Topic 12 Suitability Flashcards
If there is no suitable product available to a customer. The firms must pick the closest product for the customer?
True or False
False
They must not recommend a product
Is a mortgage advisor who specialises in sub-prime borrowing allowed to recommend a sub-prime product to a customer with a good credit history?
Only if the product they are recommending will not disadvantage the customer in comparison to standard mortgage products
A mortgage term should generally be done over what term that suits the borrower’s needs?
Shortest or Longest
Shortest
A short mortgage term is likely to do what with a borrower’s budget?
Leave them with less disposable income per month
These are all what in relation to area of suitability an advisor should consider?
- The age at which the customer would like to have the mortgage repaid
- Whether the customer feels there is a possibility of repaying the mortgage early
- Does the term take the customer close to retirement? Is there sufficient income to maintain payments?
Mortgage term
Borrowing over a longer term may increase the amount a customer can borrow opposed to a shorter term?
True or False
True
What type of mortgage risk is this?
Home is at risk if the borrower fails to keep up payments on the mortgage?
Risk to home
What type of mortgage risk is this?
Borrowing a high percentage of the property’s value is a risk of negative equity if the value of the property goes down
Negative Equity risk
What type of mortgage risk is this?
Those customers who do not wish the mortgage not being repaid at the end of the term.
Should opt for a repayment rather than an interest only mortgage.
Repayment risk
What type of mortgage risk is this?
Rates can increase making the monthly repayments higher increasing pressure on the customer
Interest rate risk
What type of mortgage risk is this?
Customer on a fixed rate mortgage may be paying more than a customer on a variable mortgage if the variable interest rate goes down
Fixed rate risk
What type of mortgage risk is this?
Variable interest rates that have risen at the end of a borrower’s fixed or discount term
Rate rise risk at the end of fixed or discount term risk
What type of mortgage risk is this?
Investment vehicle may have underperformed on an Interest only mortgage and borrower may need to find alternative funds
Underperformance of an investment vehicle risk
The 2 main issues to consider with regard to customers attitudes towards what?
- Repayment
- Interest rate risk
What are the 3 types of attitude to risk for a customer?
- Cautious
- Balanced
- Adventurous
What type of attitude to risk is this?
Minimal risk: Important to ensure that the mortgage is repaid at the end of the term
Cautious
What type of attitude to risk is this?
- Prepared to take a limited risks if rewards are attractive
- May consider part repayment/ part interest only
Balanced
What type of attitude to risk is this?
- Prepared to take a risk to achieve greater rewards
- May like interest only with investment linked repayment vehicle
- Accepts risk might not perform
Adventurous
For a customer who has a cautious approach to risk what type of mortgage may be more appropriate for them?
Repayment mortgage
If a lender uses a questionnaire to assess a client’s attitude to risk. How would the lender be able to gauge a client’s understanding?
Use their own knowledge and experience to have a knowledgeful conversation with the client
What is “Psychometric Profiling”?
Software tool that used to assess clients psychology attitude to risk
How does “Psychometric Profiling” work?
Uses client’s * to assess risk
- Knowledge
- Experience
- Attitude
- Personality
In relation to Interest Only Mortgages MCOB 4.7 & 11.6 requires customers to do what?
Demonstrate they have a clearly understanding & creditable repayment strategy
If an interest only mortgage was submitted without a viable repayment vehicle how should a lender assess the application?
Same as with a capital & interest mortgage
For the below type of mortgage what must be done at least once during the term of the mortgage?
- Interest only
- Retirement interest only
- Bridging loans
Carry out a review to ensure the repayment strategy is still in place
When should a review on a mortgage with a repayment strategy be done?
Time during the mortgage where there is still time to take action if the strategy is failing
What new regulatory category of interest only mortgage came into affect on 23rd March 2018?
Retirement interest only
Are the below types of repayment strategies acceptable or unacceptable for an interest only mortgage?
- Regular deposits into a savings or investment product
- Periodic repayment of capital from (irregular sources of income)
- Sale of assets (another property)
- Sale of property (for a shared equity or retirement interest only mortgage)
Acceptable
Are the below types of repayment strategies acceptable or unacceptable for an interest only mortgage?
- Expectation that property value will increase so the customer can sell the property
- Intention to use expected but uncertain inheritance
Unacceptable
Are the below types of repayment strategies acceptable or unacceptable for an interest only mortgage?
Sale of the mortgage property (unless lender consider sale will be enough to repay the mortgage & buy another property to live in)
Unacceptable
How long should records of Interest only mortgages be kept?
Length of mortgage contract
These are all what relation to a lender’s responsibilities for an interest only mortgage?
- Reasons for the decision to offer an interest only mortgage
- Evidence of repayment strategy (cost of applicable)
- Details of firms attempt to contact the customer for reviews
- Outcome of reviews
What records of Interest only mortgages the firm must keep
