Assessing The Applicants Financial Status Flashcards
Al is a painter and decorator. What do you think would count as deductions to calculate his:
A) gross profit?
B) net profit?
A) gross profit is turnover minus the cost of basic materials to enable home to work day to day - paint, filler, wallpaper, brushes etc
B) net profit is the gross profit minus routine business expenses such as motor expenses, postal and stationary, telephone charges
What is a dividend and in what ways are the tax treatments different from earned income?
A dividend is a portion of the profits of a company paid to its shareholders.
Small company’s where directors hold the shares decide how much to pay.
Dividends are paid without deduction of income tax at source.
UK taxpayers have an allowance. When in excess of the allowance the tax is calculated after calculating the tax due on earned income and savings interest.
What is self-certification?
Is it permitted?
This is where a customer declares their income without needing proof.
This is no longer permitted and independent proof of income is required
Surinder and Kuldip are both applying for mortgages on houses in the UK. Surinder has just got a new job in Northampton and is moving there. kuldip is buying a house there too for his family but he is working overseas on a long term contract. The lender can not treat Kuldips application differently from Surinders just because he is not currently living in the UK. True or false?
False
A lender can not discriminate based on race or nationality.
It can impose different terms on a borrower who is living outside the UK or decide not to lend at all because of the difficulty of pursuing a borrower in the event of default/missed payments
Last week Sam contacted her banks mortgage advisor about applying for a mortgage and the advisor told her she and her partner could probably borrow £180k, which is 3 times their income.
A friend who works in a building society has now told Sam that the bank is no longer allowed to assess her application on the basis of an income multiple. Should Sam be concerned about the way the bank dealt with her enquiry?
No
Lenders are allowed to give initial assessments based on income multiples.
If Sam were to go ahead with full mortgage application the lender would be required to complete a full and detailed assessment of her income and that if her partner.
A lender may take account of sales-related income in assessing a borrowers ability to repay a loan. True or false?
True
Sales related income is usually averaged over 3-5 years.
All sole traders must provide a detailed breakdown of their business expenditure on their tax return. True or false?
False
All business’s must maintain accurate accounts but a detailed breakdown of expenditure is only required on a tax return if the business turnover is above the VAT registration threshold.
Which of the following would NOT be an acceptable reason for a lender to waive affordability checks when varying the terms of a regulated mortgage started in 2013?
A) a further advance is required for essential maintenance to the structure of the property.
B) the borrower has requested a new 2.99 per cent fixed rate loan in expiry of their current 3.30 percent fixed rate loan.
C) a further advance is required for home improvements.
D) borrowing would be increased to cover the cost of the arrangement fee
C) a further advance is required for home improvements.
Affordability can not be waived for additional borrowing unless for essential repairs or maintenance
A water bill is an example of:
A) committees expenditure
B) basic essentials expenditure
C) basic quality of life expenditure
D) cost of living expenditure
B) basic essentials expenditure
Karen is applying for a mortgage but is struggling to provide exact expenditure figures. For which of the following elements of Karen’s expenditure could the lender NOT use figures from the ONS?
A) personal loan repayments
B) spending on food
C) spending on entertainment
D) electricity bill
A) personal loan repayments
This is a committed payment and the lender will need to use actual figures rather than representative data
Andreas, has been self employed for 18 months. He wants to buy a house but is concerned that his track record is not long enough. A friend has advised him to apply for a self certified mortgage. Is this an appropriate solution?
No
Self certified mortgages are no longer available.
Rebecca and Rachel want to buy their first house. They have joint net income of £2,800 per month. They have committed expenditure of £400 per month. Basic essential expenditure of £800 per month and basic quality of life expenditure of £600 a month.
Their lender has calculated that their desired five year fixed rate mortgage product would cost £5.90 a month per £1000 borrowed. What is the maximum mortgage the lender is likely to offer?
Rebecca and Rachel have disposable income of £1000 per month. The are choosing a 5 year fixed interest rate so the lender does not have to calculate interest rate rises.
£1000 ➗£5.90 = £169.49 so £1000 would support a mortgage of £169,490.
To comply with MCOB 11, lenders must retain documents that provide a rationale for the decisions taken on mortgage applications:
A) in hard copy for 5 years after the mortgage application is granted.
B) in hard copy or electronic form for 7 years after the mortgage application is granted.
C) in hard copy or electronic form for the length of the mortgage contract.
D) in electronic form indefinitely.
C) in hard copy or electronic form for the length of the mortgage contract.
