10. Assessing The Applicant's Financial Status

Question 1

Which part of MCOBs would you find regulations on assessing the applicant’s financial status?

Answer 1

MCOB 11 - Responsible lending

Question 2

Who can fill in an application form? Who is responsible for the accuracy of information within it?

Answer 2

Customer or adviser can complete. Customer is responsible for the accuracy of info and should always check what has been written

Question 3

RECAP APPLICATION FORM INFO FROM NOTES

Answer 3

TOO LONG BUT TOO STRAIGHT FORWARD TO INCLUDE

Question 4

When applicants sign the application form, what does this authorise the lender to do?

Answer 4

Make any necessary enquiries. If they find anything in relation to money laundering or fraud they must go to the police. Application form should warn that this could result in a possible prison sentence

Question 5

Can borrowing capacity be calculated on multiples of income?

Answer 5

No, used to be able to but not any more.

Can still be used as a guideline, but a full thorough affordability assessment needs to be carried out

Question 6

What are the main types of income considered? (5)

Answer 6

1. Employment
2. Self employment
3. Secure Trust income
4. Directorship
5. Other - e.g. maintenance/pensions etc

Question 7

Should affordability assessments only focus on circumstances as they are now, or can they take into account changes that are likely in future?

Answer 7

usually current circumstances, but lenders can be flexible when there are clear changes to circumstances that are going to happen in future.
Examples
- Where someone is on a professional career path and will get a pay increase in the near future as stated in their contract
- Maintenance/child maintenance has a definitive term and is coming to an end

Question 8

Should employment income be calculated hourly, daily or monthly?

Answer 8

Any is acceptable

Question 9

What additional employment income are lenders able to take into consideration? (6)

Answer 9

1. Car allowance
2. Location allowance
3. Mortgage subsidy
4. Shift allowance
5. Overtime
6. Commission/bonus

Question 10

Employers must obtain evidence of income. What evidence is needed for the following:
1. Basic Salary and Guaranteed Allowances
2. Non-Guaranteed income (overtime, commission)
3. Quarterly Bonuses
4. Self-employed income

Answer 10

1. Latest payslip
2. sufficient past payslips to show a regular pattern
3. At least 3 quarters of payslips
4. Self Assessment tax return

Question 11

What happens if lenders are unable to obtain the preferred evidence of income?

Answer 11

They are able to accept references from an employer so long as they are:
1. on business letterhead
2. recently date
3. unambiguous

Lender should take care to check authenticity

Question 12

How is self employed income calculated?

Answer 12

NET PROFIT = Business income - cost of materials/product

Question 13

What evidence should lenders get of self employed income? (3)

Answer 13

Any of the following, or a combination:

1. HMRC Tax returns (2-3 years)
2. Accountant’s certificate (2-3 years)
3. Full business accounts (3 years)

Question 14

What is a short tax return? What does it include? (3)

Answer 14

For businesses with a turnover below a certain threshold
1. Statements of total turnover
2. Total Allowable Expenses
3. NET profit

Question 15

What two things do larger businesses need to include in their detailed tax return?

Answer 15

1. Profit and loss account
2. Balance Sheet

Question 16

What is an income statement?

Answer 16

Another name for a profit and loss account

Question 17

What is a statement of financial position?

Answer 17

Another name for a balance sheet