existing mortgage with a new lender,providing that no further borrowing is undertaken.

11.7 The new affordability measures mean that lenders will always have toobtain reliable evidence and verification to confirm that the incomedeclared by the applicant is correct, and that the lending decision shouldbe based on that evidence.

11.8 The rules specifically prohibit self-certification and insist that evidence ofincome must be obtained from a source that is independent of thecustomer rather than from the customer.

11.9 Where the firm is, or reasonably should be, aware of any future changesto the customer’s income or expenditure, it should take that into accountwhen assessing affordability.

11.10 If the term of the mortgage will extend beyond the customer’s expectedretirement date (or state pension age if that date is unknown) the firm

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should take a ‘prudent and proportionate approach’ to assessing incomebeyond that date.

11.11 Affordability must be based on the applicant’s free disposable income –the amount left each month after normal expenses. There are threetypes of expenditure to be considered:

t Committed expenditure’ that will continue after the mortgage starts;

t ‘Basic essential’ expenditure of the household, which includes costsneeded to maintain the basic living needs of the household;.

t Additional expenditure required to provide a basic quality of lifebeyond the bare necessities.

Lenders can use exact figures or base this expenditure on statistical ormodelled data.

11.12 Debt consolidation – if the increased mortgage would not be affordableunless the other debts were paid off, the lender must take ‘reasonablesteps’ to ensure that the debts are repaid on completion of themortgage.

11.13 Interest only mortgages – where there is a credible method of capitalrepayment, as mentioned in Chapter 4, affordability can be assessed onan interest only basis, but the specific repayment vehicle costs (not anestimate) must be taken into account. Lenders must ensure they obtainevidence of the repayment strategy and its credibility at the applicationstage and keep records relating to the rationale behind its lendingdecision. Once the mortgage has started, the lender should takereasonable steps to contact borrowers at least once during themortgage term to check on the repayment strategy. The check should becarried out at such a time that allows the customer time before the endof the term to rectify any potential underfunding issues.

11.14 Future interest rate increases – the lender must look at the impact ofpotential interest rate increases on the borrower’s ability to maintainmortgage payments in the future. Lenders must consider whether themortgage would still be affordable if interest rates reached a certainfigure, which can be established with reference to market expectationsover the next five years (or the mortgage term if it less than five years).Lenders must use an independent and recognised source of informationwhen deciding on the rate, and must assume an increase of at least 1%over the period.



11.15 There are transitional arrangements for those borrowers who alreadyhave a mortgage, but may be affected by the new rules when they seeka new mortgage. For example, those who have an existing interest onlyor self-certified loan and wish to move or remortgage. In these cases,providing the applicant meets certain conditions, a new lender has thediscretion to grant a new mortgage. This can apply when the borrower:

t Can demonstrate a good payment history for at least the previous 12months;

t Is not be seeking to borrow additional money;

t The new monthly payment is the same as or lower than their currentpayment.

11.16 A firm must make an adequate record for each customer of the steps ittakes to comply with the responsible lending rules. The records must bein paper or electronic form and kept for the term of the mortgage.

Chapter 12Charges

12.1 This chapter applies where a firm

t enters into, or makes a further advance on, a regulated mortgagecontract; or

t administers a regulated mortgage contract; or

t arranges or advises on a regulated mortgage contract.

Early repayment charges12.2 A firm must ensure that any regulated mortgage contract that it enters

into does not impose an early repayment charge other than one that is:

t able to be expressed as a cash value; and

t a reasonable pre-estimate of the costs payable if the customer repaysthe full amount of the loan before the mortgage contract has reachedits termination date.

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12.3 A firm is able to choose its own method for calculating early repaymentchanges, except that it should not use the ‘Rule of 78’.

12.4 Before entering into a regulated mortgage contract, a firm must disclosein the illustration provided as part of the offer of advance the maximumamount payable as any early repayment charge that applies.

Arrears charges12.5 A firm must ensure that any regulated mortgage contract it enters into

does not impose a charge for arrears on a borrower except where thatcharge is a reasonable estimate of the cost for the additionaladministration required as result of the borrower being in arrears.

12.6 The above Rule does not prevent a firm from entering into a regulatedmortgage contract under which the rate of interest charged on a fixed ordiscounted rate mortgage can be increased to the firm’s standard variablerate if the borrower goes into arrears.

However, the standard variable rate must not be one created especially forborrowers in arrears.

Excessive charges12.7 A firm must ensure that any regulated mortgage contract it enters intodoes not impose excessive charges upon a borrower.

12.8 In determining whether a charge is excessive, a firm should consider:

t charges for similar products or services on the market;

t the extent to which the charge has been disclosed to the borrower;

t the extent to which the charge is an abuse of the trust that theborrower has placed in the firm.



Chapter 13Arrears and possessions

13.1 This chapter applies to the administration of a regulated mortgagecontract and the administration of a mortgage shortfall debt.

It continues to apply to a firm after a regulated mortgage contract has cometo an end following the sale of a repossessed property.

13.2 A firm must deal fairly with any customer who:

t is in arrears on a regulated mortgage contract; or

t has a mortgage shortfall debt.

13.3 A firm must put in place, and operate in accordance with, a written policyand procedures for complying with the Rule described in paragraph 13.2.

13.4 A firm should ensure that its written policy and procedures include

t using reasonable efforts to reach an agreement with a customer overthe method of repaying any payment shortfall or mortgage shortfalldebt

t liaising with a third party source of advice regarding the paymentshortfall or mortgage shortfall debt

t adopting a reasonable approach to the time over which the paymentshortfall or mortgage shortfall debt should be repaid , taking intoaccount the customer’s circumstances

t granting, unless it has good reason not to do so, a customer’s requestto change the date on which the monthly payment is due or themethod by which the payments are made

t giving consideration, where no reasonable payment arrangement canbe made, to the customer being allowed to remain in the property toeffect a sale

t repossessing the property only when all other reasonable attempts toresolve the position have failed.

13.5 The regulator takes the view that the determination of a reasonableperiod for the repayment of arrears or a mortgage shortfall debt willdepend on the customer’s circumstances. In some cases this will meanthat repayments are arranged over the remaining term of the mortgage.

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Record keeping13.6 The lender must keep records of its dealings with borrowers who are in

arrears or have a shortfall debt. The records must be kept for three yearsfrom the date of the dealings.

Provision of information to the customer13.7 If a customer falls into arrears on a regulated mortgage contract, a firm

must provide the customer with the following information within 15business days of becoming aware of the arrears:

t the FCA information sheet on arrears ‘What to do when you can’tmeet your mortgage payments’;

t a list of the payments missed or only partly paid;

t the total amount of the arrears;

t the charges incurred as a result of the arrears;

t the total outstanding debt, excluding any redemption charges;

t the nature and level of charges that will be incurred unless the arrearsare cleared.

Procedure required before taking action for possession13.8 Before commencing action for possession, a firm must:

t provide a written update of the information required by the Ruledescribed in paragraph 13.7;

t ensure that the customer is informed of the need to contact the localauthority to establish his eligibility for re-housing after possession hasbeen taken;

t clearly state the possession procedure.



Statement of charges13.9 Where an account is in arrears and charges are being levied, a firm must

provide the customer with a regular written statement of the paymentsdue, the arrears, the charges incurred and the outstanding debt. Thestatement should be provided at least once a quarter.

13.10 The written statement referred to above need not be sent if arepayment plan is being adhered to and no charges are being made.

Pressure on customers

13.11 A firm must not put pressure on a customer through excessivetelephone calls or correspondence, or by contact at an unreasonablehour.

13.12 A reasonable hour is considered to be between 8am and 9pm. However,a firm should also take into account any knowledge that it has of acustomer’s work pattern or religious faith which might make itunreasonable to contact him within these hours.

Marketing a repossessed property13.13 A firm must ensure that when a property has been taken into

possession, steps are taken to:

t market the property for sale as soon as possible; and

t obtain the best price that might reasonably be paid, taking into accountmarket conditions and the increasing debt owed by the customer.

13.14 If the proceeds of sale are less than the outstanding debt, the customermust be advised as soon as possible after the sale of:

t the mortgage shortfall debt;

t whether that shortfall debt may be pursued by another company, eg amortgage indemnity insurer.

13.15 If the firm decides to recover the mortgage shortfall debt, it must notifythe customer of this intention. Such notification must be made within six yearsof the date of sale (five years if the mortgage is subject to Scots Law).

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13.16 If the proceeds of sale are more than the outstanding debt, a firm musttake reasonable steps to inform the customer of the surplus and, subjectto the rights of any subsequent mortgagees, pay it to him.




Certificate in Mortgage Advice and Practice (CeMAP®)

Sample synoptic paperEngland and Wales

Case Study 1

Alec and Clare have lived in a rented flat since they were married two yearsago. Prior to this they redeemed their mortgage on their house when they soldit to move to a different part of the country for work. They have approachedWestern Bank to discuss the possibility of obtaining a mortgage. They arehoping to purchase a leasehold flat which they have seen, having successfullynegotiated a £6,000 reduction in the original asking price of £254,000. The flatis one of two above a high street shop, and has an unexpired lease of 75 years.Each flat and the shop comprise equal floor areas.

They are both in full-time employment, earning guaranteed basic salaries of£44,000 and £40,000 respectively. They have asked the adviser for someinformation on stocks and shares individual savings accounts (ISAs), as a friendhas suggested that it might be a good idea to use one of these as therepayment vehicle for an interest-only mortgage.

Alec is expecting a substantial salary increase when he completes his trainingin two years’ time, but until then he and Clare wish to know the maximummonthly payment that they will be required to make. They want the cheapestvaluation option offered by Western Bank and are keen to protect themortgage with suitable life assurance.

Western Bank’s affordability criteria requires mortgage payments to be nomore than 80% of free disposable income taking into account committedexpenditure, basic essential expenditure and basic quality of living costs. Themaximum loan-to-value (LTV) is 90%. Additional security is required if the loan-to-value ratio exceeds 80%.

Question 1

Which of the following statements is true in respect of the additional securitywhich the bank would require if an application is approved, the property isvalued at the agreed price, and Alec and Clare provide a £45,000 deposit?

A It may be possible to add the charge to the advance.

B Its primary purpose is to protect Alec and Claire’s interests.

C The bank must encourage Alec and Claire to seek independent legaladvice.

D The policy must be assigned to the bank.


Question 2

Assuming they meet the lender’s affordability criteria and the property isvalued at the agreed price, the maximum that Alec and Claire would be able toborrow is:

A £198,400.

B £203,200.

C £223,200.

D £228,600.

Question 3

How much stamp duty land tax will be saved as a result of the agreed lowerpurchase price?

A £60.

B £180.

C £5,140.

D £7,680.

Question 4

With regard to the freehold of the flat, which factor would prohibit itspurchase under current legislation?

A The floor area of each property.

B The number of flats in the block.

C The purchase price of the property.

D The remaining term of the lease.

Sample synoptic paper – England and Wales

4 © ifs School of Finance 2013

Question 5

If Alec and Clare proceed with their preferred valuation option, what detail willthis confirm?A If the electrical system meets current standards.

B If the plumbing system meets current regulations.

C The amount for which the property should be insured.

D The open market value for the property.

Question 6

Which of the following mortgage products would be most suitable for Alec andClare?

A A Bank of England base rate tracker.

B A discounted rate of 1.0% below the standard variable rate for a periodof five years.

C A standard variable rate, currently 4.2%.

D A variable rate, currently 4.2%, but capped at 4.4% for two years.

Question 7

In comparison to a similar sized flat in a purpose-built block in the same area,Alec and Clare should understand that their flat is likely to be:

A valued at a higher price.

B valued at a similar price.

C valued at a lower price.

D impossible to compare to the price of the purpose-built flat.

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Question 8

With regard to the repayment vehicle in which they are interested, and theirdesire for protection, of what should Alec and Clare be made aware?

A Combining their chosen repayment vehicle with decreasing termassurance will guarantee full repayment on death.

B The need for protection is reduced due to the guaranteed maturity oftheir chosen repayment vehicle.

C Their chosen repayment vehicle automatically includes life assurancecover.

D Their protection product should cover the loan amount independentlyof their repayment vehicle.

Question 9

Which of the following would not be a benefit of the type of repayment vehiclebeing considered by Alec and Clare?

A It may enable the mortgage loan to be repaid early.

B The maturity date is fixed to coincide with the end of the mortgageterm.

C The proceeds payable will be free of capital gains tax.

D There is a wide choice of funds in which premiums can be invested.

Question 10

What specific information about the most suitable mortgage product must beincluded in the key facts illustration provided to Alec and Claire before theyapply for their mortgage?

A A description of the interest rates that may be available.

B An explanation of how to switch to a different product.

C That the rate will be fixed throughout the mortgage term.

D What happens if they do not want their mortgage any more.



Case Study 2

Nathan and Louise are moving home and have approached the Island BuildingSociety for mortgage advice. Their existing mortgage is with their bank andthey have no protection products in place. Nathan, aged 40, is employed as anoperations manager in a local packing company. Louise is aged 39 and workspart-time in a local shop.

The property that Nathan and Louise intend to buy is a semi-detached housebuilt in 1980, costing £220,000. The couple have two children: Lorna, aged 20,who is a full-time student, and Ethan, aged 16. Nathan and Louise require amortgage of £120,000 over 25 years. Although they regard their income asadequate, they want to protect their outgoings against potential rises ininterest rates until Lorna completes her university course at the age of 23.They are both entitled to three months’ sick pay, but Nathan is anxious toprotect their financial position if he is made redundant, or suffers an illness thatlasts longer than three months.

Nathan and Louise wish to ensure that their mortgage is paid off by the timeNathan retires at age 65 and require appropriate life cover at the cheapest costavailable.

The couple asked Louise’s brother, a qualified surveyor, to informally look atthe property prior to making an offer. He has suggested that the house isgenerally sound, the asking price fairly represents its value, but that it requiressome external decoration. He feels that the lender may ask for an undertakingregarding the work.

Island Building Society’s affordability criteria requires mortgage payments to beno more than 80% of free disposable income. The maximum loan-to-value(LTV) is 85%. As part of its affordability assessment, Island Building Society usesfigures available from the Office for National Statistics rather than exact figures

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Question 11

Island Building Society’s method of assessing affordability means that Nathanand Louise will not need to provide detailed evidence of their:

A basic essential expenditure.

B income from employment.

C long-term commitments.

D unsecured credit agreements.

Question 12

If Nathan and Louise’s monthly free disposable income is calculated by thebuilding society as £850, the maximum monthly mortgage payment they couldafford in line with the stated criteria is:

A £680.

B £722.50.

C £1,000.00.

D £1,062.50.

Question 13

In respect of the undertaking to complete the essential external decoration,when must this be done?

A Before exchange of contracts.

B After exchange of contracts but before completion.

C Within a specified time following completion.

D Before the end of the mortgage term.



Question 14

To comply with the Mortgage Conduct of Business rules, the Island BuildingSociety adviser must ensure Nathan and Louise are aware of:

A how he is remunerated.

B how their credit score will be calculated.

C the procuration fee that will apply.

D the range of products he can recommend.

Question 15

If Nathan and Louise proceed with their mortgage, Island Building Society willneed to keep details of the illustration it issued in connection with theirapplication for:

A six months.

B one year.

C three years.

D twenty-five years.

Question 16

From the range of mortgage products available, which of the following mostclosely matches Nathan and Louise’s requirements?

A Standard variable rate, currently 4.49%.

B Three-year base-rate tracker at 3.29%.

C Three-year fixed rate at 4.00%.

D Two-year discounted rate at 3.59%.

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Question 17

Bearing in mind their stated requirements, which life assurance product(s)would be most suitable for Nathan and Louise in respect of the newborrowing?

A A level term assurance policy in joint names for £120,000.

B A mortgage protection policy in joint names for £120,000.

C Level term assurance policies for £60,000 each.

D Mortgage protection policies for £60,000 each.

Question 18

The income protection product that would provide the protection Nathanrequires at lowest cost would:

A be underwritten based on his occupation.

B have a term matched to his retirement age

C include a deferred period of 13 weeks.

D pay benefits for a maximum period of one or two years.

Question 19

In respect of assessing the property as security, the building society is mostlikely to:

A accept Louise’s brother’s findings.

B insist on a building survey.

C rely on Land Registry averages for the area.

D require an independent valuation.



Question 20

If Nathan and Louise purchase the property at the stated price, what amountof stamp duty land tax will they pay?

A Nil.

B £1,200.

C £2,200.

D £6,600.

Case Study 3Paul and Kelly are customers of Marsh Bank and they are seeking mortgageadvice. Paul, a sole trader, works as a graphic designer. Some years ago,however, he worked for his father, who became insolvent and Paul is unsurehow this might affect his proposed mortgage application.

Paul is self-employed and full sets of accounts for each of the last few yearsshow steady profits. Last year he turned in a gross profit of £38,000. The netprofit was £28,000. Kelly is a systems analyst, and earns £24,000 pa.

They are looking to purchase a terraced house for £136,000, and have adeposit of £24,200. The house was built in 1940 and, due to its age, Paul andKelly want to be sure that any defects in the property are identified before theyagree to the purchase.

For the past 10 years, Paul and Kelly have had an interest-only mortgage withMarsh Bank of £68,000 on their flat, for which they have a unitised with-profitsendowment policy as the repayment vehicle. They would like a degree ofcertainty regarding their mortgage arrangements and therefore wish theiradditional borrowing to be on a repayment basis. However, they would like tomaintain the endowment as the repayment vehicle for the existing £68,000 asit is currently on target.

They are considering a 36-month 3.85% capped rate mortgage that the bankoffers, compared with its standard variable rate of 4.00%. The initial mortgagepayments will be £490 per month. Marsh Bank’s affordability criteria requiremortgage payments to be no more than 85% of free disposable income takinginto account committed expenditure, basic essential expenditure and basicquality of living costs. The maximum loan to value (LTV) is 90% and a higherlending charge applies to loans above 80% LTV at a rate of 8%.

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Question 21

Paul is unsure what information the bank will require about his business inorder to assess his application. Which of the following will not be required?

A Bank reference and / or statements.

B Details of all regular outgoings.

C Memorandum and Articles of Association.

D Profit and loss account.

Question 22

What effect, if any, is Paul’s father’s insolvency likely to have on any mortgageapplication submitted by Paul and Kelly?

A Only Kelly’s salary can be taken into account.

B The bank’s normal maximum lending criteria will be reassessed.

C Their application is likely to be automatically declined.

D Their application should be processed on normal terms.

Question 23

Assuming the purchase proceeds at the agreed price, what amount of stampduty land tax, if any, will Paul and Kelly pay?

A Nil.

B £1,360.

C £2,040.

D £2,380.



Question 24

Based on the figures quoted, to confirm affordability the lender will need to besatisfied that Paul and Kelly’s monthly free disposable income is at least:

A £416.50.

B £490.00.

C £563.50.

D £577.00.

Question 25

The most appropriate report for Paul and Kelly to arrange in connection withtheir proposed purchase is a:

A Building Survey.

B Condition Report.

C Energy Performance Certificate.

D HomeBuyer Report.

Question 26

Which of the following is incorrect with regard to the existing repaymentvehicle?

A Life assurance cover is provided integrally within the policy.

B Market value adjusters may apply on encashment before maturity.

C Premiums buy units in the with-profits fund.

D Unit values will rise or fall in line with the underlying fund(s) chosen.

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Question 27

Under the Mortgage Conduct of Business Rules, when advising Paul and Kelly,Marsh Bank’s mortgage adviser does not need to provide:

A a description of the types of interest rates available.

B an explanation of whether their selected mortgage terms can becontinued if they move house.

C details of the exact amount of any procuration fee.

D details of any insurances required as a condition of the mortgage.

Question 28

Under Paul and Kelly’s preferred mortgage product, the interest rate will:

A not change for the first three years.

B not rise above the stated level for the first three years.

C only change if the standard variable rate changes in the first three years.

D only change when the standard variable rate increases.

Question 29

Paul and Kelly are likely to be aware that their endowment is on target:

A due to the policy’s guaranteed maturity value.

B from reviewing recent stock market returns.

C from the provider’s past performance record.

D from the latest review issued by the provider.



Question 30

If Marsh Bank agrees to lend the amount Paul and Kelly require, and theproperty is valued at the agreed price, how much will the higher lending chargebe?

A £240.00.

B £1,936.00.

C £2,176.00.

D £3,000.00.

Case Study 4

Luke and Jessica, both aged 23, recently consulted an independent mortgageadviser. They were keen to purchase their first property and needed adviceabout how much they could borrow and the different repayment methodsavailable. Luke wanted to know in particular whether it would be worthwhileusing his personal pension plan to repay their mortgage, a method chosen byhis brother.

They have agreed a price of £140,000 on a two-bedroom terraced house. Thebasic valuation carried out resulted in the need for an undertaking, althoughthe property was valued at the agreed price. Luke recently received aninheritance and has total savings of £46,000 as a deposit.

Jessica has just completed a course of study and is now looking for suitableemployment. Luke is a researcher in the pharmaceutical industry and has beenworking on a freelance basis for the past three years. He has achieved a netprofit of £34,000 and made personal drawings of £28,000 in the last year. Histrading in the previous two years produced similar results.

Luke is keen to have some peace of mind that his mortgage repayments areprotected in the event of his inability to work in the short term, particularly asJessica currently has no income. However, he wants to keep costs to aminimum whilst his business is growing.

Luke and Jessica have been recommended a two-year base rate trackerrepayment mortgage at Bank of England base rate plus 2.19%. Bank of England

CeMAP® Module 3


base rate is currently 0.5% and the initial monthly cost per £1,000 borrowedis £4.58. The recommended mortgage term is 25 years.

Having assessed their income and expenditure, the adviser has stated that,based on the lender’s affordability criteria, they are likely to be able to borrowa maximum of £96,000. The lender pays a procuration fee of 0.35% of theadvance (minimum £250).

Question 31

To comply with the Mortgage Conduct of Business Rules, what procuration feewill the broker have to declare to Luke and Jessica, assuming that the maximumloan is taken?

A Up to £250.

B £250.

C £329.

D £336.

Question 32

In assessing the affordability of Luke and Jessica’s proposed mortgage, stresstesting will involve the lender considering the impact of:

A potential cost of living rises.

B potential interest rate rises.

C projected investment returns.

D projected taxation changes.



Question 33

Ignoring other costs, if Luke and Jessica use all of Luke’s savings as a deposit,their initial monthly mortgage payments will be:

A £210.72.

B £215.20.

C £430.52.

D £439.68.

Question 34

The results of the valuation carried out on Luke and Jessica’s new propertyindicate that:

A a specialist report will be required.

B the full advance will be retained until the work has been completed.

C the lender may require a second inspection.

D the loan will be made in two stages.

Question 35

Luke’s idea of using his personal pension plan with the intended mortgage isunsuitable because of his:

A age.

B employment status.

C protection needs.

D tax status.

CeMAP® Module 3


Question 36

In connection with the recommended mortgage product, Luke and Jessicashould be aware that the interest rate may change:

A daily.

B monthly.

C quarterly.

D annually.

Question 37

In connection with the repayment method chosen by Luke’s brother, which ofthe following is correct?

A Any terminal bonus payable is not available for the purpose of repayingthe loan.

B Only part of the investment fund can be used to repay the loan.

C Only the fund element which is commutable attracts tax relief.

D There are legal restrictions on the geographic range of investments.

Question 38

Bearing in mind Luke’s needs and concerns regarding the protection of hismortgage repayments, which one of the following products would be mostsuitable?

A Critical illness cover.

B Income protection insurance.

C Mortgage payment protection insurance.

D Private medical insurance.



Question 39

An advantage of Luke and Jessica’s proposed repayment method comparedwith that chosen by Luke’s brother is:

A Gradually increasing equity.

B Guaranteed portability of product terms.

C Integrated life cover.

D Lower legal fees.

Question 40

Which of the following is true regarding the most appropriate form of lifecover for Luke and Jessica?

A A separate policy for each of them is necessary.

B Premiums will remain level throughout the term.

C Tax relief on the premiums is available.

D The sum assured will accurately reflect the outstanding capital at alltimes.

CeMAP® Module 3


Case Study 5

Greg and Cheryl have a £102,000 interest-only mortgage with the BrunswickBuilding Society on a property that they own on a joint tenancy basis.

A unit-linked endowment policy supports the mortgage, with a remaining termof 15 years. The plan is currently projected to have a shortfall of £11,000. Inview of this, they plan to switch the shortfall to a repayment basis and arrangea further advance using the same repayment method. Three years ago, theytook out a secured personal loan for £7,500, from Kenton Finance, theproceeds of which they used to buy a home entertainment system.Repayments on the loan are £155 per month.

Greg is employed as a full-time Administration Manager, earning £37,500 p.a.,and Cheryl is a full-time physiotherapist and earns £24,500 p.a. They have twochildren: Joanne, aged 24. who is employed and lives in a rented flat with herboyfriend, and Tom, aged 15, who lives at home.

Greg and Cheryl have now approached the society for a further advance of£27,000 to finance a loft conversion on their existing property. They intend tocontribute £5,000, from their savings, towards the cost of this building work. Theyestimate that conversion will increase the value of their property to £172,000.

Brunswick’s affordability criteria require mortgage payments to be no morethan 80% of free disposable income taking into account committedexpenditure, basic essential expenditure and basic quality of living costs. Themaximum loan to value (LTV) is 85%. A higher lending charge applies if the LTVexceeds 80%.

Question 41

How will the personal loan arrangement affect Greg and Cheryl’s application?

A Payments will be taken into account when assessing their ability to repay.

B The Brunswick Building Society will consolidate the personal loan intothe further advance.

C The loan will have to be repaid as a condition of making the furtheradvance.

D The valuation of the property for mortgage purposes will be reduced bythe amount of the loan outstanding.



Question 42

Greg and Cheryl’s existing repayment vehicle:

A does not guarantee to fully repay the loan either on death or maturity.

B features tax relief at basic rate on the premiums.

C guarantees to fully repay the loan should either of them die, providedpremiums are up to date.

D is guaranteed to provide a tax free surplus on maturity.

Question 43

Which of the following will the society require when processing Greg andCheryl’s application?

A Consent from Kenton Finance to confirm they approve the conversionplans.

B Consent of their buildings insurance provider.

C Evidence that planning permission has been granted, or is not required.

D Evidence that the design of the extension is in keeping with theneighbourhood.

Question 44

The term of the further advance offered by Brunswick is most likely to be:

A a term chosen by Greg and Cheryl.

B no longer than the date of Greg’s or Cheryl’s retirement, whichever islater.

C the residual term of the existing policy.

D the residual term of the existing mortgage.

CeMAP® Module 3


Question 45

In relation to the further advance, when might tacking be required?

A If it is consolidated with the personal loan.

B If Kenton Finance does not agree to the further advance.

C If the original mortgage deed does not oblige Brunswick to make furtheradvances.

D If the society postpones its prior charge.

Question 46

How are Greg and Cheryl’s payments to Kenton Finance likely to be treatedby Brunswick in their assessment of affordability, if at all?

A As a basic quality of living cost.

B As basic essential expenditure.

C As committed expenditure.

D They are unlikely to be included.

Question 47

What requirement for additional security, if any, is likely to be a condition ofthe offer by the building society if the further advance application is approved?

A A higher lending charge.

B Assignment of the existing endowment policy.

C Mortgage payment protection insurance for both Greg and Cheryl.

D None.



Question 48

In the event of Greg predeceasing Cheryl, his portion of the property will:

A be shared between Cheryl and Joanne only.

B pass as directed by his will.

C pass as a life interest to Cheryl and to the children on her death.

D vest automatically in Cheryl.

Question 49

As a result of the further advance and re-arrangement of the existing loan,Greg and Cheryl should:

A arrange a mortgage protection policy to cover the further advance.

B arrange either a mortgage protection policy or level term assurance tocover the full mortgage.

C arrange level term assurance to cover the further advance.

D increase their endowment to cover the full advance.

Question 50

Which of the following will not be required in connection with Greg andCheryl’s application?

A A consent to mortgage form.

B An updated credit search.

C Confirmation of Cheryl’s earnings.

D Details of the outstanding personal loan.

CeMAP® Module 3


Case Study 6

James and Diane purchased their flat four years ago for £130,000 with the helpof an interest-only mortgage for £90,000. The repayment vehicle is a low-costendowment policy, which has not been assigned to the lender. They are nowdivorcing and have agreed that James will pay £40,000 to Diane in return fortaking full ownership of the property, which is now thought to be worthapproximately £150,000.

James has approached his mortgage adviser, Osmans plc, for advice on thepossibility of seeking a further advance from his existing lender, London Bank,to fund the agreement. Diane has already vacated the property and James hasexplained that he is now working in Scotland and has therefore let theproperty to a friend for a six-month period. The bank had not consented tothe tenancy, and indeed had actually declined James’s request to let severalweeks ago.

James expects to return home within twelve months, and it is likely that hisnew partner, Sally, will then move into the property with him. He would likeher name to be added to the mortgage as soon as Diane has been releasedfrom her obligations. Sally is a regular equity ISA investor and has told Jamesthat she intends to use the proceeds of this ongoing investment to help repaypart or all of the mortgage early.

Question 51

In relation to the proposed divorce settlement, before releasing Diane fromthe mortgage deed, the lender will:

A ask Diane to act as guarantor for James.

B carry out a search on Diane’s credit file.

C carry out an assessment of James’s ability to service the loan on his own.

D require Sally to be a party to the mortgage immediately.



Question 52

Before making any firm decisions regarding the continued use of his presentmortgage repayment vehicle, James’s first priority should be to:

A check current reversionary bonus rates.

B confirm whether it is currently on target.

C enquire if it remains a qualifying policy.

D ensure that it can be suitably increased to cover the new loan.

Question 53

What additional action, if any, should James consider in respect of therepayment vehicle?

A Assignment to the lender.

B Immediate surrender, with the proceeds being applied to the mortgageaccount.

C Transfer or assignment into James’s sole name.

D None.

Question 54

What form of additional security is the lender most likely to require if thefurther advance is agreed?

A A higher lending charge.

B A personal guarantee.

C A signed disclaimer from Diane.

D Re-assignment of the low-cost endowment policy.

CeMAP® Module 3


Question 55

James has been advised that if his application is successful, a new mortgagedeed may not need to be drawn up. This is most likely to be because:

A it is a puisne mortgage.

B the current mortgage deed permits further advances to be made.

C the loan will be exempt from regulation.

D there are no subsequent charges registered against the property.

Question 56

What guidance should Osmans give James with regard to the impact of theunauthorised tenancy?

A His application may be refused because of the breach of the mortgagecovenants.

B His application will be approved based on the rental income received.

C It should have no effect if the mortgage account is up-to-date.

D The loan cannot be granted while neither borrower occupies theproperty.

Question 57

James has asked Osmans what additional actions may be required by LondonBank. Which of the following will not be required?

A A credit assessment check on Diane.

B A property valuation.

C Confirmation of James’s current income.

D Diane’s agreement.



Question 58

If Sally moves in with James but does not become a party to the mortgage,what, if anything, will the lender require?

A Completion of a consent to mortgage form.

B Confirmation of Sally’s income.

C No further action will be required.

D The consent of the freeholder.

Question 59

Which of the following is the lender likely to consider to be of mostimportance if Sally is to be added to the mortgage deed?

A Confirmation of Sally’s income.

B Confirmation of Sally’s ISA fund.

C Evidence of a satisfactory credit history.

D The consent of the endowment provider.

Question 60

Which of the following differentiates Sally’s ISA from James’s endowment?

A Benefits at the end of the mortgage term will be free from tax.

B In the main, the underlying investment will be equity based.

C It cannot be held in joint names.

D It does not guarantee a maturity or final value.

CeMAP® Module 3



Case Study 1 Answer and Justifications

Q1 A U3.2

A Correct. A higher lending charge is required because the loan of£203,000 exceeds 80% of the LTV. It is common for lenders to add thehigher lending charge to the loan.

B The additional security relates to a higher lending charge. This is for thepotential benefit of the lender in the event of their having to takepossession of the property and sell it, and the amount realised beinginsufficient to repay the loan.

C The additional security relates to a higher lending charge. There is norequirement to encourage borrowers to seek independent advice insuch cases, unlike in the case of potential guarantors.

D The additional security relates to a higher lending charge. The lendermay use this to purchase a mortgage indemnity guarantee policy but itwill not be assigned.

Q2 C U1.1

A £198,400 assumes maximum borrowing of 80% LTV. The maximum LTVis 90% provided that they meet the affordability criteria (a higher lendingcharge will apply).

B £203,200 assumes maximum borrowing of 80% LTV based on theoriginal property price of £254,000 rather than the agreed reducedprice. The maximum LTV is 90% provided that they meet theaffordability criteria (a higher lending charge will apply).

C Correct. The maximum LTV is 90%. 90% of the reduced purchase priceof £248,000 is £223,200.

D £228,600 assumes maximum borrowing of 90% LTV based on theoriginal property price of £254,000 rather than the agreed reducedprice.

CeMAP® Module 3


Q3 C U4.9

A An answer of £60 assumes that SDLT is 1% on both £254,000 and£248,000. In fact the rate would be 3% on £254,000 and 1% on£248,000.

B An answer of £180 assumes that SDLT is 3% on both £254,000 and£248,000. In fact the rate would be 3% on £254,000 and 1% on£248,000.

C Correct. The price reduction takes the purchase price into the lowerSDLT band. SDLT of 3% on £254,000 is £7,620 and SDLT of 1% on£248,000 is £2,480. The saving is therefore £5,140.

D An answer of £7,680 correctly identifies that the reduced purchase pricetakes it into the lower SDLT band, but assumes that the charge on£254,000 would be 4%.

Q4 A U1.9A Correct. We are told that the 2 flats and the shop each haveequal floor areas. This means the shop occupies 33% of the internal floorarea. As this exceeds 25% the freehold purchase is not a right.

B We are told that the 2 flats and the shop each have equal floor areas.This means the shop occupies 33% of the internal floor area. As thisexceeds 25% the freehold purchase is not a right. Otherwise two ormore flats is within scope.

C We are told that the 2 flats and the shop each have equal floor areas.This means the shop occupies 33% of the internal floor area. As thisexceeds 25% the freehold purchase is not a right. The purchase price isnot an issue.

D We are told that the 2 flats and the shop each have equal floor areas, sothe shop occupies 33% of the internal floor area. As this exceeds 25%the freehold purchase is not a right. The lease exceeds 21 years, sowould be within scope.



Q5 C U6.1

A Alec and Clare want the cheapest survey which is a basic valuation. ACondition Report or a HomeBuyer Report would be more expensiveand should give at least some detail on electrics, but a full survey wouldinclude an inspection of the state of the electrical system.

B Alec and Clare want the cheapest survey which is a basic valuation. Thiswill not disclose information regarding the plumbing; a building survey orspecialist reports would be needed to identify such issues.

C Correct. In essence the cheapest survey is a basic valuation whichconfirms to the lender if the property is adequate security, together witha suggestion as to insurance value.

D Alec and Clare want the cheapest survey which is a basic valuation. Thiswill provide a value for lending purposes and the insurance value. Eitherof these could be substantially different from the open market value.

Q6 D U2.4

A Alec expects a substantial salary increase in two years. Until then theywish to know the maximum payment that they will be required to make.Either a fixed rate product or a capped product would meet therequired outcome. A base rate tracker does not have a ‘ceiling’.

B Alec expects a substantial salary increase in two years. Until then theywish to know the maximum payment that they will be required to make.Either a fixed rate product or a capped product would meet therequired outcome. A discounted rate does not have a ‘ceiling’.

C Alec expects a substantial salary increase in two years. Until then theywish to know the maximum payment that they will be required to make.Either a fixed rate product or a capped product would meet therequired outcome. A standard variable rate would fluctuate.

D Correct. Alec expects a substantial salary increase in two years. Untilthen they wish to know the maximum payment that they will berequired to make. Either a fixed rate product or a capped product wouldmeet the required outcome.

CeMAP® Module 3


Q7 C U5.7

A Flats above shops tend to have a lower value than those in purpose-builtblocks due to the multi-use nature of the building.

B Flats above shops tend to have a lower value than those in purpose-builtblocks due to the multi-use nature of the building.

C Correct. Flats above shops tend to have a lower value than those inpurpose-built blocks due to the multi-use nature of the building.

D Flats above shops tend to have a lower value than those in purpose-builtblocks due to the multi-use nature of the building.

Q8 D U1.4

A The repayment vehicle is an ISA. The capital will remain constant duringthe mortgage term as it will be an interest-only loan. There is noguarantee that the ISA value plus decreasing term assurance will meetthe full loan value at death because ISA values can fluctuate during theinvestment period.

B ISAs do not offer guarantees as indeed do few investment productsunless they are extremely expensive in relative terms.

C An ISA is an investment-only product which does not include life cover.

D Correct. They would be investing in an ISA in the expectation that thiswill repay the loan at the end of the term. The value of the ISA willfluctuate so any protection product taken out should cover the fullamount of the loan.



Q9 B U1.4

A The ability to repay the mortgage early if the investment performs wellwould be a positive benefit given the saving in interest payments.

B Correct. ISAs are investments which are open-ended. The funds can bewithdrawn whenever the investor wishes.

C The proceeds of ISAs are not liable to capital gains tax: clearly a positivebenefit.

D Equity ISAs are able to invest in a wide choice of funds. This is one wayto spread risk which is a positive benefit.

Q10 D U1.8

A Under MCOB5 a customer-specific illustration will, amongst otheritems, be required to disclose to the customer what happens if themortgage is not wanted any more. This will cover areas such as earlyrepayment charges and moving house.

B Under MCOB5 a customer-specific illustration will, amongst otheritems, be required to disclose to the customer what happens if themortgage is not wanted any more. This will cover areas such as earlyrepayment charges and moving house.

C Under MCOB5 a customer-specific illustration will, amongst otheritems, be required to disclose to the customer what happens if themortgage is not wanted any more. This will cover areas such as earlyrepayment charges and moving house.

D Correct. Under MCOB5 a customer-specific illustration will, amongstother items, be required to disclose to the customer what happens if themortgage is not wanted any more. This will cover areas such as earlyrepayment charges and moving house.

CeMAP® Module 3



Q11 A U1.1

A Correct. Lenders can use statistical or modelled data to estimate basicessential expenditure.

B Evidence of income will need to be provided.

C Evidence of long-term commitments will need to be provided.

D Evidence of unsecured credit agreements (eg-personal loans) will needto be provided

Q12 A U1.8

A Correct. A maximum of 80% of free disposable income can be used asthe monthly mortgage repayment. Therefore £850 x 80% = £680.

B This figure assumes that the maximum percentage of free disposableincome used is 85%.

C This figure assumes that £850 is 85% of the monthly mortgage paymentallowed.

D This figure assumes that £850 is 80% of the monthly mortgage paymentallowed.



Q13 C U6.2

A The purchaser who will be responsible for the decoration will not ownthe property until completion. It follows that they cannot decoratebefore contracts are exchanged.

B The purchaser who will be responsible for the decoration will not ownthe property until completion. It follows that they cannot decoratebefore that date.

C Correct. An undertaking will apply a time limit on when a particularaction like external decoration takes place.

D An undertaking will apply a time limit on when a particular action likeexternal decoration takes place. This time limit will usually be a fewmonths, well short of the full mortgage term.

Q14 D U1.8

A It is not necessary for advisers that represent the lender to providedetails of remuneration.

B A detailed explanation of how the credit score is calculated does notneed to be given.

C No procuration fee will apply as the adviser represents the lender.

D Correct. It must be made clear to Nathan and Louise that the advisercan only recommend Island Building Society products.

CeMAP® Module 3


Q15 B U1.8

A A record of illustrations provided must be kept for one year. They donot need to be kept if no application is made.

B Correct. A record of illustrations provided must be kept for one year.They do not need to be kept if no application is made.

C A record of illustrations provided must be kept for one year. They donot need to be kept if no application is made.

D A record of illustrations provided must be kept for one year. They donot need to be kept if no application is made.

Q16 C U2.3

A By definition, the standard variable rate will not provide the protectionfrom interest rate rises required by the borrowers.

B The initial period of this product matches the borrowers’ requirementsbut as it is variable, interest costs may rise which does not match theirwishes.

C Correct. This rate meets the targeted three-year criterion required bythe borrowers and they are protected from interest rate rises.

D A discounted mortgage has a variable rate so does not meet therequirement that the borrowers wish to protect their outgoings againstpotential rises in interest rates. Also, the initial period does not matchthe borrowers’ need for protection for three years.



Q17 B U4.1

A A mortgage protection policy is more suitable than level term assuranceas they require a repayment mortgage.

B Correct. A mortgage protection policy is suitable as a repaymentmortgage meets their needs. Joint life cover for the full amount of themortgage should usually be arranged.

C Arranging life cover for only half of the mortgage amount each is notappropriate as it would leave one party with a mortgage debt to servicein the event of the other one’s death. A mortgage protection policy issuitable as a repayment mortgage meets their needs.

D Arranging life cover for only half of the mortgage amount each is notappropriate as it would leave one party with a mortgage debt to servicein the event of the other’s death.

Q18 D U4.2

A The product that would meet Nathan’s needs for cover against illnessand redundancy at lowest cost is mortgage payment protectioninsurance (MPPI). Underwriting based on occupation is a feature ofincome protection insurance, not MPPI.

B lowest cost is mortgage payment protection insurance (MPPI). Matchingthe term to the retirement age is a feature of income protectioninsurance, not MPPI.

C The product that would meet Nathan’s needs for cover against illnessand redundancy at lowest cost is mortgage payment protectioninsurance (MPPI). The deferred period for MPPI would usually be 28 daysor one month. A deferred period of 13 weeks would be appropriate forincome protection insurance.

D Correct. The product that would meet Nathan’s needs for cover againstillness and redundancy at lowest cost is mortgage payment protectioninsurance (MPPI). Benefits are paid for a maximum period of one or twoyears.

CeMAP® Module 3


Q19 D U6.1

A Although Louise’s brother is a qualified surveyor, he has only conductedan informal inspection and may not be on the lender’s panel.

B The lender is not likely to insist on a building survey as the property isfairly modern.

C The lender is likely to require an independent valuation.

D Correct. The lender will require the value for mortgage purposes and areinstatement amount for insurance purposes.

Q20 C U4.9

A SDLT is charged at 1% for purchases between £125,000 and £250,000.

B SDLT is charged on the purchase price not the amount of the loan.£1,200 assumes 1.0% on the loan amount of £120,000.

C Correct. SDLT is charged at 1% for properties with a purchase price of£125,000 to £250,000.

D £6,600 assumes 3% of £220,000.




Q21 C U1.1

A A bank reference and/or statements will indicate how Paul has operatedhis accounts and will therefore contribute towards the lending decision.

B Details of outgoings will be required to assess affordability.

C Correct. Memorandum and Articles of Association are only required forlimited companies.

D The profit and loss account will confirm the profit information providedby Paul and will be used by the lender to make a decision.

Q22 D U1.1

A Paul and Kelly should be assessed on criteria related to them. The factthat Paul worked for someone, even his father, who became insolventshould not be relevant.

B Paul and Kelly should be assessed on criteria related to them. The factthat Paul worked for someone, even his father, who became insolventshould not be relevant.

C Paul and Kelly should be assessed on criteria related to them. The factthat Paul worked for someone, even his father, who became insolventshould not be relevant.

D Correct. Paul and Kelly should be assessed on criteria related to them.The fact that Paul worked for someone, even his father, who becameinsolvent should not be relevant.

CeMAP® Module 3


Q23 B U4.9

A Purchase prices over £125,000 attract SDLT @ 1% up to £250,000.

B Correct. Purchase prices over £125,000 attract SDLT @ 1% up to£250,000.

C Purchase prices over £125,000 attract SDLT @ 1% up to £250,000. Anamount of £2,040 assumes an SDLT rate of 1.50%.

D Purchase prices over £125,000 attract SDLT @ 1% up to £250,000. Anamount of £2,380 assumes an SDLT rate of 1.75%.

Q24 D U1.1

A This figure is the mortgage payment of £490 x 85%.

B This is the mortgage payment quoted. However, the mortgage paymentsmust not exceed 85% of free disposable income.

C This figure is the monthly mortgage payment of £490 plus 15%.

D Correct. The monthly mortgage payment is £490 which must be nomore than 85% of their free disposable income. 490 / 85 x 100 =577(rounded up).

Q25 A U6.1

A Correct. Only a Building Survey will uncover defects in the property asrequired by Paul and Kelly.

B A Condition Report would not uncover all potential defects in theproperty.

C An Energy Performance Certificate will be provided by the vendor.

D A HomeBuyer Report will identify more obvious defects, but to providethe level of comfort Paul and Kelly require a building survey is required.



Q26 D U1.4

A Under unitised with-profit endowments, life cover is inlcuded as part ofthe structure of the plan.

B The existing plan is a unitised with-profits endowment and it can beexpected that, as with most with-profit unitised plans, a market valueadjustment can be made by the provider on early encashment.

C A unitised with-profits endowment is by definition a with-profits planinvested in the with-profits fund with the proportion identified by theallocation of units.

D Correct. The units are purely invested in the with-profits fund and assuch do not go down, although fund growth is subject to underlyinginvestment performance of the with-profits fund.

Q27 C U1.8

A MCOB does require that a description of the types of interest ratesavailable be provided.

B MCOB does require an explanation of what happens on moving houseto be provided.

C Correct. Advisers who are employees of a lender are not required toprovide details of remuneration they may receive. If the adviser was amortgage broker he would have to provide the amount of anyprocuration fee, unless it was under £250. In that case a statement canbe made stating just that, without stating the actual amount.

D MCOB requires the disclosure of details of any conditional insurancesto be made as part of the pre-application process.

CeMAP® Module 3


Q28 B U2.4

A A capped rate mortgage, the preferred product, may vary but will notexceed a stated interest ceiling for an agreed period, in this case threeyears.

B Correct. A capped rate mortgage, the preferred product, may vary butwill not exceed a stated interest ceiling for an agreed period, in this casethree years.

C A capped rate is linked to the standard variable rate, but will be frozenat its ceiling should the standard variable rate fluctuate above thatceiling.

D Once the capped rate hits its ceiling, it will no longer increase even if thestandard variable rate continues to rise.

Q29 D U1.4

A The guaranteed maturity value will be less than the mortgage amount asthis is a low-cost plan rather than a full endowment.

B Current stock market returns may not continue in future and may notbe fully reflected in the provider’s bonus rates.

C Past performance may not reflect future performance.

D Correct. The provider is obliged to issue regular review lettersconfirming whether or not the policy is on target.

Q30 A U4.17

A Correct. Paul and Kelly need to borrow £111,800 (£136,000 - £24,200deposit). The HLC applies from 80% of £136,000 (£108,800) so £3,000is subject to the rate of 8% quoted = £240.

B This figure is £136,000 less £111,800 x 8%.

C This figure is £136,000 less £108,800 x 8%.

D This is the amount of borrowing subject to the higher lending charge.The charge quoted is 8% of this figure.




Q31 D U1.8

A Under MCOB rules the actual procuration fee must be stated if itexceeds £250. The maximum loan stated is £96,000. Therefore £96,000x 0.35% = £336.

B Under MCOB rules the actual procuration fee must be stated if itexceeds £250. The maximum loan stated is £96,000. Therefore £96,000x 0.35% = £336.

C Under MCOB rules the actual procuration fee must be stated if itexceeds £250. The maximum loan stated is £96,000. Therefore £96,000x 0.35% = £336.

D Under MCOB rules the actual procuration fee must be stated if itexceeds £250. The maximum loan stated is £96,000. Therefore £96,000x 0.35% = £336.

Q32 B U1.1

A This is not a requirement.

B Correct. The couple may be able to afford the mortgage payments whileinterest rates are low, but stress testing looks at the impact if rates risein the future.

C This is not a requirement

D This is not a requirement.

CeMAP® Module 3


Q33 C U1.1

A This is the interest only payment at 2.69% on £94,000.

B This is the interest-only payment at 2.69% on £96,000.

C Correct. The purchase price is £140,000, less £46,000 deposit =£94,000. The stated cost per £1,000 is £4.58 so 94 x 4.58 = £430.52monthly cost.

D This figure assumes that the couple borrow £96,000, the maximumindicated by the adviser.

Q34 C K3.2

A The property appears to meet its valuation although some work isneeded, hence the undertaking. Undertakings do not usually relate towork needing specialist investigation.

B A retention, not an undertaking, involves holding back capital.

C Correct. The lender may wish to inspect the property at the end of theundertaking period to ensure the work has been carried out.

D An undertaking requires work to be carried out. It does not include anyform of retention or stage payments.

Q35 A U1.4

A Correct. Luke is 23. He will not be able to draw benefits under hispension plan unless he is at least 55, which is 32 years away. Themortgage is for 25 years.

B Luke’s employment status is not a key factor, the age at which he candraw benefits is the issue.

C Even if a personal pension is used as a repayment vehicle, separatearrangements can be made to put in place protection plans.

D Luke’s tax status is not a key factor, the age at which he can drawbenefits is the issue.



Q36 B U2.2

A The product tracks the Bank of England base rate which may changemonthly when the Monetary Policy Committee meets.

B Correct. The product tracks the Bank of England base rate which maychange monthly when the Monetary Policy Committee meets.

C The product tracks the Bank of England base rate which may changemonthly when the Monetary Policy Committee meets.

D The product tracks the Bank of England base rate which may changemonthly when the Monetary Policy Committee meets.

Q37 B U1.4

A A terminal bonus, if paid, is just one element of the total fund under apersonal pension and 25% of that total fund can be taken as a tax-freelump sum.

B Correct. Luke’s brother uses a personal pension as his investmentvehicle. Under a personal pension only the tax-free lump sum willprovide capital to repay the mortgage. This lump sum is restricted to25% of the total fund.

C Any tax benefits arising apply to the whole of the fund while it isinvested under a personal pension.

D No specific restrictions apply under personal pensions regarding thegeographic range of investments.

CeMAP® Module 3


Q38 C U4.2

A Critical illness cover only pays out a lump sum in respect of a range ofspecific illnesses.

B Whilst income protection insurance pays out a monthly sum it is a long-term not short-term arrangement and is more expensive than MPPI.

C Correct. Luke seeks short-term cover. MPPI will provide cover foraccident and illness and pay monthly amounts for up to 2 years.

D Private medical insurance offers no regular payment protection. It purelypays for private treatment instead of using the NHS.

Q39 A U1.1

A Correct. Luke and Jessica will be paying off capital during the term andtherefore the equity in the property will increase. Luke’s brother is onlypaying interest so the equity will not increase.

B Portability is likely to be the same regardless of the repayment method.

C Neither repayment method has built-in life cover.

D Legal fees are likely to be the same.

Q40 B U4.1

A Joint policies are available.

B Correct. A Mortgage Protection policy is appropriate for a repaymentmortgage. The sum assured reduces but the premium stays the samethroughout the term.

C No tax relief is available.

D There is no direct link between the life policy and the mortgage. Thesum assured reduces in line with assumptions made in the policydocument - in the event of a claim the amount paid out may differ fromthe outstanding mortgage.




Q41 A U1.2

A Correct. When additional loans are required, a lender must assess theapplicant’s ability to afford the payments and therefore the loanpayments will be taken into account.

B Consolidation is not relevant. This relates to where one borrower hasdifferent mortgages on different properties from the same lender.

C A further loan can be made without the need to repay the existing loan,providing the lender is satisfied that the borrowers can afford both.

D When additional loans are required, a lender must assess affordabilityand will reduce the amount they will lend to take into account thecustomer’s other loan commitments.

Q42 C U1.4

A Whilst there is a potential shortfall at maturity, the endowment in placewill normally pay out a sum assured on death equal to the outstandingmortgage capital, provided premiums are paid to date.

B Endowment assurances started in recent years do not attract lifeassurance premium relief on the payments made.

C Correct. Whilst there is a potential shortfall at maturity, the endowmentin place will normally pay out a sum assured on death equal to theoutstanding mortgage capital, provided premiums are paid to date.

D As a unit-linked policy, the existing plan cannot be guaranteed goingforward. Indeed, a shortfall is already anticipated.

CeMAP® Module 3


Q43 C U7.2

A Whilst Kenton hold a personal secured loan, they will not be a party tothe new borrowing.

B The buildings insurance provider will not be involved in the applicationprocess.

C Correct. Loft conversions may fall under the permitted developmentcriteria and therefore planning permission is not required. Brunswickwill not lend further funds without being satisfied that this is the case orthat appropriate planning consent has been granted if required.

D The design of the extension is a matter for the planning authorities, notthe lender.

Q44 D U1.2

A A further advance is really a ‘top-up’ loan and is usually over theremaining term of the existing loan. The lender will usually decide theterm.

B Greg and Cheryl’s retirement dates, if known, could be an issue, but afurther advance is really a ‘top-up’ loan and is usually over the remainingtime of the existing loan.

C A further advance is really a ‘top-up’ loan and is usually over theremaining term of the existing loan.

D Correct. A further advance is really a ‘top-up’ loan and is usually over theremaining term of the existing loan.



Q45 C U1.8

A The personal loan is with a different lender.

B Kenton will not have any power of veto over the new lending.

C Correct. The Kenton loan is secured and is therefore a second charge. Ifthere is no obligation to make additional lending ‘tacking’ could beapplied to make Brunswick’s new loan an additional first charge.

D The society, Brunswick, is providing the new loan as well as holding thefirst charge.

Q46 C U1.1

A From the information provided it appears that the loan hasapproximately two years left to run and the payments will thereforeform part of the couple’s committed expenditure.

B From the information provided it appears that the loan hasapproximately two years left to run and the payments will thereforeform part of the couple’s committed expenditure.

C Correct. From the information provided it appears that the loan hasapproximately two years left to run and the payments will thereforeform part of the couple’s committed expenditure.

D From the information provided it appears that the loan hasapproximately two years left to run and the payments will thereforeform part of the couple’s committed expenditure.

CeMAP® Module 3


Q47 D U3.2

A The borrowing represents 75% loan to value and therefore a higherlending charge would not apply according to the lender’s criteria.

B There is no reason for the existing endowment to be assigned.

C Mortgage payment protection insurance may be appropriate for Gregand Cheryl but it would not be a condition of the offer.

D Correct. From the information provided no additional security is likelyto be required.

Q48 D U1.9

A The property is owned on a joint tenancy basis. If one or the other ofGreg or Cheryl die, the property is fully owned automatically by thesurvivor.

B The property is owned on a joint tenancy basis. If one or the other ofGreg or Cheryl die, the property is fully owned automatically by thesurvivor.

C The property is owned on a joint tenancy basis. If one or the other ofGreg or Cheryl die, the property is fully owned automatically by thesurvivor.

D Correct. The property is owned on a joint tenancy basis. If one or theother of Greg or Cheryl die, the property is fully owned automaticallyby the survivor.



Q49 A U1.3

A Correct. The new loan is on a capital and interest repayment basis. Amortgage protection policy should be put in place to pay the residualcapital in the event of early death.

B The original part of the mortgage is covered at death by the lifeassurance element of the endowment. This will not need to be coveredagain.

C As the new advance is on a capital and interest repayment basis, thecapital outstanding will reduce during the term. Therefore, level termassurance is over-insuring and a mortgage protection policy would bemore appropriate.

D As the new advance is on a capital and interest repayment basis, thecapital will reduce over time and be fully paid off at the end of the term.Additional investment funding is therefore not necessary.

Q50 A U1.2

A Correct. This is not required as Joanne is not dependent on Greg andCheryl and does not live with them, and Tom is only aged 15.

B A credit search will be undertaken to check if there have been any creditissues since the original mortgage was granted.

C Details of earnings for both Greg and Cheryl will be required as part ofthe affordability assessment.

D Details of the personal loan will form part of the affordabilityassessment.

CeMAP® Module 3



Q51 C U2.4

A Effectively Diane is being removed totally from the mortgage as a resultof the settlement. She will neither be asked nor wish to act as guarantor.

B As Diane is asking to be release from the loan, her credit informationwill not be relevant. The lender will want to ensure James can afford theloan in his own right.

C Correct. The lender will need to be confident that James can service theloan before they release Diane, otherwise financial difficulties will quicklyarise and a possible solution will have been removed.

D Sally is not currently living in the property and the future may beconsidered speculative so there will be no immediate requirementplaced on her.

Q52 B U1.3

A Reversionary bonuses are only given on with-profits policies.

B Correct. The endowment should be checked to ascertain whether thereis a potential shortfall.

C The divorce will not affect the policy’s qualifying status.

D If the policy remains in force and is on target then there is no need toorganise an increase.



Q53 C U2.4

A As James is buying Diane out, he will want her to agree to a transfer orassignment of the policy into his name and thereby give up her interest.

B James will want the endowment policy to continue. He will want Dianeto transfer the policy to him.

C Correct. As he is buying Diane out James will want her to agree to atransfer or assignment of the endowment policy into his name, therebygiving up her interest.

D As he is buying Diane out James will want her to agree to a transfer orassignment of the endowment policy into his name, thereby giving upher interest.

Q54 A U1.2

A Correct. The new lending will increase the borrowing to £130,000 whichis over 86% of the supposed current value. At this level of loan to valuea mortgage indemnity guarantee policy may be required.

B The new lending will increase the borrowing to £130,000 which is over86% of the supposed current value. At this level of loan to value amortgage indemnity guarantee policy may be required.

C The new lending will increase the borrowing to £130,000 which is over86% of the supposed current value. At this level of loan to value amortgage indemnity guarantee policy may be required.

D The new lending will increase the borrowing to £130,000 which is over86% of the supposed current value. At this level of loan to value amortgage indemnity guarantee policy may be required.

CeMAP® Module 3


Q55 B U1.2

A A puisne mortgage is a second or subsequent mortgage where thedeeds are not held as part of the security. As the first lender LondonBank will wish any further loan to carry the same status.

B Correct. If the original mortgage did oblige the lender to make furtheradvances, the new loan can be tacked on.

C Regulation is irrelevant to the mortgage deed. If the original mortgagedid oblige the lender to make further advances, the new loan can betacked on.

D If the original mortgage did oblige the lender to make further advances,the new loan can be tacked on.

Q56 A U1.8

A Correct. Allowing the unauthorised breach of the mortgage agreementmeans the tenant could in some circumstances obtain a right ofresidence much to the lender’s potential disadvantage. The applicationcould be refused.

B Allowing the unauthorised breach of the mortgage agreement meansthe tenant could in some circumstances obtain a right of residence muchto the lender’s potential disadvantage.

C When considering the unauthorised tenancy, the mortgage paymentsituation is not relevant.

D The loan could go ahead, but the lender would not be happy with thissituation unless their rights were fully protected.



Q57 A U2.4

A Correct. Diane will not be involved in the ongoing loan and therefore acredit assessment is not appropriate.

B If a further advance is to be made, London Bank will need to know thecurrent property value to ensure the property provides sufficientsecurity.

C London Bank will need to know James’s salary to help assessaffordability.

D Diane will need to agree to changes until she is removed from theagreement.

Q58 A U2.4

A Correct. London Bank will require a consent to mortgage form so thatSally waives her right of occupation.

B If Sally is not a party to the mortgage, she is considered to have no partin it and therefore her income is not relevant.

C London Bank will require a consent to mortgage form so that Sallywaives her right of occupation.

D The freeholder’s approval would not be required in connection withsimple changes in occupation.

CeMAP® Module 3


Q59 C U1.2

A Sally’s income is relevant, but not as important as her credit history.

B Sally’s ISA fund is not relevant to her being added to the mortgage deed.

C Correct. If Sally is to be added to the mortgage deed, the lender willwish to carry out initial checks. If Sally has a poor credit history thelender may not agree to her being added to the mortgage.

D The endowment lender would not be required to provide any consent.

Q60 C U1.4

A Benefits arising from both low cost endowments and ISAs would be taxfree when taken at the end of the mortgage term.

B Endowments are usually significantly invested in equities.

C Correct. An ISA cannot be held in joint names whereas endowmentscan.

D Neither an ISA nor a low cost endowment provide guarantees ofmaturity or final value. A low cost endowment will offer a guarantee ondeath before the maturity date.




Certificate in Mortgage Advice and Practice (CeMAP®)

Sample synoptic paperScotland

Case Study 1

Roy and Agnes are married with 13 year old twin sons. Their jointly ownedproperty is worth £250,000 and they have an ISA-backed interest-onlymortgage with the Midland Building Society for £180,000 and a remaining termof 19 years. They paid a higher lending charge of £1,100 when they arrangedthe original mortgage. They have consulted a mortgage adviser about arranginga remortgage to raise a further £20,000 for home improvements and requiremore certainty regarding eventual repayment of the mortgage.

The equity ISA that supports their mortgage has not performed satisfactorilyand they now realise it was perhaps too adventurous for them. They want toensure that the mortgage will be repaid in 19 years; they are prepared to makehigher payments if necessary. They now plan to use the ISA funds to help withuniversity fees for their sons.

Roy earns a basic salary of £31,500 pa, which equates to £2,000 per month net.He is keen to protect the monthly mortgage payments in the event of his long-term illness. Agnes earns £15,000 pa part-time (£1,100 net per month). Thelender adopted the new April 2014 MCOB affordability and responsiblelending rules from March 2013, and will allow maximum mortgage repaymentsof no more than 80% of their free disposable income. This is calculated as theirnet income less committed expenditure and statistically assessed expenditure.They have monthly committed expenditure of £250 per month, and themonthly statistical expenditure used is shown as £800 for a couple and £150for each dependant.

Their adviser has recommended a base rate tracker repayment mortgage witha different lender with an initial interest rate of 4%. The lender’s mortgageaffordability rate used to assess affordability is 5.9%, which works out at £6.46per thousand per month. A higher lending charge is required for loans in excessof 75% of the property value at the rate of 6.5%.

Roy feels strongly that he should not have to pay for another valuation as hecan vouch for the condition and soundness of the property.

If Roy and Agnes take up their adviser’s recommendation, the adviser will beentitled to a fee from the lender of 0.3% of the agreed advance.


Question 1

Based on the recommended lender's affordability criteria, the maximum loanavailable to Roy and Agnes would be approximately:

A £200,000.

B £216,000.

C £247,000.

D £270,000.

Question 2

Which of the following must the adviser do to comply with the MortgageConduct of Business Rules?

A Advise Roy and Agnes of the exact amount of the fee he will receivefrom the lender.

B Confirm that the fee he will receive from the lender will be less than£250.

C Provide a tariff of fees only on request.

D Provide a copy of his tariff of fees annually.

Question 3

Which of the following products would be most suitable for Roy and Agnes toprovide the necessary life cover?

A Convertible term assurance.

B Decreasing term assurance.

C Mortgage payment protection.

D Level term assurance.

Sample synoptic paper – Scotland


Question 4

Which of the following actions is the adviser obliged to take in order to complywith the Mortgage Conduct of Business rules in dealing with Roy and Agnes?

A Explain the lender's process for assessing their ability to repay the loan.

B Give them the reasons for recommending the tracker mortgageimmediately after their application has been received.

C Give them a full list of mortgage lenders who offer a similar contract.

D Inform them of any limitations on the range of products the firm canoffer.

Question 5

Which of the following statements is true in answer to Roy's point about theneed for valuation?

A He can avoid the cost, but a lower loan-to-value ratio will apply.

B He can avoid the cost only if additional security can be provided.

C It is required to ensure that the lender has adequate security for theloan.

D It is a legal requirement for all mortgage lenders.

Question 6

Which of the following statements is true in relation to the proposed newmortgage?

A The amount of interest paid each month will gradually increase over theterm.

B The balance of monthly interest and capital repaid is fixed at the start ofthe mortgage.

C The higher the interest rate charged, the more capital is repaid eachmonth.

D The term will be shortened if the original payments are maintainedwhen interest rates reduce.

CeMAP® Module 3


Question 7

If Roy and Agnes accept their adviser's recommendation, which of the followingstatements is true in respect of the interest rate charged?

A It is guaranteed never to exceed the Bank of England base rate.

B It will always be more than the lender's standard variable rate.

C It will always be the same as the Bank of England base rate.

D It will rise and fall in line with the Bank of England base rate.

Question 8

Which of the following is true of a new mortgage? Roy and Agnes will:

A have to pay a higher lending charge but will be able to claim a partialrefund of their original higher lending charge.

B have to pay a higher lending charge on the new mortgage.

C not have to pay a higher lending charge because they have already paidone.

D only have to pay a small top up higher lending charge because theiroriginal fee can be carried forward to the new mortgage.

Question 9

Which of the following products would be most suitable in light of Roy'sneeds?

A Critical illness cover.

B Income protection insurance.

C Mortgage protection insurance.

D Private medical insurance.



Question 10

Which of the following would be included in Roy and Agnes's ‘committedexpenditure’ figure?

A Childcare costs.

B Council tax.

C Electricity bills.

D Personal loan.

Case Study 2

Heather, aged 32, is employed as an area manager by a well-known soft drinkscompany where she has worked for nine years. She earns a salary of £42,000pa, plus an annual bonus which has grown to £5,000 this year. She is single withno dependants.

Heather wishes to buy a new semi-detached house for £165,000 built by adeveloper who is participating in the NewBuy Guarantee scheme.

Heather has applied for a 90% interest-only mortgage from Glen BuildingSociety, a NewBuy participating lender. The interest rate is discounted from thestandard variable rate by 1% for the first two years. The building society’scapped-rate product over the same period is currently 0.25% lower than thediscounted rate. The building society routinely carries out credit searches onprospective borrowers through Equifax. Heather has asked why this isnecessary.

Her friend, who has recently purchased a property with an 85% mortgage, hadto pay a higher lending charge (HLC), and Heather would like to know if shewill have to pay a similar charge.

Heather’s parents are elderly and, as an only child, she expects to inherit asubstantial lump sum of money before the end of the term of her proposedmortgage. She is likely to use this money to reduce the outstanding balance atthat time.

Glen Building Society requires mortgage payments to be no more than 80% offree disposable income, taking into account committed expenditure, basicessential expenditure and basic quality of living costs.

CeMAP® Module 3


Question 11

Why is it unlikely that Heather will have to pay a higher lending charge like herfriend?

A Heather plans to use a future inheritance to reduce the balance of hermortgage at a later date.

B Her mortgage will be arranged on a capital and interest basis.

C She is borrowing from a building society, not a bank.

D She is borrowing using the NewBuy Guarantee scheme.

Question 12

Which of the following is true in respect of the valuation options available toHeather?

A A valuation is not necessary as the property is being purchased throughthe NewBuy Guarantee scheme, which is a government guarantee.

B The lender is likely to insist on a building survey because the propertyis new and there may be structural defects.

C The lender will only require a basic valuation to confirm the value formortgage purposes and insurance reinstatement value.

D The lender will require either a RICS HomeBuyer report plus a basicvaluation, or a building survey.

Question 13

What stamp duty land tax (SDLT), if any, will Heather have to pay on thepurchase of this property?

A Nil.

B £400.

C £1,485.

D £1,650.



Question 14

MCOB rules state that early repayment charges must be capable of beingexpressed as a cash value and be:

A a reasonable pre-estimate of the costs payable if the customer repaysthe full amount of the loan before the end of the mortgage term.

B calculated using the ‘Rule of 78’.

C no more than a certain percentage of the initial mortgage advance, asspecified by the regulator.

D only applicable to fixed-rate and capped-rate mortgages.

Question 15

If Heather decided to effect a life assurance policy to ensure that her mortgagewould be repaid in the event of her death, which type of policy would be mostappropriate?

A Increasing term assurance.

B Level term assurance.

C Mortgage payment protection insurance.

D Mortgage protection assurance.

Question 16

As part of the affordability assessment, Glen Building Society is likely to askHeather to provide evidence of income from employment:

A excluding bonus, but including basic essential expenditure only.

B excluding bonus, but including basic quality-of-living costs only.

C including bonus and basic essential expenditure only.

D including bonus and all expenditure.

CeMAP® Module 3


Question 17

The search carried out on Heather by Glen Building Society was necessary:

A because she was not on the electoral roll.

B because the loan-to-value ratio was greater than 80%.

C to obtain information regarding her creditworthiness.

D to satisfy money-laundering regulations.

Question 18

Which of the following statements is true in the event that Glen BuildingSociety has to make a claim on the government guarantee provided under theNewBuy Guarantee scheme?

A As with a normal mortgage indemnity guarantee, Heather is stillultimately responsible for any shortfall.

B Glen Building Society will claim any shortfall from the house builder, whowill seek reimbursement from the government, not Heather.

C Heather could not be pursued for any shortfall.

D The lender's claim would be restricted to a maximum of £16,500; thisbeing an amount equivalent to Heather's deposit.

Question 19

The interest rate offered by the building society means that Heather:

A benefits from a genuine saving on her initial payments.

B will pay increased payments from year three onwards in order to repaythe discount over the remaining term.

C will not suffer if interest rates rise before year three.

D will owe an increased amount of capital in year three.



Question 20

When considering the building society's discounted and capped rate mortgage,Heather should understand that:

A both rates may fluctuate but the capped-rate may not go above a specificceiling.

B only the capped-rate will fluctuate.

C only the discounted rate will fluctuate.

D the capped-rate will always be above the lender's standard variable rate.

Case Study 3

Andrew, a 29 year old higher-rate taxpayer, is in partnership with Eric in anaccountancy business. Andrew is selling his first house and has had an offer of£220,000 accepted on his next property. He recently received an inheritanceof £15,000 which he intends to use as a deposit, and he needs a mortgage forthe balance.

Andrew would like to combine the repayment of his new mortgage with hisretirement planning needs by using his existing personal pension as arepayment vehicle. He started this personal pension in June 2006, and took outa pension-linked life assurance at the same time. Andrew’s sister, Helen, intendsto use the spare bedroom in the house while she finishes her degree at thenearby university.

His mortgage adviser, Anita, has recommended an interest-only, two-year baserate tracker mortgage, at 1.8% above the Bank of England base rate. This is withNorthchester Building Society, and she will receive a procuration fee of £220from them if the mortgage goes ahead.

Northchester Building Society require mortgage payments to be no more than80% of free disposable income, taking into account committed expenditure,basic essential expenditure and basic quality of living costs.

Andrew has a personal pension illustration related to his existing pensionwhich shows, at the lowest illustrated growth rate, a projected total pensionfund of £1,000,000 at his chosen retirement age.

CeMAP® Module 3


Question 21

What is the minimum mortgage term Andrew could choose in order to tie inwith his preferred mortgage repayment vehicle?

A 21 years.

B 26 years.

C 31 years.

D 36 years.

Question 22

Assuming that the lowest projection rate is exactly achieved under Andrew’spreferred mortgage repayment vehicle, what maximum tax-free surplus will beavailable after the mortgage is repaid?

A £5,000.

B £20,000.

C £30,000.

D £45,000.

Question 23

Andrew has earmarked £2,000 for the cost of stamp duty land tax. Assumingthat everything goes ahead as planned, this will leave a shortfall of:

A £50.

B £200.

C £1,625.

D £4,600.



Question 24

To comply with the Mortgage Conduct of Business rules, what disclosure, ifany, must the adviser make to Andrew regarding the building societyprocuration fee if the case goes ahead as planned?

A None.

B The exact amount must be advised.

C A statement must be made that the amount is no more than £250.

D An indication need only be given that a payment is to be received.

Question 25

What rate of tax relief, if any, will Andrew receive on payments into hispreferred mortgage repayment vehicle?

A None.

B 18%.

C 20%.

D 40%.

Question 26

If Andrew opts for the recommended mortgage, what rate will he be paying onhis mortgage after the end of the second year?

A 1.8%.

B Northchester Building Society’s standard variable rate at that time.

C Northchester Building Society’s standard variable rate at that time, or1.8%, whichever is lower.

D The Bank of England base rate.

CeMAP® Module 3


Question 27

If Andrew takes his adviser's recommended mortgage product, the interestrate paid by him during the first two years will be influenced by decisions madeby the:

A Bank of England Monetary Policy Committee.

B Council of Mortgage Lenders.

C Financial Policy Committee.

D Northchester Building Society.

Question 28

Assuming that Andrew chooses the recommended mortgage in conjunctionwith his preferred mortgage repayment vehicle, what rate of tax relief, if any,will apply to the monthly interest payments?

A None.

B 10%.

C 22%

D 40%.

Question 29

What is Northchester Building Society likely to require from Andrew's sisterif she goes ahead with her intention to occupy Andrew’s spare room while shefinishes her studies?

A A ‘consent to mortgage’ form signed by her.

B A formal rental agreement between her and Andrew.

C Proof of income, or evidence that she is attending university, and forhow long.

D Two forms of identification, at least one of which must include a photo.



Question 30

Compared with ordinary level term assurance, the key advantage of Andrew’sexisting form of mortgage protection is that it:

A benefits from tax relief on the premiums.

B is cheaper because the life cover decreases each year.

C includes critical and terminal illness cover.

D operates throughout the whole of his life.

Case Study 4

Robert, aged 23, has been a self-employed sole-trading landscape gardener forthe last five years. Following his recent engagement to Jenny, a full-time student,they are looking to buy their second property.

They have found a small house on sale for £128,000 but their initial conditionaloffer of £124,500 was successful. They are funding the purchase with savings of£15,200 and a mortgage on the balance.

Robert and Jenny have recently held discussions with their mortgage adviser.Due to the expense of their forthcoming wedding and Robert’s businessexpansion plans, they have expressed a strong desire to keep costs to anabsolute minimum for the first two or three years and have a fixed budget.

During discussions on repayment methods, Jenny has indicated a preferencefor a repayment mortgage, whereas Robert likes the idea of a mortgagesupported by an equity ISA.

They have been recommended East Coast Bank, who pay procuration fees of0.35% to all mortgage advisers, as a suitable lender. The lender’s policy withregard to self-employed applicants is to consider net profits for the previousthree years. In terms of affordability, East Coast Bank requires mortgagepayments to be no more than 85% of free disposable income, taking intoaccount committed expenditure, basic essential expenditure and basic qualityof living costs.

For Robert to meet his financial commitments should he be unable to work,the adviser has recommended that he consider either an income protectioninsurance (IPI) policy with Acme Life, or an accident sickness andunemployment (ASU) policy with All-Cover plc.

CeMAP® Module 3


A valuation has recently been carried out on the new house and the valuerrecommended a retention.

Question 31

In order to assess borrowing capacity and affordability, Robert and Jenny’smortgage application to East Coast Bank should be accompanied by proof ofRobert’s earnings. Which specific document will best provide the figuresrequired by the bank?

A Balance sheet.

B Business plan.

C Cash flow statement.

D Profit and loss account.

Question 32

Assuming that Robert and Jenny proceed with the recommended lender, whatinformation regarding the fee will their adviser have to disclose to them inorder to comply with the Mortgage Conduct of Business rules?

A A statement indicating that it is under £250.

B The exact amount, which will be £382.55.

C A statement indicating that it is over £250.

D A statement indicating that it is under £500.

Question 33

Which of the following types of mortgage product would best suit Robert andJenny’s needs?

A Capped.

B Discounted.

C Fixed.

D Standard variable rate.



Question 34

What key advantage is obtained by opting for Robert’s preferred mortgagerepayment method compared with Jenny’s?

A Automatic inclusion of accident and sickness cover.

B A guaranteed maturity amount.

C Lower monthly payments at the outset.

D Potential to pay off the mortgage early.

Question 35

How much stamp duty land tax will Robert and Jenny save as a result of theagreed reduction in asking price?

A Nil.

B £35.

C £622.50.

D £1,280.

Question 36

If they proceed with Robert’s preferred repayment vehicle, how would thedividends received in the ISA be taxed?

A They would be paid with a 10% tax credit that is not reclaimable.

B They would be paid with a 20% tax credit that is not reclaimable.

C They would be paid gross but taxable at 20%.

D They would be paid net of basic-rate tax at 20%.

CeMAP® Module 3


Question 37

If Robert accepts their adviser's recommendation and starts a policy withAcme Life, how would any benefits paid as a result of a successful claim betreated for tax purposes?

A Only benefits paid in the first 12 months would be taxed.

B Only benefits paid after the first 12 months would be taxed.

C The benefits would be tax-free throughout payment.

D The benefits would be taxed as a benefit in kind throughout payment.

Question 38

What are the likely implications of the retention recommended by the valuerwho carried out the valuation of the property Robert and Jenny wish to buy?

A A more detailed inspection will be required before any funds can bereleased.

B A negative equity situation will exist at the outset.

C A re-sale of the property cannot take place for a specified period.

D A short-term need for extra funds will exist for Robert and Jenny.

Question 39

Of what should Robert be aware regarding his preferred repayment vehicle?

A Part of the investment will be held in cash.

B Separate life cover should be put in place.

C Taxation of dividends is to change next year.

D It can only be offered on a joint basis.



Question 40

What potential advantage would Robert obtain by choosing Acme’s protectionpolicy instead of All-Cover’s protection policy?

A A longer benefit payment period.

B Greater tax relief on the cost of premiums.

C Inclusion of redundancy cover.

D Lack of an initial deferred period.

Case Study 5

Donald and Brenda, both aged 45, completed the purchase of their house on5 November 2004 for £520,000. They have received a letter dated Friday 21June from their mortgage lender, the Perthside Building Society, stating thattheir last monthly payment has been missed.

The existing mortgage is on an interest-only basis, and Donald and Brenda areboth investing in ISAs with different providers to fund the final repayment ofthe mortgage.

Brenda always invests the maximum allowed in a cash ISA and investsadditional contributions in a stocks and shares ISA, while Donald invests solelyin equity ISAs. However, neither has started funding into equity ISAs in thecurrent tax year. Brenda did not maximise her contributions for tax year2012/13, only paying £2,500. They also have a level term assurance policy on ajoint life, first death basis.

The main reason for the arrears is the collapse in Donald’s bonuses from hishigh-flying City job, which he hopes will come on stream again in late 2013.

Donald and Brenda have always spent all of their income each month. Despitethe high bonuses, after repaying mounting credit card debts and earmarkingcontributions to their respective repayment vehicles, they only have savings of£6,500. Donald and Brenda have now approached McConnells plc, theirmortgage adviser, as they have fallen into arrears.

CeMAP® Module 3


Question 41

On which of the following dates would Perthside have been aware that theaccount was in arrears?

A 18 March.

B 6 April.

C 18 May.

D 2 June.

Question 42

McConnells’ initial advice to Donald and Brenda will be to:

A create an income / outgoings balance sheet.

B contact Perthside Building Society.

C ensure that they have alternative borrowing in place.

D fully investigate the availability of Support for mortgage Interest (SMI).

Question 43

Which of the following options would be most suitable in helping Donald andBrenda to manage their present situation?

A An interest-only concession.

B An extension of the mortgage term.

C Trading down.

D Partial suspension of monthly payments.



Question 44

Assuming that Brenda pays the maximum possible into a cash ISA, how much,if anything, can Donald and Brenda pay into their respective equity ISAs in the2013/14 tax year?

A £5,760 for Donald and nil for Brenda.

B £5,760 for Donald and £5,760 for Brenda.

C £11,520 for Donald and £5,760 for Brenda.

D £11,560 for Donald and £11,560 for Brenda.

Question 45

If Donald's bonuses do start again, as anticipated, and Brenda then increasesher contribution to ISAs to the maximum possible for her current tax year, byhow much will her annual contribution increase compared with last year?

A £3,260.

B £8,780.

C £9,020.

D £11,520.

Question 46

Donald asks McConnells if they think he has a chance of claiming Support forMortgage Interest (SMI), given his financial difficulties. They say that this is notpossible, because of Donald and Brenda’s:

A employment status.

B level of savings.

C method of repayment.

D size of mortgage.

CeMAP® Module 3


Question 47

Donald and Brenda’s lender is likely to give them up to what maximum amountof time to clear their mortgage arrears?

A 6 months.

B 12 months.

C 24 months.

D 36 months.

Question 48

A consolidating remortgage is often the best option for borrowers in a similarsituation to Donald and Brenda. However, there are a number of disadvantagesto this course of action, which include all of the following, except:

A securing previously unsecured debts will reduce the equity in theproperty and represent increased risk for the borrower.

B the cost of a remortgage may be prohibitive.

C the debts being consolidated will run for the rest of the mortgage term.

D the rate of interest on the new mortgage will be higher than the originalloan.

Question 49

Under MCOB rules, the letter received by Donald and Brenda dated 21 Junemust contain all of the following, except:

A a list of due payments, either missed or partly paid.

B the charges incurred as a result of the arrears.

C the total amount of the arrears.

D the total outstanding debt, including charges that may be made onredemption.



Question 50

Given Donald and Brenda’s current financial difficulties, what does theirselected method of mortgage repayment specifically have in common with thecapital repayment method?

A The ability to suspend capital funding.

B Automatic payment protection insurance.

C The ability for state benefits to be used to fund capital payments.

D Interest deferment without capitalisation.

Case Study 6

Carol started her 25-year, interest-only mortgage ten years ago, using a unit-linked endowment policy as the repayment vehicle, which is assigned to herlender, Lowtown Building Society. The current interest rate is 5.5% variable.

The loan amount was more than covered by her then salary of £27,000 butsince her redundancy six months ago, she has been unable to find work. She isnow three months in arrears, and has no insurance policy on which to claim,although she did submit a claim for Support for Mortgage Interest (SMI) assoon as she went into arrears.

The ten-year review on her endowment policy shows a projected maturityvalue of £65,000, against the loan amount of £75,000. The insurer hasrecommended that she increases her monthly premiums by £30. Carol doesnot wish to do this and is looking for an alternative solution.

Her boyfriend, Harry, has returned from voluntary service overseas and willshortly be moving in with her. They plan to marry when their joint financialsituation improves. Meanwhile, he will help to pay the household bills and isanxious to help Carol clear the mortgage arrears. Carol wants Harry to beadded to the mortgage deed, and he has agreed to this.

They have also discussed renting their spare room to a lodger, which thelender has provisionally indicated will be acceptable. Harry is starting a new jobas a warehouse manager, on an annual salary of £25,000. His employer offersno other employee benefits.

CeMAP® Module 3


They have arranged an appointment with Gordon, a mortgage adviser atLowtown Building Society, to discuss their situation. Carol has had her housevalued by a local estate agent who has stated that, if sold, it should be marketedat £120,000.

Question 51

If the lender agrees to Harry's name being added to the standard security,which of the following courses of action would be most suitable to deal withthe arrears situation?

A Clear the arrears over a specified period of time.

B Extend the mortgage term.

C Surrender the endowment policy.

D Suspend the monthly payments.

Question 52

What is Carol’s situation regarding her claim for Support for Mortgage Interest(SMI)?

A 50% of her interest will have been paid from the end of month 3.

B 50% of her interest will become payable after 39 weeks.

C 100% of her interest will have been paid from the end of month 3.

D 100% of her interest will become payable after 39 weeks.

Question 53

What proportion, if any, of Carol’s accumulated arrears will qualify for SMI?

A None.

B 25%.

C 50%.

D 100%.



Question 54

Where an endowment policy is assigned to the lender, as in Carol’s case, whattype of right does the lender have?

A Assignment.

B Equitable.

C Legal.

D Surrender.

Question 55

Before Harry is added to the standard security, he should be made aware thathe:

A loses his rights under the Family Law Act 1996.

B must sign a consent to mortgage form.

C must also be added to the endowment policy.

D will be subject to standard status enquiries.

Question 56

With regard to their proposals for their spare room, their adviser should pointout that:

A any occupant should undergo standard status enquiries.

B no rights of occupation should be created.

C the building society will collect the rent to offset the arrears.

D this will extend Carol’s exclusion period for SMI.

CeMAP® Module 3


Question 57

The adviser should point out that, with regard to the repayment method andtaking the long-term view, the least advantageous solution is likely to be:

A capitalising the arrears.

B surrendering the policy.

C spreading the arrears.

D extending the term.

Question 58

To minimise the potential problems in 15 years’ time, what action should theadviser discuss with Carol and Harry?

A Converting part of the loan to a repayment basis.

B Converting the endowment policy to a unitised with-profit basis.

C Adding Harry to the policy as a joint life assured.

D Extending the mortgage term.

Question 59

The results of the valuation will indicate to Gordon that, at this stage:

A a further advance is viable.

B Carol and Harry should consider trading down.

C Carol and Harry need not follow the insurer’s recommendation.

D the building society’s interests remain protected.



Question 60

If Carol and Harry marry and the suggested alteration to the standard securityhas not proceeded, what difference does this make to their occupancy rightsunder current law?

A Both have rights, but Carol has priority.

B Carol retains sole occupancy rights.

C Harry potentially gains a right of occupation.

D Harry only gains tenancy rights.

CeMAP® Module 3





Q1 B U1.1

A This is the amount that they want to borrow, which is less than themaximum. The lender's affordability criteria would support a mortgageof approximately £216,000, calculated as £3,100 income – £1,350expenditure = £1,750 x 80% = £1400/£6.46 per thousand = 216.72 x1,000 = £216,720.

B Correct. The lender's affordability criteria would support a mortgage ofapproximately £216,000, calculated as £3,100 income – £1,350expenditure = £1,750 x 80% = £1400/£6.46 per thousand = 216.72 x1,000 = £216,720.

C This leaves out committed expenditure from the calculation. Thelender's affordability criteria would support a mortgage ofapproximately £216,000, calculated as £3,100 income – £1,350expenditure = £1,750 x 80% = £1400/£6.46 per thousand = 216.72 x1,000 = £216,720.

D This assumes their full free disposable income would be used in thecalculation. The lender's affordability criteria would support a mortgageof approximately £216,000, calculated as £3,100 income – £1,350expenditure = £1,750 x 80% = £1400/£6.46 per thousand = 216.72 x1,000 = £216,720.

Q2 A U1.8

A Correct. If the fee is over £250 MCOB 5 requires the actual amount tobe disclosed. In this case the fee is 0.3% of the agreed advance(£200,000) which is £600.

B If the fee is over £250 MCOB 5 requires the actual amount to bedisclosed. In this case the fee is 0.3% of the agreed advance (£200,000)which is £600.

C If the fee is over £250 MCOB 5 requires the actual amount to bedisclosed. In this case the fee is 0.3% of the agreed advance (£200,000)which is £600.

D If the fee is over £250 MCOB 5 requires the actual amount to bedisclosed. In this case the fee is 0.3% of the agreed advance (£200,000)which is £600.


Q3 B U4.1

A They want to guarantee their mortgage repayment at the end of theterm. So a capital and interest loan will be required, protected bydecreasing term assurance. Convertible term assurance offers levelcover.

B Correct. They want to guarantee their mortgage repayment at the endof the term. So a capital and interest loan will be required, protected bydecreasing term assurance.

C Mortgage payment protection does not usually include life cover.

D They want to guarantee their mortgage repayment at the end of theterm. So a capital and interest loan will be required, protected bydecreasing term assurance. Level term assurance offers level cover.

Q4 D U1.8

A Under MCOB 4/4a the adviser must inform the customer of anylimitations on the range of products offered, which will cover whetherthe mortgages on offer are from the whole market, a panel of lendersor one provider only.

B Under MCOB 4/4a the adviser must inform the customer of anylimitations on the range of products offered, which will cover whetherthe mortgages on offer are from the whole market, a panel of lendersor one provider only.

C Under MCOB 4/4a the adviser must inform the customer of anylimitations on the range of products offered, which will cover whetherthe mortgages on offer are from the whole market, a panel of lendersor one provider only.

D Correct. Under MCOB 4/4a the adviser must inform the customer ofany limitations on the range of products offered, which will coverwhether the mortgages on offer are from the whole market, a panel oflenders or one provider only.



Q5 C U6.1

A The lender will require a new survey and Roy will have to pay for this.It is not the practice of lenders to reduce the loan-to-value offered inexchange for not having a survey.

B The lender will require a new survey and Roy will have to pay for this.The availability of additional security is not relevant to the requirementfor a survey.

C Correct. The lender will require a new survey to ensure that theproperty provides sufficient security for the loan.

D A survey is not a legal requirement but an example of best practice andcommon sense followed by lenders.

Q6 D U1.2

A With a repayment mortgage the amount of interest payable each monthgradually reduces through the term. The term will be shortened if theoriginal payments are maintained when interest rates reduce.

B With a repayment mortgage the amount of interest payable each monthgradually reduces through the term, which means the capital repaidincreases through the term. The term will be shortened if the originalpayments are maintained when interest rates reduce.

C The higher the interest rate, the less capital is repaid each month. Theterm will be shortened if the original payments are maintained wheninterest rates reduce.

D Correct. If the original payments are maintained but the interest ratereduces, the term of the mortgage will be shortened.

CeMAP® Module 3


Q7 D U2.2

A The product recommended is a base rate tracker. This means that it hasa fixed relationship with the Bank of England base rate at the outset, saybase rate plus 0.25%, and will maintain that relationship rising and fallingin line with the base rate.

B The product recommended is a base rate tracker. This means that it hasa fixed relationship with the Bank of England base rate at the outset, saybase rate plus 0.25%, and will maintain that relationship rising and fallingin line with the base rate.

C The product recommended is a base rate tracker. This means that it hasa fixed relationship with the Bank of England base rate at the outset, saybase rate plus 0.25%, and will maintain that relationship rising and fallingin line with the base rate.

D Correct. The product recommended is a base rate tracker. This meansthat it has a fixed relationship with the Bank of England base rate at theoutset, say base rate plus 0.25%, and will maintain that relationship risingand falling in line with the base rate.

Q8 B U3.2

A Higher lending charges are specific to a particular mortgage and cannotbe carried over to a new mortgage, refunded or altered. A remortgagewill mean that a new higher lending charge is required because the LTVis more than the lender's 75% threshold.

B Correct. Higher lending charges are specific to a particular mortgageand cannot be carried over to a new mortgage, refunded or altered. Aremortgage will mean that a new higher lending charge is requiredbecause the LTV is more than the lender's 75% threshold.

C Higher lending charges are specific to a particular mortgage and cannotbe carried over to a new mortgage, refunded or altered. A remortgagewill mean that a new higher lending charge is required because the LTVis more than the lender's 75% threshold.

D Higher lending charges are specific to a particular mortgage and cannotbe carried over to a new mortgage, refunded or altered. A remortgagewill mean that a new higher lending charge is required because the LTVis more than the lender's 75% threshold.



Q9 B U4.3

A Roy is keen to protect the monthly payments in the event of his longterm illness. Critical illness cover only pays a lump sum in cases ofserious illness as defined in the policy.

B Correct. Roy is keen to protect the monthly payments in the event ofhis long-term illness. An income protection insurance policy provides amonthly income when the policy holder is unable to work due toaccident or sickness, until retirement if necessary.

C Roy is keen to protect the monthly payments in the event of his longterm illness. Mortgage payment protection insurance only providescover for up to two years.

D Roy is keen to protect the monthly payments in the event of his longterm illness. Private medical insurance effectively offers an alternative tothe NHS and would not provide the ongoing protection identified byRoy.

Q10 D U1.3

A Credit commitments are included in 'committed expenditure'. Utilitybills and council tax are included in 'basic essential' expenditure andchildcare costs are included in 'basic quality of living' expenditure.

B Credit commitments are included in 'committed expenditure'. Utilitybills and council tax are included in 'basic essential' expenditure andchildcare costs are included in 'basic quality of living' expenditure.

C Credit commitments are included in 'committed expenditure'. Utilitybills and council tax are included in 'basic essential' expenditure andchildcare costs are included in 'basic quality of living' expenditure.

D Correct. Credit commitments are included in 'committed expenditure'.Utility bills and council tax are included in 'basic essential' expenditureand childcare costs are included in 'basic quality of living' expenditure.

CeMAP® Module 3



Q11 D U3.12

A Under the NewBuy Guarantee Scheme, the government and housebuilder guarantee to cover a limited amount of a lender's losses shouldthe borrower default, so there is no need for the lender to charge aHLC with which to purchase a separate MIG. It has nothing to do withwhether or not a borrower may redeem all of part of their loan early.

B Under the NewBuy Guarantee Scheme, the government and housebuilder guarantee to cover a limited amount of a lender's losses shouldthe borrower default, so there is no need for the lender to charge aHLC with which to purchase a separate MIG. It has nothing to do withthe method of repayment.

C Under the NewBuy Guarantee Scheme, the government and housebuilder guarantee to cover a limited amount of a lender's losses shouldthe borrower default, so there is no need for the lender to charge aHLC with which to purchase a separate MIG. It has nothing to do withwhether the lender is a bank or a building society.

D Correct. Under the NewBuy Guarantee Scheme, the government andhouse builder guarantee to cover a limited amount of a lender's lossesshould the borrower default, so there is no need for the lender tocharge an HLC with which to purchase a separate MIG.

Q12 C U6.1

A It makes no difference whether the property is purchased through theNewBuy Guarantee Scheme, the lender will always insist on a mortgagevaluation as a minimum requirement.

B A building survey is only usually necessary with older properties orrecommended by the valuer if potential problems or defects are pickedup during the mortgage valuation. The lender will only require amortgage valuation with most new build properties.

C Correct. A building survey is only usually necessary with olderproperties or recommended by the valuer if potential problems ordefects are picked up during the mortgage valuation. The lender will onlyrequire a mortgage valuation with most new build properties.

D A lender will never insist on a RICS HomeBuyer report; this is a type ofinspection is carried out for the benefit of the borrower. For a new buildproperty, a lender will only require a mortgage valuation.



Q13 D U4.9

A Between £125,000 and £250,000, SDLT is 1% of the purchase price. 1%of £165,000 is £1,650.

B Between £125,000 and £250,000, SDLT is 1% of the purchase price. 1%of £165,000 is £1,650. The figure of £400 is 1% of difference between£165,000 and £125,000, which is wrong. SDLT is paid on the fullpurchase price.

C Between £125,000 and £250,000, SDLT is 1% of the purchase price. 1%of £165,000 is £1,650. The figure of £1,485 is 1% of the mortgage, notthe purchase price, which is wrong.

D Correct. Between £125,000 and £250,000, SDLT is 1% of the purchaseprice. 1% of £165,000 is £1,650.

Q14 A U1.8

A Correct. Under MCOB12, an early repayment charge must be able to beexpressed as a cash value, and be a reasonable estimate of the costspayable if the customer repays the full amount of the loan before themortgage contract has reached is termination date.

B Under MCOB12, an early repayment charge must be able to beexpressed as a cash value and be a reasonable estimate of the costspayable if the customer repays the full amount of the loan before themortgage contract has reached is termination date. The lender canchoose their own method for calculating ERCs, but the rules specificallystate that they should not use the 'Rule of 78'.

C Under MCOB12, an early repayment charge must be able to beexpressed as a cash value, and be a reasonable estimate of the costspayable if the customer repays the full amount of the loan before themortgage contract has reached is termination date. The lender canchoose their own method for calculating ERCs.

D Under MCOB12, an early repayment charge must be able to beexpressed as a cash value and be a reasonable estimate of the costspayable if the customer repays the full amount of the loan before themortgage contract has reached is termination date. It can apply to anytype of mortgage product, not just fixed-rate and capped-rate mortgages.

CeMAP® Module 3


Q15 D U4.1

A Heather is single with no dependents, so the most appropriate policywould be one where the sum assured reduces over the term in line withthe reducing balance of her mortgage, i.e. mortgage protection, whichwould also be the cheapest. The sum assured under an increasing termassurance increases over the term of the policy.

B Heather is single with no dependants, so the most appropriate policywould be one where the sum assured reduces over the term in line withthe reducing balance of her mortgage, i.e. mortgage protection, whichwould also be the cheapest. The sum assured under a level termassurance remains fixed throughout the term.

C Heather is single with no dependants, so the most appropriate policywould be one where the sum assured reduces over the term in line withthe reducing balance of her mortgage, i.e. mortgage protection, whichwould also be the cheapest. Mortgage payment protection insurancedoes not provide life cover.

D Correct. Heather is single with no dependants, so the most appropriatepolicy would be one where the sum assured reduces over the term inline with the reducing balance of her mortgage, i.e. mortgage protection,which would also be the cheapest.

Q16 D U1.1

A Evidence will be required of income from employment, including bonus,and all expenditure. Lenders can use statistical or modelled data toestimate basic essential expenditure and basic quality-living costs butthese must be included in the calculation.

B Evidence will be required of income from employment, including bonus,and all expenditure. Lenders can use statistical or modelled data toestimate basic essential expenditure and basic quality-living costs butthese must be included in the calculation.

C Evidence will be required of income from employment, including bonus,and all expenditure. Lenders can use statistical or modelled data toestimate basic essential expenditure and basic quality-living costs butthese must be included in the calculation.

D Correct. Evidence will be required of income from employment,including bonus, and all expenditure. Lenders can use statistical ormodelled data to estimate basic essential expenditure and basic quality-living costs but these must be included in the calculation.



Q17 C U1.1

A Credit searches are an integral and routine part of the credit assessmentprocess. Equifax is an organisation that stores and maintains individuals'credit histories. Their records will show credit problems for namedindividuals.

B Credit searches are an integral and routine part of the credit assessmentprocess. Equifax is an organisation that stores and maintains individuals'credit histories. Their records will show credit problems for namedindividuals.

C Correct. Credit searches are an integral and routine part of the creditassessment process. Equifax is an organisation that stores and maintainsindividuals' credit histories. Their records will show credit problems fornamed individuals.

D Credit searches are an integral and routine part of the credit assessmentprocess. Equifax is an organisation that stores and maintains individuals'credit histories. Their records will show credit problems for namedindividuals.

Q18 A U3.2

A Correct. In effect, the NewBuy Guarantee Scheme is a MortgageIndemnity Guarantee scheme underwritten by the government and thehouse builder, at no cost to the borrower. However, the borrower is stillultimately responsible for any shortfall.

B In effect, the NewBuy Guarantee Scheme is a Mortgage IndemnityGuarantee scheme underwritten by the government and the housebuilder, at no cost to the borrower. However, the borrower is stillultimately responsible for any shortfall.

C In effect, the NewBuy Guarantee Scheme is a Mortgage IndemnityGuarantee scheme underwritten by the government and the housebuilder, at no cost to the borrower. However, the borrower is stillultimately responsible for any shortfall.

D In effect, the NewBuy Guarantee Scheme is a Mortgage IndemnityGuarantee scheme underwritten by the government and the housebuilder, at no cost to the borrower. However, the borrower is stillultimately responsible for any shortfall.

CeMAP® Module 3


Q19 A U2.4

A Correct. Heather's mortgage is on a discounted basis for the first twoyears. This is a genuine saving with no roll forward of interest.

B This is a genuine discount with no roll forward of the shortfall amountof interest.

C The rate selected will be a discount against the standard variable rateand can thus fluctuate while maintaining the 1% discount.

D This is a genuine discount with no roll forward of the shortfall amountof interest.

Q20 A U2.4

A Correct. A discounted rate fluctuates in line with the lender's standardvariable rate and while the capped rate may also fluctuate in line withthe SVR it will not go above a specific ceiling for the duration of theproduct.

B The discounted rate will move in line with the lender's standard variablerate.

C Both rates will fluctuate but the capped-rate will not go above a specificceiling.

D The capped rate will generally be below the SVR.




Q21 B U1.4

A Andrew wishes to use his personal pension policy as a repaymentvehicle. The earliest he can retire under a personal pension, as he is notin a special occupation, is at age 55, in 26 years' time.

B Correct. Andrew wishes to use his personal pension policy as arepayment vehicle. The earliest he can retire under a personal pension,as he is not in a special occupation, is at age 55, in 26 years' time.

C Andrew wishes to use his personal pension policy as a repaymentvehicle. The earliest he can retire under a personal pension, as he is notin a special occupation, is at age 55, in 26 years' time.

D Andrew wishes to use his personal pension policy as a repaymentvehicle. The earliest he can retire under a personal pension, as he is notin a special occupation, is at age 55, in 26 years' time.

Q22 D U1.4

A The lowest growth rate projection is £1,000,000. Under current rules25% (£250,000) can be taken as a tax-free lump sum. After deducting theloan of £205,000, a cash sum of £45,000 will be left as surplus.

B The lowest growth rate projection is £1,000,000. Under current rules25% (£250,000) can be taken as a tax-free lump sum. After deducting theloan of £205,000, a cash sum of £45,000 will be left as surplus.

C The lowest growth rate projection is £1,000,000. Under current rules25% (£250,000) can be taken as a tax-free lump sum. After deducting theloan of £205,000, a cash sum of £45,000 will be left as surplus.

D Correct. The lowest growth rate projection is £1,000,000. Undercurrent rules 25% (£250,000) can be taken as a tax-free lump sum. Afterdeducting the loan of £205,000, a cash sum of £45,000 will be left assurplus.

CeMAP® Module 3


Q23 B U4.9

A £50 is based on the assumption that only the loan amount is liable forSDLT thus £205,000 @ 1% = £2,050 less £2,000.

B Correct. The agreed purchase price is £220,000 and with the SDLT at1% the liability will be £2,200 of which £2,000 is earmarked, leaving£200.

C The agreed purchase price is £220,000 and with the SDLT at 1% theliability will be £2,200 of which £2,000 is earmarked, leaving £200.

D The agreed purchase price is £220,000 and with the SDLT at 1% theliability will be £2,200 of which £2,000 is earmarked, leaving £200. Thiscalculation assumes an SDLT of 3%.

Q24 C U1.8

A MCOB rules allow where the fee is less than £250 for a statement to bemade that the fee will be no more than £250. In this case we are toldthe fee is £220.

B MCOB rules allow where the fee is less than £250 for a statement to bemade that the fee will be no more than £250. In this case we are toldthe fee is £220.

C Correct. MCOB rules allow where the fee is less than £250 for astatement to be made that the fee will be no more than £250. In thiscase we are told the fee is £220.

D MCOB rules allow where the fee is less than £250 for a statement to bemade that the fee will be no more than £250. In this case we are toldthe fee is £220.



Q25 D U1.4

A Andrew will receive tax relief on his personal pension contributions.

B Andrew will receive tax relief on his personal pension contributions, butat the higher rate of 40%.

C Andrew will receive tax relief on his personal pension contributions, butat the higher rate of 40% rather than the basic rate of 20%.

D Correct. Andrew will receive tax relief on his personal pensioncontributions. As he is a higher-rate taxpayer, this will be at 40%.

Q26 B U2.2

A After the first two years, Andrew's mortgage is likely to revert to thelender's standard variable rate at that time.

B Correct. After the first two years, Andrew's mortgage is likely to revertto the lender's standard variable rate at that time.

C After the first two years, Andrew's mortgage is likely to revert to thelender's standard variable rate at that time.

D After the first two years, Andrew's mortgage is likely to revert to thelender's standard variable rate at that time.

CeMAP® Module 3


Q27 A U2.2

A Correct. If Andrew opts for the two-year base rate tracker mortgage,the interest rate he pays during this time will be linked to the Bank ofEngland base rate, which is decided by the Monetary Policy Committee.

B If Andrew opts for the two-year base rate tracker mortgage, the interestrate he pays during this time will be linked to the Bank of England baserate, which is decided by the Monetary Policy Committee.

C If Andrew opts for the two-year base rate tracker mortgage, the interestrate he pays during this time will be linked to the Bank of England baserate, which is decided by the Monetary Policy Committee.

D If Andrew opts for the two-year base rate tracker mortgage, the interestrate he pays during this time will be linked to the Bank of England baserate, which is decided by the Monetary Policy Committee.

Q28 A U1.2

A Correct. Although Andrew will receive higher-rate tax relief on hispersonal pension contributions, this will have no effect on the underlyingmortgage on which no relief can be obtained.

B Although Andrew will receive higher-rate tax relief on his personalpension contributions, this will have no effect on the underlyingmortgage on which no relief can be obtained.

C Although Andrew will receive higher-rate tax relief on his personalpension contributions, this will have no effect on the underlyingmortgage on which no relief can be obtained.

D Although Andrew will receive higher-rate tax relief on his personalpension contributions, this will have no effect on the underlyingmortgage on which no relief can be obtained.



Q29 A U5.8

A Correct. As an adult occupant of the property who is not party to themortgage, Andrew's sister will be required by Northchester BuildingSociety to sign a 'consent to mortgage' form which prevents her fromderiving an overriding interest in the property.

B As an adult occupant of the property who is not party to the mortgage,Andrew's sister will be required by Northchester Building Society tosign a 'consent to mortgage' form which prevents her from deriving anoverriding interest in the property.

C As an adult occupant of the property who is not party to the mortgage,Andrew's sister will be required by Northchester Building Society tosign a 'consent to mortgage' form which prevents her from deriving anoverriding interest in the property.

D As an adult occupant of the property who is not party to the mortgage,Andrew's sister will be required by Northchester Building Society tosign a 'consent to mortgage' form which prevents her from deriving anoverriding interest in the property.

Q30 A U1.4

A Correct. Andrew's pension term assurance started in June 2006 so cancontinue to benefit from tax relief on the cost. This ceased to apply forthose proposing after 14 December 2006.

B Pension term assurance is usually on a level basis.

C Pension term assurance does not include critical and terminal illnesscover.

D Pension term assurance usually ceases at retirement age, but cannot runbeyond age 75.

CeMAP® Module 3



Q31 D U1.1

A The balance sheet is an important item of information for lenders.However, the profit and loss account sets out a record of the incomeand expenditure of the business for the trading year, allowing closescrutiny by the lender.

B The business plan contains useful information, but is looking forward. Itdoes not offer hard performance facts.

C A cash flow statement is a useful item but are predictive rather thanreflecting the full past experience.

D Correct. The profit and loss account sets out a record of the income andexpenditure of a business and how it is allocated, allowing close scrutinyby the lender.

Q32 B U1.8

A MCOB rules require that the exact amount of fees is stated if theyexceed £250. In this case, the loan is £124,500 less a deposit of £15,200= £109,300 @ 0.35% = £382.55.

B Correct. MCOB rules require that the exact amount of fees is stated ifthey exceed £250. In this case, the loan is £124,500 less a deposit of£15,200 = £109,300 @ 0.35% = £382.55.

C MCOB rules require that the exact amount of fees is stated if theyexceed £250. In this case, the loan is £124,500 less a deposit of £15,200= £109,300 @ 0.35% = £382.55.

D MCOB rules require that the exact amount of fees is stated if theyexceed £250. In this case, the loan is £124,500 less a deposit of £15,200= £109,300 @ 0.35% = £382.55.



Q33 C U2.4

A Robert and Jenny have indicated that they wish to keep costs to anabsolute minimum for the first two or three years and have a fixedbudget. A capped-rate mortgage product will be typically higher than afixed-rate over this period.

B Robert and Jenny have indicated that they wish to keep costs to anabsolute minimum for the first two or three years while on a fixedbudget. A discounted mortgage product will offer a genuine reductionover this period but if interest rates rise, their monthly payment will alsorise and impact on their fixed budget.

C Correct. Robert and Jenny have indicated that they wish to keep coststo an absolute minimum for the first two or three years while on a fixedbudget. A fixed-rate mortgage product will offer them security that theirpayment will not change over this period.

D Robert and Jenny have indicated that they wish to keep costs to anabsolute minimum for the first two or three years while on a fixedbudget. A standard variable rate will fluctuate and will not provide themwith the security they need.

Q34 D U1.4

A Neither a repayment mortgage nor an interest-only mortgage linked toan ISA allows for the automatic inclusion of accident and sickness cover.

B Robert likes the idea of an interest-only mortgage linked to an ISA.These offer no guarantees on maturity payments – they are subject toinvestment fluctuations.

C Robert likes the idea of an interest-only mortgage linked to an ISA. If anappropriate amount is invested in the ISA, this is likely to lead to a moreexpensive monthly outlay than a repayment mortgage.

D Correct. If the ISA performs well it could reach the value of the loanearly, allowing repayment.

CeMAP® Module 3


Q35 D U4.9

A The original purchase price was £128,000. SDLT is charged at 1% forproperties over £125,000 and below £250,000 for second time buyerslike Robert and Jenny. Negotiating the price to £124,500 would save£1,280.

B The original purchase price was £128,000. SDLT is charged at 1% forproperties over £125,000 and below £250,000 for second-time buyerslike Robert and Jenny. Negotiating the price to £124,500 would save£1,280. This answer assumes SDLT is payable on the lower price (£1,280– £1,245= £35).

C The original purchase price was £128,000. SDLT is charged at 1% forproperties over £125,000 and below £250,000 for second-time buyerslike Robert and Jenny. This answer assumes £124,500 x 0.5%.

D Correct. The original purchase price was £128,000. SDLT is charged at1% for properties over £125,000 and below £250,000 for second-timebuyers like Robert and Jenny. Negotiating the price to £124,500 wouldsave £1,280.

Q36 A U1.4

A Correct. Dividends are paid with a 10% tax credit that is notreclaimable. However there is no further tax payable.

B Dividends are paid with a 10% tax credit that is not reclaimable.However there is no further tax payable.

C Dividends are paid with a 10% tax credit that is not reclaimable.However there is no further tax payable.

D Dividends are paid with a 10% tax credit that is not reclaimable.However there is no further tax payable.



Q37 C U4.3

A ACME Life's product is an income protection insurance policy underwhich benefit payments are made tax free and are not subsequentlysubject to any tax liability.

B ACME Life's product is an income protection insurance policy underwhich benefit payments are made tax free and are not subsequentlysubject to any tax liability.

C Correct. ACME Life's product is an income protection insurance policyunder which benefit payments are made tax free and are notsubsequently subject to any tax liability.

D ACME Life's product is an income protection insurance policy underwhich benefit payments are made tax free and are not subsequentlysubject to any tax liability.

Q38 D U6.1

A Money will be held back until specified work is completed, leading to ashort term financial gap.

B Money will be held back until specified work is completed, leading to ashort term financial gap.

C Money will be held back until specified work is completed, leading to ashort term financial gap.

D Correct. Money will be held back until specified work is completed,leading to a short term financial gap.

CeMAP® Module 3


Q39 B U1.4

A There is no reason for an equity ISA to hold funds in cash.

B Correct. ISAs do not include built-in life cover.

C There are no proposals for further changes to the treatment of ISAdividends.

D ISAs are only available on an individual basis.

Q40 A U4.3

A Correct. Acme's product is an IPI which offers the potential for long-term claim payments up to retirement age. The ASU policy offered byAll-Cover will only pay out benefits for a maximum of 12 or 24 months.

B Neither IPI nor ASU individual policies attract tax relief.

C The ASU policy offers redundancy benefits, but an IPI will not. In anyevent Robert is self-employed.

D An IPI policy usually has a longer deferred period than an ASU policy.




Q41 D U4.1

A The lender must write to the borrower within 15 (working) days ofbecoming aware that the account is in arrears. 15 working days from 2June is 21 June.

B The lender must write to the borrower within 15 (working) days ofbecoming aware that the account is in arrears. 15 working days from 2June is 21 June.

C The lender must write to the borrower within 15 (working) days ofbecoming aware that the account is in arrears. 15 working days from 2June is 21 June.

D Correct. The lender must write to the borrower within 15 (working)days of becoming aware that the account is in arrears. 15 working daysfrom 2 June is 21 June.

Q42 B U5.1

A Creation of an income / outgoings balance sheet could be a usefulaction. However, borrowers should always approach their lender as soonas possible in cases of difficulty.

B Correct. Borrowers should approach their lender as soon as possible incases of difficulty.

C This is too early in the process to reach conclusions about a wayforward without first approaching the lender.

D Assistance such as SMI might be important, but it should be noted that,in this case, redundancy is not an issue. They should first, in any event,approach their lender.

CeMAP® Module 3


Q43 D U4.2

A Their mortgage is already on an interest-only basis.

B As this is an interest-only mortgage, an extension to the term would notreduce their monthly outlay.

C Only one monthly payment has been missed. No extreme remedialaction, such as trading down, appears necessary.

D Correct. This appears, at least at present, to be a temporary problem. Apartial suspension of monthly payments could offer a matchingtemporary solution.

Q44 C U1.4

A Donald can invest the maximum equity ISA limit of £11,520. Brenda canpay £5,760, as she is already investing the maximum £5,760 in her cashISA.

B £5,760 each is the maximum for cash ISAs.

C Correct. Donald can invest the maximum equity ISA limit of £11,520.Brenda is already investing the maximum in a cash ISA (£5,760), so themost she can invest is £5,760 into an equity ISA.

D £11,520 each is the maximum for equity ISAs. Brenda, however, alsoinvests in a cash ISA, so her equity ISA contribution is restricted.

Q45 C U1.4

A This implies that Brenda is only paying into a cash ISA. £5,760 – £2,500= £3,260.

B This relates to the previous year's ISA limit of £11,280. £11,280 – £2,500= £8,780

C Correct. The maximum that Brenda can pay is £11,520 – £2,500 =£9,020.

D £11,520 is the maximum that can be invested in ISAs in the 2013/14 taxyear. However, this ignores the fact that the question relates to theincrease in amount.



Q46 A U6.1

A Correct. As Donald and Brenda's employment status has not changed,they will not be eligible for SMI, irrespective of any other issues.

B As Donald and Brenda's employment status has not changed, they willnot be eligible for SMI, irrespective of any other issues.

C As Donald and Brenda's employment status has not changed, they willnot be eligible for SMI, irrespective of any other issues.

D As Donald and Brenda's employment status has not changed, they willnot be eligible for SMI, irrespective of any other issues.

Q47 B U4.2

A Usually a maximum period of 12 months is permitted to bring paymentsup to date.

B Correct. Usually a maximum period of 12 months is permitted to bringpayments up to date.

C Usually a maximum period of 12 months is permitted to bring paymentsup to date.

D Usually a maximum period of 12 months is permitted to bring paymentsup to date.

Q48 D U1.4

A Securing previously unsecured debts will reduce the equity andrepresent increased risk for the borrower, so this is a disadvantage.

B The cost of a remortgage may be prohibitive, so this is a disadvantage.

C The debts being consolidated will now run for the rest of the mortgageterm, rather than for their original term (maybe five to seven years, orless), so this is a disadvantage.

D Correct. The rate of interest on the remortgage will not necessarily behigher than the original one, in fact the borrower could pay less as theymay benefit from an introductory rate from the new lender.

CeMAP® Module 3


Q49 D U1.4

A The letter must contain a list of due payments, either missed or partlypaid.

B The letter must contain details of charges incurred as a result of thearrears.

C The letter must contain the total amount of arrears.

D Correct. Although the letter must contain the total outstanding debt,this excludes charges that may be made on redemption.

Q50 A U1.4

A Correct. Under a repayment mortgage, payments could be reduced toan interest-only level. Under an ISA-linked mortgage, the payments intothe ISA could be stopped. In both cases, this amounts to a suspension ofcapital payment.

B Automatic payment protection insurance is not usually available undereither repayment methods.

C SMI does not fund capital or repayment vehicles. It pays interest only. SMIwould not be appropriate as their job situation has not changed.

D Interest deferment without capitalisation is not a specific feature,although it is an option that a lender may consider.




Q51 A U4.2

A Correct. All the indications signal increased income coming into thehouse in the near future. The lender's approach is likely to be to requestrepayment of the arrears over a specified period of time.

B The mortgage is on an interest-only basis linked to a unit-linkedendowment. As such, there is no scope for reducing outlay by extendingthe term.

C The arrears situation appears capable of being addressed. Surrender ofthe endowment would be viewed as an unnecessary step.

D The monthly payments are interest-only payments. Their suspension willonly increase the arrears.

Q52 C U6.1

A Carol is eligible to claim under the Support for Mortgage Interest (SMI)scheme, which provides 100% of her interest-only payments after 13weeks.

B Carol is eligible to claim under the Support for Mortgage Interest (SMI)scheme, which provides 100% of her interest-only payments after 13weeks.

C Correct. Carol is eligible to claim under the Support for MortgageInterest (SMI) scheme, which provides 100% of her interest-onlypayments after 13 weeks.

D Carol is eligible to claim under the Support for Mortgage Interest (SMI)scheme, which provides 100% of her interest-only payments after 13weeks.

CeMAP® Module 3


Q53 A U6.1

A Correct. SMI is not paid on arrears that accumulate during the exclusionperiod.

B SMI is not paid on arrears that accumulate during the exclusion period.

C SMI is not paid on arrears that accumulate during the exclusion period.

D SMI is not paid on arrears that accumulate during the exclusion period.

Q54 C U6.1

A Assignment gives the lender legal rights over the policy, giving them theright to receive the policy proceeds to repay the mortgage on death ormaturity.

B Assignment gives the lender legal rights over the policy, giving them theright to receive the policy proceeds to repay the mortgage on death ormaturity.

C Correct. Assignment gives the lender legal rights over the policy, givingthem the right to receive the policy proceeds to repay the mortgage ondeath or maturity.

D Assignment gives the lender legal rights over the policy, giving them theright to receive the policy proceeds to repay the mortgage on death ormaturity.

Q55 D U1.1

A The Family Law Act relates to the rights of spouses.

B The completion of a consent to mortgage form effectively waives rightsof residence, which is much the opposite of being added to the mortgagedeed.

C The endowment policy is on a single life basis and will pay out on Carol'sdeath or at the end of the term. It is unlikely that this could be changedto a joint-life basis. Harry may need level term assurance.

D Correct. Someone moving in who intends to become a party to themortgage will be fully assessed by the lender, using the normal statusenquiries.



Q56 B U5.8

A Only individuals intending to become parties to the mortgage willrequire status checks.

B Correct. If rights of occupation were allowed, this would affect Carol's(and Harry's) overall rights.

C Carol will be allowed to collect the rent which she may choose to useto service the repayment agreement.

D While various issues can affect SMI, the time periods are legally laiddown.

Q57 B U1.8

A Capitalising the arrears could be an option. There are still 15years to runon the mortgage and, while this would increase the capital, there shouldbe plenty of time to fund the additional amount.

B Correct. The endowment policy has only been in force for a relativelyshort period and the probability is that surrender would beuneconomic. This option is only usually used in cases of serious default.

C Spreading the arrears allows them to be paid off gradually – probably themost suitable solution.

D The term could be extended, with the endowment still repaying themajority of the mortgage after 25 years.

Q58 A U2.3

A Correct. Carol's insurer is currently predicting a shortfall in the maturityvalue of the endowment when it matures. It could be wise to reduce thedependency on the maturing policy, by switching a proportion of themortgage to a repayment basis.

B The endowment is already running in potential shortfall. Both unit-linkedand with-profits policies are similarly investment-geared and there is nocertainty that a with-profit plan conversion, if allowed, would performbetter.

C Changing to joint life assured will not affect the performance of the plan.

D Extending the term on its own, without funding the final repayment, isjust deferring the problem.

CeMAP® Module 3


Q59 D U6.1

A The £75,000 loan is easily covered by the current value of £120,000. Aslong as the arrears are managed, the building society will not takenegative action.

B The arrears situation appears temporary and the valuation is well inexcess of the mortgage. There seems to be no current need to tradedown.

C The insurer's recommendations relate to repaying the mortgage, whichis not linked to the current value.

D Correct. As the £75,000 loan is easily exceeded by the current value, theproperty offers good protection to the building society.

Q60 C U5.8

A Harry will gain a right of occupation under the Matrimonial Homes(Family Protection) (Scotland) Act 1981. This right is not subordinatedto Carol.

B Harry will gain a right of occupation under the Matrimonial Homes(Family Protection) (Scotland) Act 1981. This right is not subordinatedto Carol.

C Correct. Harry will gain a right of occupation under the MatrimonialHomes (Family Protection) (Scotland) Act 1981. This right is notsubordinated to Carol.

D Harry will gain a right of occupation under the Matrimonial Homes(Family Protection) (Scotland) Act 1981. This right is not subordinatedto Carol.



Cemap 3 Full Text

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