Exam Questions for Cemap 2 that I didnt know or understand Flashcards
Alberto took out a second charge loan on his house in 2014. What is the current regulatory status of the loan?
It is:
not a Financial Conduct Authority regulated loan.
subject to Financial Conduct Authority regulation under MCOB rules.
subject to Financial Conduct Authority regulation under the Consumer Credit Act 2006.
subject to Prudential Regulation Authority regulation under the Consumer Credit Act 2006.
subject to Financial Conduct Authority regulation under MCOB rules.
WHAT YOU MUST UNDERSTAND TO UNDERSTAND THE ANSWER
POINT 1: What a ‘Regulated Mortgage Contract’ is: IE Any contract where a Lender provides credit to a borrower and
the borrowers repayments are secured by a mortgage on land in the UK, and at least 40% of the land is/ will be used in connection with a dwelling
POINT 2: The Mortgage Credit Directive was implemented on 21 March 2016. The MCD introduced some new rules around BTL mortgages; second charges and significantly, it introduced the consumer BTL mortgage as a new type of mortgage. Many of the rules in the MCD were already satisfied through FCA’s MCOB so rather than apply the MCD rules to all previous mortgages, the FCA created a sub-category of regulated mortgages: ‘MCD regulated mortgages’. Any regulated mortgage entered into on/after March 21st 2016 is an ‘MCD regulated mortgage’. Any contract entered before is a ‘regulated mortgage’
The Beneficial Building Society has launched a mortgage product aimed at helping older borrowers to raise equity from their property.
Which of the following conditions would prevent it being classified as a regulated lifetime mortgage?
It is an interest-only mortgage.
It is only available to borrowers over the age of 60.
The capital is only repayable on the borrower’s death or move into residential care.
The capital must be repaid in equal instalments over the term
The capital must be repaid in equal instalments over the term
EXPLAINED.
A regulated lifetime mortgage is the following: A mortgage available only to older borrowers over a certain (unspecified) age and where the lender cannot seek FULL repayment until one of the specified life events occur
With lifetime mortgages the FULL capital amount is not repayable until one of the specified events. Interest however, can be payable throughout the term and this varies depending on your provider. For example, some can be set up where regular interest payments are required (like an interest only mortgage) and no capital is payable until the end, some can be set up where the interest is rolled over and repaid when the capital is repaid and some can be set up where interest and SOME (CANNOT BE FULL) capital is payable
In most circumstances, which of the following is true in relation to an Energy Performance Certificate (EPC)?
An EPC is only required for new homes.
An EPC must be commissioned before a property is marketed for sale.
An EPC must contain information about the property’s gas or electricity supplier.
The buyer’s solicitor applies for an EPC as part of the conveyancing process.
An EPC must be commissioned before a property is marketed for sale.
Esteban is interested in buying a property through the modern method of auction. The guide price is £130,000. Assuming that the property sells at the guide price, which of the following is true if his bid is successful?
He will have to: WHAT?
exchange contracts and complete the purchase within 28 days of the auction.
pay a non-refundable £13,000 deposit on the day of the auction.
pay a non-refundable reservation fee of up to £6,500 on the day of the auction.
pay compensation of £13,000 if he fails to exchange contracts within 28 days of the auction.
pay a non-refundable reservation fee of up to £6,500 on the day of the auction
EXPLAINED:
MODERN METHOD OF AUCTION:
Successful bid made = bidder pays a ‘reservation fee’ of 5%. Then given 28 days to exchange contracts and a further 28 days to complete.
If the buyer withdraws before exchange of contracts,
NO recompense is due to the vendor, but the reservation fee will be lost.
OLD METHOD OF AUCTION:
Successful bid made = Bidder pays 10% deposit and contracts exchanged same day. Completion required within 28 days.
If the buyer withdraws the vendor can keep the deposit and resell the property. If they sell at a lower price recompense WILL be due to the vendor.
NOTE : If the question was asking about the old method the answer could be A or B but since its asking about the modern method it is C
Parwinder made a successful bid for a property at auction and paid the deposit.
What are the implications if he cannot proceed with the purchase?
Either party can withdraw from the agreement without penalty up to 28 days after the auction.
The seller can keep the deposit and seek recompense from Parwinder if the seller later sells the property for a lower price.
There are no issues as long as Parwinder withdraws before completion.
This situation would not occur because Parwinder would have been required to pay the full purchase price on the day of the auction
The seller can keep the deposit and seek recompense from Parwinder if the seller later sells the property for a lower price.
EXPLAINED. This is referring to the old style of auction so the answer is this. BE AWARE OF BOTH OLD AND MODERN STYLE
Which of the following is true in relation to lending for a partnership?
Partners in a:
business partnership have no liability for the debts of the partnership.
limited liability partnership cannot borrow without providing personal guarantees.
limited liability partnership have a direct liability for the debts of the partnership.
limited liability partnership have no direct liability for the debts of the partnership.
limited liability partnership have no direct liability for the debts of the partnership.
EXPLAINED: NOT B BECAUSE:
A lender MAY OR MAY NOT decide to take personal guarantees from the partners for any lending to the partnership, in the same way as they MAY from the directors of a small limited company.
Sergio is purchasing a new family home. Having completed all relevant checks, the lender has sent Sergio an offer of advance.
The offer:
can be withdrawn by the lender only in certain circumstances.
is binding on the applicant in all circumstances, but not on the lender.
is binding on the lender in all circumstances, but not on the applicant.
is binding on both parties once contracts have been exchanged
can be withdrawn by the lender only in certain circumstances.
EXPLAINED:
The circumstances are as follows:
The buyer knowingly provided false, inaccurate or incomplete information;
Material changes to the buyer’s circumstances which affect their ability to pay the mortgage;
A material change affecting the condition or value of the property after the offer was made,
Issues affecting the title to the property, such as defective title
- Steven and Mary own a leasehold flat situated in a purpose-built block comprising 12 identical properties.
They are keen to purchase the freehold interest but, as a starting point for this to be possible, the Commonhold and Leasehold Reform Act 2002 requires that:
all other qualifying leaseholders in the block must be party to the transaction.
the entire block must be only for residential use.
the original lease must have been granted for a term exceeding 21 years.
they must live in the flat.
the original lease must have been granted for a term exceeding 21 years.
EXPLAINED:
What to know about leaseholders buying the freehold of a flat
The leaseholder must be a ‘qualifying tenant’
To be a qualifying tenant the following must be satisfied:
The building two or more flats.
At least 2/3rds of the flats is held on a long lease (a lease longer than 21years when originally granted)
The amount of NON residential use in the building is NO MORE THAN 25%
50% or half of the leaseholders in the block must agree to participate. For example, in a block of 12 flats, at least eight must be held on a long lease and at least six leaseholders must agree to participate in the purchase
There is no need for the leaseholder to live in a flat, which means landlords can still qualify
Which of the following is true in relation to institutions operating in the mortgage market?
Building societies are legally restricted to lending only on residential property.
Building societies must devote a minimum of 80% of their total lending activities to residential mortgages.
Challenger banks offer mortgages mainly through a branch network.
Specialised mortgage houses are limited companies funded mainly from the wholesale market and operate mainly through intermediaries
Specialised mortgage houses are limited companies funded mainly from the wholesale market and operate mainly through intermediaries
EXPLAINED:
Building societies must devote a minimum of 75% of their total lending activities to residential mortgages ( so not B)
Not A because some building societies have corporate lending secured on land and others have unsecured lending and banking services (such as nationwide)
Which of the following types of mortgage application is most likely to be exempt from the requirements of the Mortgage Credit Directive (MCD)?
A flexible mortgage.
A lifetime mortgage.
A second charge mortgage.
An interest-only mortgage
A lifetime mortgage.
All of these are basically the same except lifetime mortgages have extra rules which distinguish them
Alex is selling his property and hoping to purchase a new one. However, his estate agent has warned him of the danger of gazumping.
This would happen if, after an offer has been accepted: WHAT
the owner of the property he wishes to purchase accepts a higher offer from another party
Hazel paid a £5,600 deposit following her successful bid at a property auction. However, due to an unexpected change in her circumstances, she was unable to proceed with the purchase.
How much of her deposit, if anything, would typically be returned to her?
0
EXPLAINED: This is referring to the old style of auction where after a successful bid you pay a non refundable 10% deposit
With the modern style of auction you pay a non refundable 5% reservation fee after a successful bid
Len is interested in buying a leasehold property at auction. The vendor’s solicitor has prepared a legal pack for prospective purchasers.
Which of the following documents would not usually be included in the pack?
A copy of the lease.
A survey report.
Local searches.
Memorandum of sale
A survey report.
All the others are
Which of the following organisations has regulatory powers in relation to the Consumer Credit Acts of 1974 and 2006?
The:
Competition and Markets Authority (CMA).
Financial Conduct Authority (FCA).
Financial Ombudsman Service (FOS).
Prudential Regulation Authority (PRA)
Financial Conduct Authority (FCA).
To meet the FCA definition of a home reversion plan, where there is a specified term, this must be for a period from the date of arrangement for at least: WHAT
20 YEARS
Which of the following statements is true in relation to the Energy Performance Certificate (EPC)?
A property can be marketed for sale as soon as an EPC has been commissioned.
A property cannot be marketed for rent until a valid EPC has been received.
An EPC is valid for five years from the date of issue.
Flats in a block do not require individual EPCs for marketing purpose
A property can be marketed for sale as soon as an EPC has been commissioned.
Arnold is considering arranging a lasting power of attorney (LPA).
Which of the following is false?
Arnold can continue to make decisions once a property and financial affairs LPA has been registered, as long as he is mentally capable.
Arnold can register a property and financial affairs LPA at any time once it has been set up.
Once a health and welfare LPA is registered, Arnold and his attorney have joint decision-making powers until Arnold loses mental capacity.
Under a health and welfare LPA, Arnold’s attorney will only have powers once Arnold has lost his mental capacity
FALSE = Once a health and welfare LPA is registered, Arnold and his attorney have joint decision-making powers until Arnold loses mental capacity.
Lenders can lend to personal representatives of an estate if they need a loan to administer the estate or to buy property for a dependant of the deceased. true or false
TRUE
Interest rates indirectly affect the cost of repaying a mortgage
TRUE OR FALSE
FALSE
They DIRECTLY affect the cost
In relation to the range of products offered, there are three levels of service that a mortgage adviser can offer their customer.
True or false
True, it is unlimited, limited range or single lender
A commercial mortgage will always be secured on commercial premises
True or false
True
A commercial mortgage is one that is secured on commercial property (for example, a shop or a factory) as opposed to residential property. A commercial mortgage can be offered either to an individual or to a company, but will not be a regulated mortgage.
Graham is self-employed, with business turnover of £100,000, and has been asked to provide various pieces of information in support of his application for a mortgage.
In which of the following documents would a figure for his personal drawings be found?
Balance sheet.
Income tax return.
Corporation tax return.
Profit and loss account.
Balance sheet
Explained:
A because the balance sheet is a statement of the business’s assets and liabilities at the end of the trading year on one particular day. Personal drawings are included in this.
Not D because a profit and loss account is a record of the business income and expenditure for the trading year, showing figures for gross profit and net profit for that year
Judith is a sole trader.
Her accounts show the following figures:
Turnover: £90,000
Basic materials for carrying out her day-to-day work: £30,000
Routine business expenses: £8,000
Personal drawings: £30,000
Based on these figures, her gross profit is
£22,000.
£52,000.
£60,000.
£82,000
£60,000.
WHAT IS NEEDED TO KNOW TO ANSWER THIS QUESTIONS: How is income from self-employment assessed?
It is the following:
Turn over = total amount of income received
Gross profit = Gross turnover less any costs of raw materials required to carry out the business or goods bought to sell for the business
Net profit = Gross profit less routine business expenses
The MCOB rules relating to interest-only mortgages require lenders to:
include the cost of an appropriate repayment strategy in the affordability assessment.
inform all applicants that they must select a suitable repayment vehicle.
recommend a specific repayment vehicle and ensure that the applicant takes it out.
refuse any interest-only applications unless the applicant is a high-net-worth individual
include the cost of an appropriate repayment strategy in the affordability assessment. (12.4)
A local authority (CON29) search should reveal: WHAT?
Any plans for new developments in the area.
Andrew bought his new-build property 18 months ago and has now discovered a defect.
Under his NHBC Buildmark guarantee, to whom should he initially submit his claim?
His buildings insurer.
His local authority.
The builder.
The NHBC.
The builder
Byron has been told he will have to pay a marriage value when he extends the lease on his flat.
Which of the following is true?
It means that his lease must have at least 80 years to run.
The freeholder will be entitled to 50% of the marriage value.
The marriage value will reduce as the lease term reduces.
The value will be determined by negotiation with the freeholder
The freeholder will be entitled to 50% of the marriage value.
Explained:
If lease has less than 80 years to run, the leaseholder will have to pay a premium and an additional ‘marriage value’ to extend the lease. A property with 80 years or more left automatically has no marriage value.
The marriage value is the difference between the value of the property with the current lease and the value if the lease was extended by 90 years. Therefore as the term of the existing lease reduces, the value of the property decreases, and so the difference in the two prices increases.
The freeholder has a right to 50 per cent of the marriage value.
Which of the following is true in relation to listed buildings?
A new owner will have no responsibility for unauthorised alterations to a listed building made by a previous owner.
Proposed changes to a Grade I listed building are likely to require involvement from Historic England.
The appropriate Secretary of State will be informed of any local authority decision to allow alterations to any listed building.
The local authority cannot dictate repairs an owner must make to a listed building
Proposed changes to a Grade I listed building are likely to require involvement from Historic England.
Christopher is employed in an occupation that requires him to be fully active and physically fit. He is concerned that he would not be able to maintain his new mortgage if he were to suffer an illness that might force him to take lower-paid employment.
Which of the following products would provide him with a long-term income in such an event?
Accident, sickness and unemployment insurance.
Critical illness cover.
Income protection insurance.
Whole-of-life assurance.
Income protection insurance.
Explained. Questions says ‘long term’. Benefit payments for IPI is indefinite whereas ASU is shorter typically for 2 years
ssuming certain assumptions are met, the sum insured on a mortgage protection assurance policy reduces annually:
by a fixed linear amount each year.
by an amount agreed between the borrower and the insurer.
by either a defined percentage or the retail prices index.
in line with the decreasing mortgage capital balance.
in line with the decreasing mortgage capital balance.
EXPLAINED:
Remember mortgage protection assurance is literally another name for a decreasing term assurance policy that is specifically being used to cover a repayment mortgage
What deferred period, if any, typically applies to payment protection insurance?
Up to 60 days.
Jemma and James are married with a 3-year-old daughter, Evelyn. They have a repayment mortgage with 28 years remaining, and both work full time while Evelyn goes to nursery three days per week.
Which of the following product types would meet their potential future capital need?
Family income benefit.
Income protection insurance.
Mortgage payment protection insurance.
Mortgage protection assurance
Mortgage protection assurance
According to the FCA, approximately what percentage of income protection customers claim they find the policies hard to understand?
25%.
50%.
75%.
90%.
50% or half of all policy holders
What minimum age limit applies for claimants for Universal Credit?
18
What is the typical duration of the cooling-off period for a critical illness insurance policy?
30 days
Statutory Sick Pay (SSP) is payable for a maximum of: HOW LONG?
28 weeks
