Unit 4

Question 1

Why must lenders use multiple data searchers as part of the due diligence process for mortgage applicants?
A. Because payday loans may not show up on credit searches
B. Because although there are a number of data searches, they are mostly unreliable
C. Because mortgages and secured loans do not show up on credit searches
D. Because it is an FCA requirement for lenders to carry out every data search at their disposal

Answer 1

A. Because payday loans may not show up on credit searches.

Question 2

GHD Bank PLC makes a higher lending charge on its mortgages if the Loan to Value ratio exceeds 75%. Assuming a premium rate for a mortgage indemnity guarantee policy of 4.5%, calculate the higher lending charge if Bernard borrows £150,000 against a property valued at £180,000.
A. £8,100
B. £6,750
C. £1,350
D. £675

Answer 2

D. £675.
180,000 x 0.75 = 135,000
150,000 - 135,000 = 15,000
15,000 x 0.045 = 675

Question 3

A condition contained in a mortgage offer that requires the borrower to carry out certain repairs or improvements within a specified period of time after completion is known as:
A. An undertaking
B. An easement
C. A covenant
D. A retention

Answer 3

A. An undertaking
An undertaking is a formal agreement that the buyer will undertake specific remedial work within a specific period of time after taking possession of the property.

Question 4

Susan bought a house valued for £80,000 a few years ago with a £56,000 mortgage on an interest-only basis. The house’s value has since increased by 10%. What further advance could she take now if the most the lender will offer is 80% of value?
A. £12,800
B. £14,900
C. £13,200
D. £14,400

Answer 4

D. 14,400
80,000 x 1.10 = 88,000
88,000 x 0.8 = 70,400
70,400 - 56,000 = 14,400

Question 5

Which body would usually grant permission to allow the demolition of a Grade II listed building?
A. Central government
B. The local authority
C. English Heritage
D. The National Trust

Answer 5

B. The local authority.
Listed building consent is required where the owner wants to demolish a listed building or charge or extend it in a way that will affect its character as a building of special architectural or historical interest. Applications for listed building consent are made to the local authority.

Question 6

Where a valuer of a property feels that repairs or remedial work are necessary for the property to represent adequate security for the loan, what two types of condition are most commonly recommended?
A. Re-inspection or undertaking
B. Full survey or retention
C. Undertaking or retention
D. Retention or re-inspection

Answer 6

C. Undertaking or retention.
Undertaking is a formal agreement that the buyer will undertake specific remedial work within a specific period of time after taking possession of the property.
Retention is an amount of money withheld by the buyer’s lender from the mortgage and this amount is released once predetermined conditions are met.

Question 7

In what area of a mortgage application would it be the easiest for a borrower to deceive a lender with false or incomplete information?
A. Credit-worthiness
B. Salary
C. Existing borrowings
D. Outgoings

Answer 7

D. Outgoings.

Question 8

DEF Bank plc makes a higher lending charge on its mortgages if the loan to value exceeds 80%. Assuming a premium rate for a mortgage indemnity guarantee policy of 4%, calculate the charge if Sam borrows £100,000 against a property valued at £115,000.
A. £320
B. £600
C. £4,000
D. £4,600

Answer 8

A. £320.
115,000 x 0.8 = 92,000
100,000 - 92,000 = 8,000
8,000 x 0.04 = 320

Question 9

Which of the following is not covered during the factfind process?
A. Customer’s medical history
B. Customer’s employment
C. Customer’s attitude to interest rate rises
D. Customer’s ideal mortgage term

Answer 9

A. The customer’s medical history is not covered during the factfind process.
The recommended product is determined as a result of, rather than during, the factfind process. The customer’s medical history is not directly relevant to the process.

Question 10

Which of the following is part of the mortgage adviser’s responsibilities?
A. Starting the application process, underwriting the application, and explaining offer documentation
B. Collecting further information or documentation from the customer, explaining the underwriting process, and explaining offer documentation

Answer 10

B. The adviser usually explains the underwriting process and offer documentation.
The adviser explains any additional information or documentation requested by the lender, liaises with the lender during the underwriting process to inform the customer, and explains the offer documentation to the customer.

Question 11

What are the four key pieces of information that an adviser needs from their customer in order to provide a recommendation that meets the customer’s needs?
A. Needs, wants, circumstances and attitude to risk
B. Wants, circumstances, objectives and attitude to risk
C. Needs, circumstances, objectives and attitudes to risk

Answer 11

C. Needs, circumstances, objectives and attitudes to risk.

Question 12

A lender will usually require details of previous employment if a mortgage applicant has been with their current employer for less than:
A. Two years
B. Three years
C. Five years

Answer 12

B. A lender will usually require details of previous employment if the mortgage applicant has been with their current employer for less than THREE years.

Question 13

Certain businesses can submit a ‘short’ tax return rather than providing detailed accounts. The maximum earnings for a business wishing to do so is:
A. Net profit below the threshold for making a VAT return
B. Gross profit below the threshold for making a VAT return
C. Turnover below the threshold for making a VAT return

Answer 13

C. Turnover below the threshold for making a VAT return.
A ‘short’ self-assessment tax return is available to businesses with turnover below the threshold for having to make a VAT return.

Question 14

Which of the following statements do NOT apply to a director’s loan account?
A. It records loans from the company to a ‘participator’
B. It records loans from a ‘participator’ to the company
C. It can provide loans to the spouse of a shareholder
D. Loans to a shareholding director are not treated as a benefit in kind

Answer 14

D. Loans to a shareholding director are not treated as a benefit in kind.
Director’s account loans to a shareholding director ARE treated as a benefit in kind if they are above £10,000 in total. If they are above £10,000 they are treated as a taxable benefit in kind unless the borrower pays interest at HMRC’s ‘official rate’.

Question 15

Which of the following factors would prevent a lender from waiving an affordability assessment if a borrower wished to vary the terms of an existing mortgage?
A. The mortgage started before 26 April 2014
B. The mortgage is an MCD regulated mortgage
C. The variation would be from a capped rate to a lower fixed rate
D. The borrower increased the mortgage in May 2015 to build an extension

Answer 15

B. The mortgage is an MCD regulated mortgage.
MCOB rules do not allow the affordability assessment to be waived for MCD regulated mortgages.

Question 16

Which of the following applies when a lender carries out an interest rate stress test for a mortgage applicant?
A. The test must be carried out on mortgages of all types and lengths of term
B. The minimum interest rate increase to apply is 1%
C. The lender must use its own statistics to determine which interest rate to use

Answer 16

B. The minimum interest rate increase to apply is 1%.
The test is not required for fixed-rate mortgages with a term of five years or more, or for mortgages with a term of less than five years.

Question 17

Rebecca and Rachel want to buy their first house. They have a joint net income of £2,800 a month. They have committed expenditure of £400 a month, basic essential expenditure of £800 a month and basic quality-of-life expenditure of £600 a month.
Their lender has calculated that their five-year fixed-rate mortgage product would cost £5.90 a month for each £1,000 borrowed. What is the maximum mortgage the lender is willing to offer?
A. £169,490
B. £159,490
C. £179,490

Answer 17

A. £169,490.
Rebecca and Rachel would have free disposable income of £1,000 per month. Their chosen product is fixed for five years which means the lender does not have to consider the impact of future interest rate rises.
£1,000 / £5.90 = £169.49, so £1,000 would support a mortgage of £169,490.

Question 18

To comply with MCOB 11, lenders must retain documents that provide a rationale for the decisions taken on mortgage applications:
A. In hard copy or electronic form for the length of the mortgage contract
B. In hard copy for five years after the mortgage application is granted
C. In hard copy or electronic form for seven years after the mortgage application is granted
D. In electronic form indefinitely

Answer 18

A. In hard copy or electronic form for the length of the mortgage contract.

Question 19

Credit scoring:
A. Is a standardised process offered to lenders by specialist providers
B. Is a statistical tool used to determine probability
C. Blends data and customer attitudes to produce a score

Answer 19

B. 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.

Question 20

Which one of the following statements is false?
A. The guarantor does not have an interest in the property that is subject to the guarantee
B. The guarantor must be informed if any payments are missed
C. It is entirely up to the lender to decide if it will agree to a guarantor’s request to be released from the guarantee
D. The guarantor must be informed if the mortgage holder requests a further advance and they can refuse their consent

Answer 20

B. ‘The guarantor must be informed if any payments are missed’.
There is no such requirement. Which means the guarantor may be unaware of missed payments until the lender enforces the guarantee.

Question 21

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 considered options in relation to the house. The trustee:
A. Cannot force a sale because it is jointly owned
B. Can force a sale but may be required to delay the sale for 12 months
C. Has two years from the date of the bankruptcy order to decide whether to sell the property to pay the debts

Answer 21

B. Can force a sale but mynah 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 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.

Question 22

Which of the following applies to an individual voluntary arrangement (IVA)?
A. 75% of the creditors attending a creditors’ meeting must agree to the arrangement
B. Interest and charges on the debt will be frozen if an IVA is agreed
C. The debtor will agree to make fixed monthly payments to settle the debts outstanding at the start of the arrangement

Answer 22

B. Interest and charges on the debt will be frozen if an IVA is agreed.
Creditors representing 75% of the total debt must agree (not only those who attend a meeting).
The agreement will be to repay a proportion of the debt through regular fixed payments, it does not have to be a fixed monthly repayment schedule.

Question 23

Who can an attachment of earnings order be made in relation to?
A. An employee
B. A sole trader
C. An employer
D. A company

Answer 23

A. An employee.
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.

Question 24

Which of the following would NOT be a potential risk for a discounted-rate mortgage?
A. Negative equity
B. Interest rate risk
C. Investment risk

Answer 24

C. Repayment mortgages are not exposed to investment risk.
The risk of negative equity faces any borrower with a high loan-to-value mortgage, because if house prices fall their mortgage could be more than the value of the property.
Interest rate risk would also apply because the interest rate on discounted-rate mortgages is variable, albeit discounted from the normal rate for a period.

Question 25

The lender must keep records of an interest-only mortgage for:
A. One year from the start of the mortgage
B. Three years from the start of the mortgage
C. The term of the mortgage

Answer 25

C. The lender must keep records for the term of the mortgage.

Question 26

For which type of freehold property is a lender least likely to agree to provide a mortgage?
A. A bungalow with a right of way for neighbours at the bottom of the garden
B. A freehold flat
C. A house with a positive covenant requiring the owner to maintain a boundary wall

Answer 26

B. Most lenders will not lend on freehold flats.
Easements and covenants are unlikely to affect a lender’s willingness to lend unless they are onerous, although they might affect the amount offered.

Question 27

The ‘Flood Re’ scheme is:
A. Designed to run for 20 years from 4 April 2016
B. Subsidised by the government
C. Available for properties built before 1 January 2009

Answer 27

C. The Flood Re scheme is available for properties built before 1 January 2009.
The Flood Re scheme is designed to help property owners who live in areas with flood risk and is paid for by a levy on all home insurance companies. It is intended to run for 25 years from 4 April 2016.

Question 28

Which of the following is most likely to cause subsidence in a property?
A. Removal of nearby trees
B. Long-term leakage of pipes
C. Chemical reactions in the soil

Answer 28

B. Long-term leakage of pipes.
Removal of nearby trees and chemical reactions in the soil are causes of heave.

Question 29

The NHBC Buildmark scheme provides:
A. Ten years’ protection against defects and damage caused by the builder’s failure to meet NHBC standards
B. Two years’ protection against defects and damage caused by the builder’s failure to meet NHBC standards
C. Ten years’ insurance for the full cost of damage caused by major structural defects

Answer 29

B. Two years’ protection against defects and damage caused by the builder’s failure to meet NHBC standards.
The Buildmark scheme provides protection against defects and damage during the first two years, where it is caused by the builder’s failure to meet NHBC standards.
For the balance of the first ten years the scheme provides insurance for the full costs of damage over a specified amount, known as the Minimum Claim Value (MCV) caused by major defects in the building’s structure.

Question 30

A borrower providing security for a mortgage by signing over the benefits of a life assurance policy to the lender for the duration of the loan is called:
A. Subrogation
B. Deposit
C. Assignment

Answer 30

C. Assignment involves the policyholder singing over the benefits of the life policy to the lender for the term of the mortgage. It gives the lender certain rights, including the right to surrender the policy if the borrower fails to make mortgage payments.

Question 31

MCOB initial disclosure requirements state that certain information must be provided to a borrower at the first contact, but for a first time buyer this does NOT include:
A. The name of the firm providing the advice
B. How the firm will be remunerated
C. Any limitations on the range of products offered
D. Alternative finance options available

Answer 31

D. It does not include alternative finance options available.

Question 32

Benefits under a mortgage payment protection plan (MPPI) are usually based on the monthly cost of:
A. Mortgage payments only
B. Mortgage payments plus associated insurances
C. Mortgage payments plus all household expenses
D. A percentage of earnings

Answer 32

B. Benefits under a MPPI are usually based on the monthly costs of mortgage payments plus associated insurances.

Question 33

If a couple were to retain their current mortgage with their existing lender but seek a secured further advance loan elsewhere, which Act would determine the priority for repayment in the event that they default on both loans?
A. Law of Property Act 1925
B. The Land Registration Act 1925
C. The Consumer Credit Act 1974
D. Financial Services and Markets Act 2000

Answer 33

A. Law of Property Act 1925.

Question 34

What advantage is shared by both ISAs and personal pension plans as possible repayment vehicles for an interest-only mortgage?
A. Tax relief on contributions
B. Benefits free of income tax, capital gains tax, and inheritance tax
C, benefits can be drawn at any time
D. Tax advantaged growth within their funds

Answer 34

D. Tax advantaged growth within their funds.

Question 35

Assuming Jack’s existing stocks and shares ISA operates a dual pricing system, its value will be based on its current:
A. Cancellation price
B. Bid price
C. Offer price
D. Share price

Answer 35

B. Its value would be based on its bid price.
The bid price refers to the highest price a buyer will pay to buy the product at any given time.
The offer price refers to the price at which people are willing to sell, this is generally lower than the bid price.

Question 36

Jim and Jo wish to build a single-storey extension to the rear of their detached house. They can proceed without planning permission, providing the extension does not project by more than what distance from the original house wall?
A. 3 metres
B. 5 metres
C. 6 metres
D. 8 metres

Answer 36

D. 8 metres.
On a detached house, the extension cannot project more than 8 metres from the original rear wall.

Question 37

Phil and Vicky have decided to change their existing £100,000 mortgage, which started in May 2010. They wish to stay with their existing lender. In which of the following situations must the lender carry out a full affordability assessment? If they wish to:
A. Change from a 4% fixed rate to a 4% capped rate
B. Increase the borrowing by £6,000 to pay for a new conservatory
C. Change mortgage products and add the £295 mortgage arrangement fee to their mortgage
D. Increase their borrowing by £1,000 to pay for essential repairs to storm damage on their roof

Answer 37

B. The lender would carry out a full affordability assessment if Phil and Vicky were to increase their borrowing by £6,000 to pay for a new conservatory.
MCOB rules allow the lender to waive the affordability assessment if the only increase in borrowing is to pay for mortgage arrangement or product fees.

Question 38

Jim and Paula have requested a further advance from their lender, the Eastern Counties Building Society. Before agreeing to the request, Eastern Counties must carry out:
A. A formal assessment of the property value
B. A RICS Home Survey Level 1 Report using either its own values or an external value
C. A valuation using an external valuer
D. A valuation using its own values

Answer 38

A. The lender must carry out a formal assessment of the property value for a request for a further advance.
While a reassessment of the security is required this does not need to be done by an external value.

Question 39

Under the MCOB rules regarding the automatic capitalisation of payment shortfalls, the impact of such capitalisation, together with any previous automatic capitalisations, is not considered to be material where:
A. The borrower’s monthly payments will increase by less than £10
B. The borrower’s mortgage is at a loan to value of less than 50%
C. The total interest payable over the mortgage term will increase by less than £50
D. The total of the capitalised payment shortfalls is less than £1,000

Answer 39

C. Where the total interest payable will increase by £50 or more over the mortgage, the lender must not automatically capitalise a payment shortfall.

Question 40

Which of the following is true in relation to institutions opening in the mortgage market?
A. Building societies are legally restricted to lending only on residential property
B. Building societies must devote a minimum of 80% of their total lending activities to residential mortgages
C. Challenger banks offer mortgages mainly through a branch network
D. Specialised mortgage houses are limited companies funded mainly through the wholesale market and operate mainly through intermediaries

Answer 40

D. Specialised mortgage houses are invariably limited companies funded from the wholesale market lending on a centralised basis, mainly through intermediaries.

Question 41

Which of the following types of mortgage application is most likely to be exempt from the requirements of the Mortgage Credit Directive?
A. A flexible mortgage
B. A lifetime mortgage
C. A second charge mortgage
D. An interest-only mortgage

Answer 41

B. A lifetime mortgage.
Second charge mortgages are regulated under the MCD.

Question 42

Which of the following is true in relation to lending for a partnership? Partners in a:
A. Business partnership have no liability for the debts of the partnership
B. Limited liability partnership cannot borrow without providing personal guarantees
C. Limited liability partnership have a direct liability for the debts of the partnership
D. Limited liability partnership have no liability for the debts of the partnership

Answer 42

D. Partners in a LLP have no liability for the debts of the partnership.

Question 43

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. A copy of the lease
B. A survey report
C. Local searches
D. Memorandum, of sale

Answer 43

B. The pack would not contain a survey.

Question 44

Cyril has incurred various charges in conjunction with his recent house purchase and mortgage application. Which one was in respect of post-completion matters?
A. Bankruptcy search
B. Environmental search
C. Land registration fee
D. Title indemnity fee

Answer 44

C. Land registration fees are incurred after completion of the sale to register the property in the new owner’s name.

Question 45

Phil and Kate are buying a family house for £250,000. Kate owns a half a share in a holiday flat with her sister; the flat is valued at £65,000. She intends to keep the flat as a holiday rental property. It will be Phil’s first property purchase. What is the position regarding SDLT on Phil and Kate’s new purchase?
A. The 3% SDLT surcharge would apply on the property purchase over £40,000
B. The 3% SDLT surcharge would apply to the whole purchase price
C. The 3% SDLT surcharge would not apply
D. They could avoid the 3% SDLT surcharge only if Kate gave up her share of the holiday flat

Answer 45

C. The 3% SDLT surcharge would not apply.
As Kate’s ‘interest’ (share) in the holiday flat is valued at less than £40,000, it would not affect SDLT on the new purchase.

Question 46

In a mortgage context, the primary purpose of psychometric profiling is to assess the borrower’s:
A. Ability to cope with financial loss
B. Attitude to risk
C. Credit rating and ability to afford the mortgage
D. Preference for a particular investment as a repayment vehicle

Answer 46

B. Psychometric profiling assesses the borrower’s psychological attitude to risk.

Question 47

The MCOB rules relating to an interest-only mortgage requires lenders to:
A. Include the cost of an appropriate repayment strategy in the affordability assessment
B. Inform all applicants that they must select a suitable repayment vehicle
C. Recommend a specific repayment vehicle and ensure that all applicants take it out
D. Refuse any interest-only applications unless the applicant is a high-net worth individual

Answer 47

A. The lender must include the cost of an appropriate repayment in the affordability assessment.
There is no formal requirement for all applicants to select a repayment vehicle, the requirement is for the borrower to have a credible repayment strategy.

Question 48

Statutory sick pay is payable for a maximum of:
A. 13 weeks
B. 26 weeks
C. 28 weeks
D. 52 weeks

Answer 48

C. The maximum period that SSP is payable is 28 weeks.

Question 49

According to the FCA, approximately what percentage of income protection customers claim they find the policies hard to understand?
A. 25%
B. 50%
C. 75%
D. 90%

Answer 49

B. The FCA stated in 2020 that approximately half of income protection customers find policies hard to understand.

Question 50

Kevin is moving in with Paula into her house in the North of a England. He will become joint owner of the £300,000 property currently held in her sole name. Kevin will also become a party to the £180,000 mortgage.
Which of the following is true regarding SDLT, assuming a nil-rate threshold of £125,000?
A. Kevin will have to pay SDLT on his £90,000 share of the mortgage at the appropriate rate
B. Kevin will have to pay SDLT on his £150,000 share of the house at the appropriate rate
C. Such arrangements are never subject to SDLT because the original purchaser would already have paid it
D. There would only be an SDLT charge if Kevin also paid Paula £35,000 or more to become joint owner

Answer 50

D. SDLT is payable when the total consideration is above the nil-rate threshold. In this case, the SDLT would only apply if Kevin also made a payment of £35,000 or more to buy in to the property.
£180,000 / 2 = £90,000
£125,000 - £90,000 = £35,000

Question 51

Which of the following would be most likely to apply in respect of a remortgage but not a further advance?
A. Administration fee
B. Affordability assessment
C. Legal fees
D. Valuation fee

Answer 51

C. Legal fees.
The lender is likely to require a valuation for a remortgage and it will usually carry out some form of assessment of the property value for a further advance.

Question 52

Harry, aged 60, and Grace, aged 58, are reaching the end of their interest-only mortgage term but are facing a £15,000 shortfall in respect of their planned repayment strategy. They do not want a lifetime mortgage or a home reversion plan.
However, they have heard about an interest-only retirement mortgage that either will be repayable on the second death or if one dies and the survivor has to go into residential care.
Which of the following is true?
A. As there is no repayment vehicle, the lender would have to include the cost of an endowment policy or ISA in the affordability assessment
B. The affordability assessment requirement for such a mortgage can be met if they certify their own income and expenditure
C. The lender must carry out a full affordability assessment for that type of mortgage
D. The lender would not have to carry out an affordability assessment in such a mortgage

Answer 52

C. The lender must carry out a full affordability assessment for that type of mortgage.
This would be a form of interest-only mortgage and a full affordability check would be required, although there would not be a requirement to include the cost of a repayment vehicle.

Question 53

The MCOB rules cover the requirements for an illustration for a further advance to a Mortgage Credit Directive (MCD) regulated mortgage.
Which of the following is true of such an illustration?
A. It is only required to show the total borrowing when the loan to value exceeds 70%
B. It must be based on the amount of the further advance only
C. It must be based on the new total lending only
D. It uses a different format from the illustration required for a new mortgage

Answer 53

B. It must be based on the amount of the further advance only.
Under MCOB rules, the illustration for a further advance to a MCD regulated mortgage must be based on the further advance only, but will show the new total payment.

Question 54

Ben owns his apartment, currently valued at £175,000, and has a mortgage of £125,000. Four years and six months ago he entered into an individual voluntary arrangement (IVA) with his creditors. As he owned his apartment when he entered into the IVA, it contained an equity clause, due to take effect in four weeks’ time.
Which of the following is true?
A. Ben would typically be required to remortgage under the IVA, but the increased mortgage costs cannot exceed his existing IVA payments
B. Ben would typically be required to remortgage under the IVA, but the remortgage amount could not exceed 85% of the property value
C. In four weeks’ time, Ben would be required to extend the IVA term by 12 months
D. Under the IVA, Ben would not be required to remortgage under any circumstances

Answer 54

B. Ben would be required to remortgage because his equity in the flat exceeds £5,000. He could be required to remortgage to 85% of the property value or the amount of the unsettled debt, whichever is lower.

Question 55

Jim and Jo wish to build a single story extension to the rear of their detached house. They can proceed without planning permission, providing the extension does not project by more than what distance from the original house wall?
A. 3 metres
B. 4 metres
C. 5 metres
D 6 metres

Answer 55

B. 4 metres.
On a detached house, the extension cannot project more than 4 metres from the original rear wall.