Topic 10 Assessing the Applicant's Financial Status Flashcards
The assessment of affordability is the responsibility of the lender subject to the requirements of which MCOB rule?
MCOB 11
An Intermediary would submit information to a lender under which MCOB rule?
MCOB 11A
When obtaining the names & address of applicants how many pieces of identification are required?
2 (at least)
In regards to the nationality & residential status of an applicant most lenders general specify the lender should be resident where?
UK
If the applicant has dependants over the age of 17 what would the lender ask the applicant to complete?
“Consent to Mortgage Form”
If an applicant has been employed by their firm for less that 3 years what will the applicant also need to provide?
Previous employer details
These are all what in relation to a mortgage applicant?
- Advance required (LTV)
- Deposit available
- Repayment method
- Buildings & contents insurance requirements
- Other insurance requirements
Details of the loan
What must be signed by applicants when an application form is completed. That also authorises to make all necessary enquiries relevant to the application?
Declaration
What does the FCA say about Income/salary multiples?
They can use it as a guide but a full assesment of income should be carried out
What is a “flexible approach” to assessing a Borrow’s capacity?
A person on a career path with a good potential for a salary increases might be considered for higher borrowing
These are what in relation to a borrowers capacity?
- Employment
- Self- employment
- Directorship
- (Secured Income) Maintenance, Pensions etc
- Secure Trust Income
Types of acceptable income
These are examples of what in relation to employed income?
- Car allowance
- Location allowance
- Mortgage subsidy
- Shift allowance
- Overtime
- Commission
- Other sales related income
Types of additional income an employed applicant can receive
In relation to assessing income the below are what?
- Basis salary & guaranteed allowance
- Non-guarnteed income (overtime & commission)
- Bonuses
- Self assessment tax calculation
Examples of employed income
What are the below in relation to employed income that cannot be proved but the customer is looking to use in an application?
- An original letter written on business letterhead
- Dated recently
- Unambiguous in respect of performance of employment & income
Employer reference that may be acceptable
What area of assessing income from self-employed is this?
Total amount of business income received from sales or providing services
Turnover
What area of assessing income from self-employed is this?
Business’s gross turnover minus raw materials required to carry out trade or goods bought to sell for business
Gross profit
What area of assessing income from self-employed is this?
Gross profit less routine business expenses
Net profit
Which example of how lenders corroborate income from self-employed is this?
- HMRC tax calculations from the last 2 years
- Taken from Individuals self assessment tax return & confirm the figure for taxable profit & show calculation of tax liability
HMRC tax calculations
Which example of how lenders corroborate income from self-employed is this?
- Confirming business income from last 2 or 3 years
- Lender requires accountant to be a member of a professional body & hold qualifications
Accountant’s Certificate
What is the other way a lender would corroborate income from self-employed?
Full business accounts from the last 3 years
What is a “Short tax return” in relation to sole traders?
Sole trader with turnover below a small threshold only need produce
- Statements of turnover
- Total business expenses
- Net profit
What does a “Profit & Loss account” show?
- Income & expenditure for that trading year
- Show gross & net profit for that year
What does a “Balance sheet” show?
Business assets & liabilities at the end of a trading year
In relation to self employed customers the below is what?
- What remains of any capital that was used to establish the business
- Any further capital injected into the business since it was incorporated
- Surplus profits from previous trading years
What a “Capital account” comprises
A “Capital account” also comprises what?
- Figure for personal drawings
- Amount withdrawn from the business that year
Directors of public companies are treated as what for application purposes?
Employed or Self-employed
Employed
What percentage of business shares does the director of a small business need to own to be classed as self-employed for application purposes?
20-25%
These are what in relation to a directors pay?
- Salary (If they are employed)
- Dividends
- Director’s loan balance
What comprises directors pay
What is a Close Company?
Company owned by 5 or fewer participants OR by any number of participants if they are all directors
What is a “Participant or Participator”?
Any individual who holds an ownership stake in a close company
A “Participant or Participator” can be regarded as who?
- Shareholder
- Director
- Investor
Family of a “Participant or Participator” are also called a “Participant or Participator”?
True or False
True
What is a “Director’s capital account”?
Record of money owed to the company by participators and vise versa
How does a “Close company” & it’s “Participator” lend & borrow money to each other?
Through a “Director’s loan account”
When a director is owed money by the company. They are called what?
In credit
When a director owes money to the company. They are called what?
In Debit
What is a benefit of to a director withdrawing a credit that is owned to them from a “director’s loan account”?
The withdrawal is tax free
These are steps a lender must take when assessing affordability according to what?
- Lender has taken account of the borrower’s ability to repay the mortgage
- Must take into account that the borrower (or guarantor) can make mortgage payments
- Information from the customers is proportionate & limited to what is required
MCOB 11: Responsible Lending
The record keeping for a mortgage should include information used to make an assessment but how long should it be kept?
The term of the mortgage
These are circumstances are what according to MCOB 11.6?
- Level of borrowing does not increase other than to cover the product or arrangement fees for a new mortgage contract
- No change to the term of the contract that is likely to affect affordability
Circumstances that a mortgage contract can be changed/modified without a full affordability assessment
MCOB 11.9 allows lenders to adapt rules to help customers of which type of mortgage?
- If lender decides to adapt the rules for one customer it must allow them for all customers
- Lender must have established internal switching policy to allow more affordable arrangements
Customers Re-mortgaging
MCOB 11.9 allows lenders to adapt rules to help customers of which type of mortgage?
- Borrowers must have an existing regulated mortgage with the lender or a different lender & must be on the same property
- New mortgage cannot exceed outstanding amount of existing mortgage other than fees
- Must be no shortfall of payment at the time of the application or in the last 12 months
Customers Re-mortgaging
MCOB 11.9 allows lenders to adapt rules to help customers of which type of mortgage?
- New arrangement can be of different type etc provided (not more expensive or changing to interest only)
- Can disapply expenditure requirements if new arrangement is more affordable
Customer Re-mortgaging
If a customer is Re-mortgaging to a different lender if the application runs into retirement does an affordability assessment need to be done?
Yes
What type of expenditure is the below?
Credit agreements & other commitments that will continue after the new mortgage is entered into
Committed Expenditure
What type of expenditure is the below?
- Spending to meet basic day to day needs (food & heating)
- Non-reducible expenditure (council tax, utilities, insurance)
Basic Essential Expenditure
What type of expenditure is the below?
Clothing, household & personal items, recreation, childcare etc
Basic quality of life expenditure
Some lenders won’t allow mortgage payments to be more than what disposable income?
80-85%
What must a lender do to assess the impact of future rate rises on customers?
Interest rate stress test
What must a lender use as their starting point when conducting a stress test on a customer ability to repay a mortgage?
Reversion rate (SVR) at start of the mortgage
With the exemption of a term of 5 years or the mortgage is on a fixed rate for more than 5 years. How long should a lender consider interest rate rises for?
5 years minimum
The minimum interest rate rise a lender must use when stress testing a mortgage is what percentage?
1%
What is the “Loan to Income Flow Limit” (LTI) introduce by the PRA in 2014?
Strategy to prevent households becoming overdurdend with mortgage debt
What does the “Loan to Income Flow Limit” (LTI) limit lenders to doing?
Selling to many mortgages that exceed 4.5 times the income of joint borrows
What percentage of a lenders new residential mortgages are restricted by the “Loan to Income Flow Limit” (LTI)?
15%
What type of mortgage would this type of customer be applying for that the lender would need to consider?
- Costs incurred by increasing the term of the debt repayment
- Whether it is appropriate to secure previously unsecured debts
- If customers is know to have payment difficulties whether it is more appropriate to come to an arrangement with the Creditor’s rather than a mortgage
Debt Consolidation
For a customer to be considered “credit impaired” within the last 2 years how many payments would they have needed to have missed
3 months
For a customer to be considered Credit impared they would need to have country court judgements within the last 3 years totalling how much?
£500 or more
For a customer to be considered “credit impaired” they would have a Individual Voluntary Arrangement (IVA) or bankruptcy order in within how many years?
3 years
If a debt consolidation mortgage is being applied for the lender does not need to include the debts as committed expenditure in the affordability assessment?
True or False
False (they do)
