Topic 11 - Checking the applicant's credit status Flashcards
The lender has discovered a default registered against a potential borrower during a credit reference search for a mortgage application. Which of the following is untrue?
The default will show on the credit record for six years from the date of the default notice.
The default will be removed from the credit record if the arrears are settled.
The record will show the amount of the original default, subsequent payments made and the current balance.
The default will be removed from the credit record if the arrears are settled. - The default will remain on the record for six years, even if the arrears are settled within that period.
Which of the following statements are true of payday loans? Select all that apply.
A - They charge high rates of interest.
B - They are a form of long-term lending.
C - Mortgage lenders may not lend to those who have used them.
D - They are seen as a regular form of borrowing.
E - They may not show up on credit searches.
F - Lenders use multiple data searches to check for them.
A, C, E & F - Payday loans are short-term high-interest lending. They are seen as last-resort borrowing for those who cannot manage their finances effectively.
Credit scoring:
is a standardised process offered to lenders by specialist providers.
is a statistical tool used to determine probability.
blends data and customer attitudes to produce a score.
is a statistical tool used to determine probability. - Lenders tend to use a variety of processes to suit their own needs. Credit scoring is based purely on statistical data, and establishes the probability of a loan being repaid satisfactorily. It is used mainly to screen out high-risk applications.
In relation to mortgage guarantors, with a limited liability guarantee the:
guarantee is shared between two or more guarantors.
amount of the guarantee is limited to a proportion of the mortgage.
guarantee will only be triggered in certain limited circumstances.
amount of the guarantee is limited to a proportion of the mortgage. - With a limited liability guarantee, the liability is limited to the difference between the loan the lender would normally agree and the loan needed, with a possible additional percentage of perhaps 10%. With a full guarantee the guarantor agrees to guarantee the whole mortgage, which is riskier than limited liability.
From the dropdown menus, select which of the following statements about guarantors true:
A - It is entirely up to the lender to decide if it will agree to a guarantor’s request to be released from the guarantee.
B - There is no requirement for a lender to assess a prospective guarantor’s financial position before agreeing to take a guarantee.
C - The guarantor must be informed if any payments are missed.
D - A prospective guarantor may be able to guarantee a mortgage by depositing a specific sum with the lender for a specified period.
E - In the Lloyds Bank plc v Waterhouse [1991] court judgment, a guarantee was ruled invalid due to undue influence.
F - The guarantor must be informed if the mortgage holder requests a further advance, and they can refuse their consent.
G - The guarantor has an interest in the property that is subject to the guarantee.
A, D & F - The guarantor has an interest in the property that is subject to the guarantee.” The guarantor has no interest in the property. If they wanted an interest they would have to become a joint owner and party to the mortgage.
“The guarantor must be informed if any payments are missed.” There is no such requirement, which means that the guarantor may be unaware of missed payments until the lender enforces the guarantee.
“There is no requirement for a lender to assess a prospective guarantor’s financial position before agreeing to take a guarantee.” MCOB 11.6 requires lenders to carry out similar affordability checks to those for the borrower.
“In the Lloyds Bank plc v Waterhouse [1991] court judgment, a guarantee was ruled invalid due to undue influence.” The guarantee was ruled invalid due to misrepresentation.
A county court judgment will show on the Register of Judgments, Orders and Fines for England and Wales for six years from the date of the judgment:
in all circumstances.
unless the debt is paid in full within one month of the judgment.
but will be removed if the debt is settled within six years of the judgment.
A county court judgment will show on the Register of Judgments, Orders and Fines for England and Wales for six years from the date of the judgment unless the debt is settled within a month of the judgment. If it is settled during the six-year period it will remain on the register as ‘satisfied’.
Sue and Paul jointly own their family home. The house is worth £250,000 and they have a mortgage of £100,000. Paul has now been declared bankrupt. The trustee in bankruptcy is considering options in relation to the house. The trustee:
cannot force a sale because it is jointly owned.
can force a sale but may be required to delay the sale for 12 months.
has two years from the date of the bankruptcy order to decide whether to sell the property to pay the debts.
can force a sale but may be required to delay the sale for 12 months. - The trustee could force a sale because, although the house is jointly owned, Paul’s ‘interest’ (his share of the equity) is more than £1,000. As it is the family home, the sale can be delayed for up to 12 months to allow the family to find other accommodation. The trustee has three years to decide whether to sell the property to pay the debts.
Which of the following applies to an individual voluntary arrangement (IVA)?
75% of the creditors attending a creditors’ meeting must agree to the arrangement.
Interest and charges on the debt will be frozen if an IVA is agreed.
The debtor will agree to make fixed monthly payments to settle the debts outstanding at the start of the arrangement.
Interest and charges on the debt will be frozen if an IVA is agreed. - Creditors representing 75% of the total debt must agree. The agreement will be to repay a proportion of the debt through regular fixed payments.
For anti-money-laundering purposes, for how long must a lender keep records of customer identification?
Five years from the date evidence was last obtained.
Indefinitely.
Five years from the end of the customer relationship.
Five years from the end of the customer relationship.
Which of the following would not be acceptable to a lender as evidence of a customer’s identity?
Written assurance from an authorised financial adviser.
Mobile telephone bill in the customer’s name.
Council tax bill in the customer’s name.
Mobile telephone bill in the customer’s name.- Council tax bills are acceptable, as are utility bills in the customer’s name, although mobile phone bills are not acceptable. If an authorised financial adviser has already carried out ID checks on a customer, the lender can accept written assurances that the adviser has carried out satisfactory checks.
Which of the following could not be identified by reviewing a prospective borrower’s financial statements?
Whether the borrower regularly receives income in cash.
Whether the borrower regularly exceeds their overdraft limit.
Whether the borrower’s regular income is as stated on their mortgage application.
The borrower’s ability to manage their financial affairs soundly.
Whether the borrower regularly receives income in cash.
Which of the following is most likely to receive a good credit score?
Joleena, who has never had a credit card, loan or mortgage.
Barry, who has seven credit cards and has just applied for another one.
Debbie, who has applied for payday loans twice in the past year.
Ranbir, who has a personal loan and a mortgage and no record of missed payments.
Ranbir, because he has a record of managing credit well. Joleena has no credit history on which to base a credit score, while Barry’s multiple credit cards indicate difficulty in managing his finances, as do Debbie’s payday loan applications.
An individual who assumes full liability as a guarantor for a mortgage loan must be in a position to repay 100% of the outstanding loan if the borrower defaults. True or false?
True
Which of the following is most likely to invalidate a guarantee?
The guarantor losing their job.
The guarantor writing to the lender requesting to be released from the guarantee.
The lender failing to advise the guarantor that the borrower had missed several repayments.
The guarantor having experienced an episode of mental illness at the time of signing the guarantee.
A person suffering from a mental illness may be regarded as lacking the capacity to contract and therefore any guarantee they give may be invalid.
A sole trader who fails to make payments under a CCJ may be issued with an attachment of earnings order. True or false?
False. An attachment of earnings order can only be made in relation to an employee, as it requires the employer to deduct money from the individual’s pay and send it to the court for onward payment to the creditor.
