Вы находитесь на странице: 1из 208

Synoptic Paper Booklet

CeMAP Module 3
2013/14
These learning materials are up-to-date for examinations
from 1 October 2013.

The Institute of Financial Services may, from time-to-time, make


additional amendments to these learning materials. The latest
amendments can be located with the PDFs of this manual within
www.myifslearning.com.
It is your responsibility to ensure that you have the
up-to-date learning materials for your examination.

ISBN 978-1-84516-997-8

9 781845 169978

Synoptic Paper Booklet


CeMAP Module 3
2013/14

The Institute of Financial Services is a division of the ifs School of Finance, a registered charity incorporated by Royal Charter.

Published by the Institute of Financial Services, a division of the ifs School of Finance, a registered charity
incorporated by Royal Charter.
The Institute of Financial Services believes that the sources of information upon which the book is based
are reliable and has made every effort to ensure the complete accuracy of the text. However, neither the
Institute, the author nor any contributor can accept any legal responsibility whatsoever for consequences
that may arise from any errors or omissions or any opinion or advice given.
All rights reserved. No part of this publication may be reproduced in any material form (including
photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally
to some other use of this publication) without the prior written permission of the copyright owner except
in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a
licence issued by the Copyright Licensing Agency Ltd. Applications for the copyright owners written
permission to reproduce any part of this publication should be addressed to the publisher at the
address below:
ifs School of Finance
ifs House
49 Burgate Lane
Canterbury
Kent
CT1 2XJ
T
F
E
W

01227 818609
01227 784331
editorial@ifslearning.ac.uk
www.ifslearning.ac.uk

Typeset by John Smith


Printed by Elanders Ltd.
ifs School of Finance 2013
ISBN 978-1-84516-997-8

Contents

Synoptic Paper Booklet Introduction

CeMAP Syllabus

Mortgage Conduct of Business Rules

Synoptic Paper Questions England and Wales

vii

xix

MCOB 1

Synoptic Paper Answers England and Wales

29

Synoptic Paper Questions Scotland

57

Synoptic Paper Answers Scotland

85

ifs School of Finance 2013

Certificate in Mortgage Advice and


Practice (CeMAP)
Synoptic examination booklet introduction

What is a synoptic examination?


The synoptic examination is based upon the knowledge you will have acquired
from studying modules one and two. We therefore recommend that you pass
the first two modules before attempting the synoptic examination. Synoptic
means that the examination is based upon case studies with a series of
questions based upon each. You will not have sight of the case studies prior to
the start of the examination.

The structure of CeMAP


CeFA and CeMAP modules are divided into units as follows.
Module 1 (common module for CeFA and CeMAP)
UK Financial Regulation
Unit 1 Introduction to Financial Services Environment and Products
Unit 2 UK Financial Services and Regulation

ifs School of Finance 2013

vii

Synoptic paper booklet introduction

CeMAP Module 2 Mortgages


Unit 3 Mortgage Law, Policy, Practice and Markets
Unit 4 Mortgage Applications
Unit 5 Mortgage Payment Methods and Products
Unit 6 Mortgage Arrears and Post Completion
CeMAP Synoptic exam (case study based)

CeFA Module 2 Investment and Risks


Unit 3 Principles of Investment
Unit 4 Investment Products
CeFA Module 3 Retirement Planning and Protection
Unit 5 Protection
Unit 6 Retirement Planning
CeFA Synoptic Exam (case study based)

Updates
The syllabuses and study materials for CeFA and CeMAP are updated
annually, with updated materials being published in July for examinations taken
from the following September. For 2013/14 there is no separate update for
each module to be used alongside the existing edition of the text. Instead, the
new edition indicates in the margin where a change has been made.
Amendments to the text are the result of changes to the syllabus and the
Chancellors last Budget.
Materials are designed by the Institute of Financial Services to support learners
in their studies and as such they have been prepared to cover the requirements
set out in the syllabus for the subject you are studying. The questions in
examinations are based upon the content and learning outcomes documented
in the syllabus. All questions, live and specimen, are references to the syllabus. It
is therefore very important that you fully familiarise yourself with the content
viii

ifs School of Finance 2013

CeMAP Module 3

of the syllabus for this module/unit, both at the outset of your preparation for
an assessment and as a reference point as you progress towards attempting a
test. To help you in this, syllabus has been made easy to access from a number of
different sources. It is printed in full at the front of the learning materials, or can
be obtained on request from Institute FE Customer and Student Enquiries on
+44(0) 1227 818609 (option 1). Please make sure you have access to a syllabus
as you begin to work towards the examination.
It is your responsibility to ensure that you have the up-to-date
learning materials for your examination.

Policies and procedures


For the policies and procedures governing the conduct of the examinations and
for information on booking your examination please refer to the Institute of
Financial Services website: www.ifslearning.ac.uk.

Syllabus
The syllabuses for the two knowledge modules of CeMAP are printed within
this booklet at page xix.This should be familiar to you if you have already passed
these two exams. Although the Institute has determined the number of units
and modules required to complete our qualification, the topics and learning
outcomes are the result of the consultation process embarked upon by the FSA
and the Skills Council. Therefore, while in keeping with other awarding bodies
we have had input into the review process, the Institute is not solely responsible
for determining the full range of topics that appear in the syllabus.

The content of this booklet


This booklet is based around a complete shadow or mock paper for the new
synoptic examination. When studying for the previous modules you will have
received a study manual which, if you worked through methodically, will have
provided you with the knowledge applicable to the exam for that module. The
synoptic exam requires you to apply that knowledge to case study scenarios.
It does not require you to learn new knowledge content, therefore there is no
study manual for this paper.

ifs School of Finance 2013

ix

Synoptic paper booklet introduction

When working through the study manuals you will have come across some
study exercises, including some based on given scenarios. These were included
as a study aide to help you assimilate the knowledge, they were not
representative of exam style questions. However, the shadow paper provided
in this booklet is a true representation of the live exam both in terms of the
number of case studies and the style, format and number of questions. It has
been produced using the same quality assured process that creates the live
bank of questions from which your final examination will be drawn. It has been
seen and approved by the Examiner as being a fair representation of a real live
CeMAP synoptic exam. Although there will be similarities in relation to topics
and themes covered none of the case studies or questions that appear in this
shadow paper are copied from the live bank. As the name implies, a shadow
paper is produced alongside and in a similar way to the live questions whilst
remaining separate from them. Additional shadow papers are available for
you to buy if you would like further practice before taking the final exam (see
the FE Customer and Student Enquiries contact number under Additional
Support).
Please note that this booklet is to be inserted within one of the binders you
will have received when studying for a previous module.

Preparing for the synoptic exam


The synoptic examination for CeMAP is a two-hour paper and contains six
case studies. Each one is accompanied by ten multiple-choice questions.
The case studies and questions may be based on any part of the CeMAP
syllabus, although the majority will require you to apply knowledge of the
material covered in module two. It is important therefore that you make sure
you are familiar with the knowledge required to pass all the previous modules.
It is advisable to review your knowledge of the previous modules, particularly
if it was some time since you took the examination. If the study manual you
have for a previous module is not the current version you are advised to
download the latest material from the Institute of Financial Services website.
Alternatively if you wish to purchase a new, up-to-date study manual or check
whether the one you have is still current, contact our FE Customer and
Student Enquiries department on 01227 818609 (option 1).

ifs School of Finance 2013

CeMAP Module 3

Read the whole of each case study very carefully before you attempt to
answer the questions. It may help to:
t

underline any key words;

set out the information given, on a separate sheet of paper as a table or


a diagram.

It is important to understand the context of the case study and identify the key
principles or issues it addresses. One way of doing this is to review the case
study using the same criteria you would use as part of a fact find when
assessing the needs of a customer to whom you might be offering advice. You
should look out for details such as:
Family details
Income and expenditure
Taxation
Policies/protection/pensions
Assets
Liabilities
Risk
Aspirations
Needs

ifs School of Finance 2013

xi

Synoptic paper booklet introduction

UK financial regulation
The ConservativeLiberal Democrat coalition government has made
fundamental changes to the system of financial regulation in the UK. The
changes are detailed in the Financial Services Act 2012, which focuses on
changing the structure and delivery of regulation within the financial services
sector. The Financial Services Act came into effect from 1 April 2013.
The headline points are as follows.

xii

The tripartite system of regulation, introduced by the Labour


government in 1997, comprising the Bank of England, the Financial
Services Authority and the Treasury, is discontinued.

The FSA has been abolished.

Three new bodies have been created: the Financial Policy Committee
(FPC) within the Bank of England and the Prudential Regulation
Authority (PRA) will be a subsidiary of the Bank of England. Both have
powers relating to the regulation of financial services. A further body,
the Financial Conduct Authority, has been created.

There is an independent complaints system with a single complaints


system operating across the FCA and PRA.

ifs School of Finance 2013

CeMAP Module 3

The Bank of England


The Bank is responsible for protecting and enhancing financial stability. The
Chancellor of the Exchequer has limited statutory power to issue directions
to the Bank of England at times of financial stress. It is also responsible for the
oversight of payment systems, settlement systems and clearing houses.
The Financial Policy Committee (FPC)
The FPC, established at the Bank of England, has overall responsibility for
macroprudential regulation of financial services. It is charged with identifying,
monitoring and taking action to reduce and prevent systemic (large-scale)
issues that could threaten the whole of or large parts of the economy or
financial markets.
The FPC is chaired by the Governor of the Bank of England and is accountable
to Parliament.
The FPC has no direct regulatory responsibility for particular types of regulated
firm but has a number of powers to remedy threats to systemic stability.
An interim FPC was created in February 2011 in order to carry out
preparatory work for the establishment of the permanent body.
The remit of the FPC also includes the investigation of systemic risk, even if
the risk originates outside the UK.
The Prudential Regulation Authority (PRA)
The PRA is a subsidiary of the Bank of England, and it has a general objective to
promote the safety and soundness of individual firms in the financial services
sector. It is responsible for microprudential supervision of individual firms that are
systemically important; this includes banks, insurers and some investment firms.
It will aim to ensure that firms carry out their business in a way that minimises
the risk of business failure and will also aim to minimise the adverse effects of
any failure on the UK economy as a whole.
The PRA is independent from the Bank of England and FPC with regard to dayto-day regulation.
The board of the PRA has the Governor of the Bank of England as Chairman.
ifs School of Finance 2013

xiii

Synoptic paper booklet introduction

The Financial Conduct Authority


The FCA took over most of the FSAs former roles and responsibilities,
notably the FSAs market conduct function (with the exception of
responsibility for systemically important infrastructure, which sits with the
Bank of England). The FCA is responsible for conduct of business regulation
across the financial services sector including;
t

those businesses regulated by the PRA in relation to prudential


matters;

prudential regulation of those firms not regulated by the PRA.

Key responsibilities include the protection of consumers and ensuring those


within the financial services sector comply with the relevant rules.
The FCA has a strategic objective to ensure that relevant markets function
well.
The FCA has the following operational objectives:
t

to provide appropriate protection for consumers;

to protect and enhance the integrity of the UK financial system;

to promote effective competition in the interests of consumers.

The FCA and PRA can create threshold condition codes and vary firms
permissions on their own initiative. It is intended that the threshold codes will
be stronger than the statutory guidance previously given by the FSA.
Notes for students
Please note that all Institute of Financial Services assessments in the area of
regulation are based on fact and standing legislation. Students will not,
therefore, be assessed on aspects of regulation that are not confirmed by
underpinning legislation.
The Institute will publish updates to its learning materials for key regulatory
issues and will advise students, in a reasonable timeframe, of the dates when
this content will be assessed.

xiv

ifs School of Finance 2013

CeMAP Module 3

Support services
In addition to the study manual you also have access to the following services.
Our website www.ifslearning.ac.uk for all general enquiries and update
information on the qualification structure.
The FE Customer and Student Enquiries team is available to assist in helping
candidates who need further information and guidance. To ensure that your
query is fully understood and dealt with appropriately, we strongly encourage
you to contact us in writing, by fax or email.
To contact FE Customer and Student Enquiries:
Tel: 01227 818609
Email: customerservices@ifslearning.ac.uk
Fax: 01227 784331

Examinations
To book examinations the hotline number is 0870 6081915
Please note that if you are re-sitting an exam you will first need to register
your re-sit with the Institute of Financial Services: this can be done by
contacting Institute FE Customer and Student Enquiries on 01227 818609
(option 1).

Examination Results Analysis Sheet


On completion of the examination, candidates will receive their Examination
Results Analysis Sheet.This will contain their details and mark. Candidates will
also find a list of the syllabus areas they may have answered
incorrectly. References to the study manuals are not provided. The list
is designed to assist candidates to identify any gaps in their knowledge and to
steer them towards the areas to revisit before attempting the examination again.

ifs School of Finance 2013

xv

Synoptic paper booklet introduction

A sample analysis sheet is provided below.

xvi

ifs School of Finance 2013

CeMAP Module 3

Additional Support
The following are available at additional cost to enhance your prospects of
passing the examinations. These are NOT intended to be used as a
replacement for your study manual. Many financial services companies
subscribe to some or all of these products, so it is advisable for you to check
with whoever handles your companies training needs to establish whether
they currently have access to these products. Otherwise please direct your
queries to our FE Customer and Student Services number 01227 818609
(option 1).
Shadow papers available for each unit and module in printed form. These
mirror the live exam for style, coverage of learning outcomes, etc. Each is
supplied with a full list of answers.
Online Subject Expert Support an online forum to which subscribers
can post technical and study-related queries relevant to the syllabus. A subject
matter expert with experience in training students for CeFA and CeMAP
examinations will post a reply. You can also use this service to communicate
with others studying your module.
ifs School of Finance 2013

xvii

Synoptic paper booklet introduction

Competence Development Tool this popular eLearning tool features


complete specimen question banks for every module with feedback linking
every question to the study text. It is updated every year in line with the
syllabus. There are separate editions for CeFA and CeMAP. The CDT will be
available online from 1 September, providing subscribers with 12 months
access to the most up to date edition, including any update that occurs during
the subscription period. In addition, all subscribers receive the current CD
Rom version.
Training courses the Institute of Financial Services does not formally
recognise any providers of training for regulatory qualifications. However, there
are external providers of training that offer varying types of training
programmes and some employers provide their own internal training. We
suggest that when considering an external course of any type, you research the
providers website and request testimonials from previous customers.

xviii

ifs School of Finance 2013

CeMAP Module 3

Disclaimer
These learning materials have been designed by the
Institute of Financial Services to support students in
their studies and in particular to help them prepare for
their assessment(s). The assessments are based upon the
content and learning outcomes documented in the
award/module/unit syllabus, which is printed in full at the
front of the learning material.
The learning materials have been prepared to cover the
requirements of this syllabus and a comprehensive
knowledge and understanding of the content of these
learning materials should allow students to be successful
in the assessment(s).
Because some of the topics within the syllabus are interrelated and the learning materials are written in a style
that is intended to explain concepts and engage the user
in active learning, there are occasional instances where it
is not possible to find a specific reference point to answer
each question. This is particularly true of questions
relating to case studies where the application of
knowledge is being tested.
Here, a candidates knowledge of all preceding modules is
relevant and consequently questions may relate to more
than one point in the learning materials.

ifs School of Finance 2013

xix

xx

ifs School of Finance 2013

UK Financial Regulation
Certificate for Financial Advisers (CeFA) and
Certificate in Mortgage Advice and Practice
(CeMAP)
Module 1 Syllabus

Learning Outcomes
Unit 1 Introduction to Financial Services
Environment and Products
On completion of this part of the module, candidates will be expected to:
Demonstrate an understanding of:
1

the purpose and structure of the UK financial services industry

the main financial asset classes and their characteristics, covering past
performance, risk and return

the main financial services product types and their functions

the main financial advice areas

the process of giving financial advice, including the importance of regular


reviews of the consumers circumstances

the basic legal concepts relevant to financial advice

the UK taxation and social security systems and how they affect personal
financial circumstances

the impact of inflation, interest rate volatility and other relevant socioeconomic factors on personal financial plans.

ifs School of Finance 2013

xxi

Synoptic paper booklet syllabus

Unit 2 UK Financial Services and Regulation


On completion of this part of the module, candidates will be expected to:
Demonstrate a knowledge of:
1

the main aims and activities of the Financial Conduct Authority (FCA),
and its approach to ethical conduct by firms and individuals

how other non-tax laws and regulations impact upon firms and the
process of advising clients.

Demonstrate an understanding of:


1

the regulator's approach to regulating firms and individuals

how the regulator's rules affect the control structures of firms and their
relationship with the regulator

how the regulator's Conduct of Business rules apply to the process of


advising clients/customers

how the Anti-Money Laundering regulations apply to dealings with clients/


customers

the main features of the rules for dealing with complaints and
compensation

how the Data Protection Act 1998 affects the provision of financial advice
and the conduct of firms generally.

xxii

ifs School of Finance 2013

CeMAP Module 3

Detailed Syllabus
Key: K = Knowledge. U = Understanding. An = Analyse. As = Assess. A = Apply.

Unit 1 Introduction to Financial Services


Environment and Products
Attainment
Level
Demonstrate
an understanding of:

Outcome

Indicative Content

U1.1 The function of the financial services


industry in the economy transferring
funds between individuals, businesses
and government risk management

The purpose and structure of


the UK financial services
industry

U1.2 The main institutions/organisations


markets, retail institutions, wholesale
institutions, credit unions
U1.3 The role of the EU and of the UK
government regulation, taxation,
economic and monetary policy,
provision of welfare and benefits
U1.4 The purpose and position of clearing
and settlement organisations
2

The main financial asset classes


and their characteristics,
covering past performance,
risk and return

U2.1 Cash deposits and money market


instruments
U2.2 Government securities and
corporate bonds fixed
interest and index linked
U2.3 Equities
U2.4 Real estate residential and commercial
U2.5 Commodities
U2.6 Foreign exchange

ifs School of Finance 2013

xxiii

Synoptic paper booklet syllabus


3

The main financial services


product types and their functions

U3.1 Direct investment cash, government


securities and corporate bonds, equities
and property, commercial money market
instruments
U3.2 Collective investments structure, tax
and charges OEICs/unit trusts,
investment trusts, life assurance
contracts, offshore funds
U3.3 Derivatives their structure and purpose
U3.4 Mortgages and other loans personal
and commercial
U3.5 Pensions
U3.6 Structured products
U3.7 Protection products life and general

The main financial advice areas

U4.1 Budgeting
U4.2 Protection
U4.3 Borrowing and debt
U4.4 Investment and saving
U4.5 Retirement planning
U4.6 Estate planning
U4.7 Tax planning

The process of giving financial


advice, including the importance
of regular reviews of the
consumers circumstances

U5.1 The nature of the client relationship,


confidentiality, trust and consumer
protection
U5.2 The information required from
consumers and methods of obtaining it
U5.3 Factors determining how to match
solutions with consumer needs and
demands
U5.4 How to assess affordability and suitability
U5.5 The importance of communication skills
in giving advice and how to adapt advice
to customers with different capacities
and needs
U5.6 The importance of monitoring and
review of consumers circumstances
U5.7 Information for consumers and when
it should be provided (outline only)

xxiv

ifs School of Finance 2013

CeMAP Module 3
6

The basic legal concepts relevant


in financial advice

U6.1 Legal persons individuals, wills,


intestacy, personal representatives (and
administration of estates), trustees,
companies, limited liabilities, partnerships
U6.2 Contract, capacity to contract
U6.3 Agency
U6.4 Real estate, personal property and
joint ownership
U6.5 Powers of attorney, enduring power of
attorney and lasting power of attorney
U6.6 Insolvency and bankruptcy, Individual
Voluntary Arrangements (IVAs), CVAs

The UK taxation and social


security systems and how they
affect personal financial
circumstances

U7.1 Concept of residency/domicile


U7.2 UK Income tax system liability to
income tax, allowances, reliefs, rates,
grossing up interest and dividends,
employed and self-employed income,
self-assessment deadlines, priorities
for taxing different classes of income,
gift aid, Give As You Earn
U7.3 Capital gains tax liability to CGT,
disposals, death, deductions, losses,
main reliefs and exemptions,
calculation of chargeable gains
U7.4 Inheritance tax liability to IHT,
main exemptions, calculation of
IHT liabilities
U7.5 Corporation tax
U7.6 Stamp duty, land tax and stamp duty
reserve tax on securities
U7.7 VAT and Insurance Premium Tax
U7.8 Withholding tax
U7.9 National insurance
U7.10 Social security benefits

The impact of inflation, interest


rate volatility and other relevant
socio-economic factors on
personal financial plans

ifs School of Finance 2013

U8.1 Definition of inflation, deflation,


disinflation
U8.2 The difference between fixed and
variable interest rates and their impact
U8.3 The impact of socio-economic factors
and how they affect the affordability,
suitability and performance of financial
products in both the long and short term
xxv

Synoptic paper booklet syllabus

Unit 2 UK Financial Services and Regulation

Attainment
Level
Demonstrate
a knowledge
of:

Outcome

Indicative Content

K1.1

The FCAs statutory objectives, roles


activities and powers

K1.2

The FCAs principles for businesses


and approved persons how they
reflect the need for ethical
behaviour by firms and approved
persons, FCA guidance

K1.3

The approach to, and requirements


for, treating customers fairly

K1.4

Arrangements, systems and controls


for senior managers

K1.5

The fit and proper test for approved


persons

K1.6

The prevention of financial crime

K2.1

The Office of Fair Trading and the


Consumer Credit legislation

K2.2

The Competition Commission

K2.3

The Pensions Regulator

K2.4

Unfair Contract Terms; Advertising


Standards Authority; Banking Code

K2.5

EU directives

K3.1

The role of internal and external


auditors, trustees and compliance
function

xxvi

The main aims and activities of


the Financial Conduct Authority
(FCA) and its approach to ethical
conduct by firms and individuals

How other non-tax laws and


regulations are relevant to
firms and to the process of
advising clients

The role of oversight groups

ifs School of Finance 2013

CeMAP Module 3
Demonstrate
an understanding of:

The regulators approach to


regulating firms and individuals

How the regulators rules affect


the control structures of firms
and their relationship with the
regulator

How the regulators Conduct


of Business Rules apply to the
process of advising clients/
customers

U1.1

Authorisation of firms,
regulated activities &
regulated investments, firms status

U1.2

Capital adequacy and liquidity

U1.3

Supervision and the risk based


approach

U1.4

Discipline and enforcement


including notification requirements

U1.5

Regulatory developments eg Retail


Distribution review (RDR)

U2.1

Approved persons and controlled


functions

U2.2

Reporting and record keeping

U2.3

Training and competence rules

U3.1

Advertising and financial promotion


rules

U3.2

Types of client

U3.3

Information about the firms services,


including client agreements

U3.4

Status of advisers and status


disclosure to customers, specific
rules for independent financial
advisers and whole of market advisers

U3.5

Identifying client circumstances


and needs

U3.6

Suitability of advice

U3.7

Execution only, non-advised sales,


and statements of demands and
needs

U3.8

Charges and commissions

U3.9

Cooling off and cancellation

U3.10 Product disclosure and risk


disclosure statements
U3.11 Simplified advice on the stakeholder
suite of products
U3.12 Regulatory rules for mortgage
advice (MCOB) status disclosure,
initial disclosure document, charges,
suitability, product disclosure,
cancellation
U3.13 Regulatory rules for general insurance
advice (ICOB) status disclosure,
initial disclosure document, charges,
suitability, product disclosure, cancellation
ifs School of Finance 2013

xxvii

Synoptic paper booklet syllabus


Demonstrate
an understanding of:

xxviii

How the Anti-Money Laundering


regulations apply to dealings with
clients/customers

The main features of the rules


for dealing with complaints and
compensation

How the Data Protection Act


1998 affects the provision of
financial advice and the conduct
of firms generally

U4.1

Definition of financial crime and


proceeds of crime

U4.2

Money laundering regulations


and offences, the Terrorism Act 2000,
Proceeds of Crime Act 2002

U4.3

Client identification procedures

U4.4

Record keeping requirements

U4.5

Reporting procedures

U4.6

Training requirements

U4.7

Enforcement

U4.8

The role of the Financial Action


Task Force and the Serious Organised
Crime Agency (SOCA)

U5.1

Consumer rights and remedies,


including awareness of their
limitations

U5.2

Firms internal complaints


procedures

U5.3

The Financial Ombudsman


Service (FOS)

U5.4

The Financial Services


Compensation Scheme (FSCS)

U5.5

The Pension Ombudsman

U6.1

Definitions in the Data


Protection Act

U6.2

The data protection principles

U6.3

Enforcement of the Data


Protection Act

ifs School of Finance 2013

Mortgages
Certificate in Mortgage Advice and Practice
(CeMAP)
Module 2 Syllabus

Learning Outcomes
Unit 3 Mortgage Law, Policy Practice and Markets
On completion of the module, candidates will be expected to
Demonstrate a knowledge of:
1
2

the FCA definition of different types of mortgages and equity release


the house-buying process, the key parties involved and their roles

the principal types of property defect that surveys can identify and
understand their implications when seeking a mortgage, including the
options available to consumers

the process and implications of buying property at auction

the common types of borrower and how their main mortgage related
requirements may differ and what factors may disqualify people from
borrowing.

Demonstrate an understanding of:


1

the main requirements of the Mortgage Conduct of Business Rules and


the legislation affecting mortgages

the economic and regulatory context for giving mortgage advice.

ifs School of Finance 2013

xxix

Synoptic paper booklet syllabus

Unit 4 Mortgage Applications


On completion of the module, candidates will be expected to
Demonstrate an understanding of:
1

the role of a Mortgage Adviser and the importance and principles of


providing advice, including the key factors affecting the advice given

the implications for consumers of 'gazumping' and 'gazundering'

the purpose of additional security, including the role of guarantors

the fees and charges involved in arranging a mortgage, identify where


these apply, the services they cover, when they become due, which are
refundable and how the opportunity for refunds diminishes as the
process nears completion

the principal factors affecting the value of property, including their


implications for consumers seeking mortgages and when consumers
should be referred for specialist advice

the different forms of valuation and survey and which might be


appropriate for different properties and/or the borrower's circumstances

the need to obtain Local Authority planning consent for house


development/extensions.

Unit 5 Mortgage Payment Methods and Products


On completion of the module, candidates will be expected to
Demonstrate an understanding of:
1

the key features of the different types of mortgage repayment options and
their benefits and drawbacks for different types of borrower

the key features of the common types of mortgage product and interest
rate options

the structure and features of other types of mortgage

the main features and functions of different forms of life assurance and
other insurances (eg mortgage payment protection insurance (MPPI), life,
accident and sickness insurance (ASU), building insurance, contents
insurance) associated with arranging a mortgage.

xxx

ifs School of Finance 2013

CeMAP Module 3

Unit 6 Mortgage Arrears and Post-Completion


On completion of the module, candidates will be expected to
Demonstrate an understanding of:
1

the principles and procedures associated with raising additional money


and the circumstances when further borrowing might be appropriate

the principles, procedures and costs associated with transferring


mortgages

the principles of using mortgages within debt consolidation arrangements

the implications for the borrower of the non-payment of mortgages,


other breaches of the Mortgage Deed, non-payment of building insurance
and the options available

the legal rights/remedies available in respect of non-payment from


borrowers

the main provisions made by the State to assist consumers in difficulties


over the repayment of mortgages.

ifs School of Finance 2013

xxxi

Synoptic paper booklet syllabus

Detailed Syllabus
Key: K = Knowledge. U = Understanding. An = Analyse. As = Assess. A = Apply.

Unit 3 Mortgage Law, Policy Practice and Markets


Attainment
Level
Outcome

Indicative Content

Demonstrate 1 The regulatory definition of different K1.1 Regulatory definitions as given in


a knowledge
types of mortgages and equity release
the Handbook
of:
2 The house-buying process, the
England/Wales
key parties involved and their
K2.1a Role of estate agent/valuer/
roles
conveyancer/legal adviser;
K2.2a Process to contract exchange/
completion and when a contract
becomes binding;
OR
Scotland
K2.1b Role of estate agent/valuer/legal
adviser;
K2.2b Conditional/unconditional offer;
K2.3b Private bargain/private treaty;
K2.4 Acceptance/ completion/conclusion
of missives;
3 The principal types of property
defect that surveys can identify
and understand their implications
when seeking a mortgage,
including the options available
to consumers

K3.1 Main property defects;

4 The process and implications


of buying property at auction

K4.1 Requirement for funding (ie cash/


mortgage commitment) to be in
place up front;

K3.2 How property defects may affect


the lending decision and/or
require immediate remedial works.

K4.2 Contracts exchanged, with associated


deposit, on the day
5 The common types of borrower
and how their main mortgage
related requirements may differ
and what factors may disqualify
people from borrowing

K5.1 Private/residential borrowers;


K5.2 Intermediary/business/commercial
borrowers (outline only);
K5.3 Those who cannot borrow:
t undischarged bankrupts;
t mentally incapacitated;
t minors

xxxii

ifs School of Finance 2013

CeMAP Module 3
Demonstrate 1 The main requirements of the
an underMortgage Conduct of Business
standing of:
Rules and the legislation affecting
mortgages

U1.1 National House-Building Council


guarantees
U1.2 Property Misdescriptions Act
U1.3 Contract Law
U1.4 Principles of Agency
U1.5 Consumer credit law
U1.6 Legal obligations and guarantors
U1.7 Lenders Rights and Borrowers
Covenant
U1.8 Financial Services and Markets Act
2000 (including the Mortgage
Conduct of Business Rules and
Mortgage market Review)
England/Wales/Northern Ireland:
U1.9 Property Law
OR
Scotland:
U1.10 Policies, as determined by the
Scottish Executive, affecting the
mortgage process and property
market in Scotland
U1.11 Matrimonial Homes Act (eg single
borrowers require an affidavit)
U1.12 Tenancy Act
U1.13 Mortgage Rights Act
U1.14 Statutory Repair Act
U1.15 Bankruptcy Act (refers to
sequestrian in Scotland)
U1.16 Land Tenure Reform Act
U1.17 Feu disposition (reference Land
Certificate in England/Wales)
U1.18 Court decree (reference County
Court Judgment in England/Wales)

ifs School of Finance 2013

xxxiii

Synoptic paper booklet syllabus


2 The economic and regulatory
context for giving mortgage
advice

U2.1 The property market and the main


conditions that affect it
U2.2 Interest rates and their drivers
U2.3 The UK mortgage lending sector
U2.4 Mortgage regulation: MCOB and
its implications for the mortgage
adviser

Unit 4 Mortgage Applications


Attainment
Level
Outcome

.
Indicative Content

Demonstrate 1
an understanding of:

U1.1

Affordability

U1.2

Suitability

U1.3

Risk

U1.4

Term of mortgage

U1.5

Principles of ethical advice, including


regulatory guidance (for example,
Treating Customers Fairly)

U1.6

Methods of verifying information


supplied by consumers

U1.7

Methods of checking that mortgage


solutions match consumer immediate
and long term needs and circumstances

The implications for consumers


of gazumping and gazundering

U2.1

Gazumping

U2.2

Gazundering

The purpose of additional security,


including the role of guarantors

U3.1

The requirement for guarantors


to be advised to seek independent
legal advice

U3.2

Higher lending charges and other


types of security (life policies and
collateral)

xxxiv

The role of a Mortgage Adviser


and the importance and principles
of providing advice, including
the key factors affecting the
advice given.

ifs School of Finance 2013

CeMAP Module 3
4

The fees and charges involved in


arranging a mortgage, identify
where these apply, the services
they cover, when they become
due, which are refundable and
how the opportunity for refunds
diminishes as the process nears
completion

U4.1

Reservation fees

U4.2

Application fees

U4.3

Arrangement/booking fees

U4.4

Lenders reference fees

U4.5

Land Registry fees

U4.6

Valuation fees

U4.7

Estate agent fees

U4.8

Legal/solicitors fees

U4.9

Stamp Duty Land Tax

U4.10 Local Authority searches


U4.11 Bankruptcy searches
U4.12 Telegraphic transfer costs
U4.13 Environmental searches,
eg flooding, mining
U4.14 Mortgage exit administration
fees
U4.15 Survey fees, HIPs and other
specialist reports
U4.16 Title indemnity fees
U4.17 Higher lending charge
U4.18 Brokers fees

ifs School of Finance 2013

xxxv

Synoptic paper booklet syllabus


Demonstrate 5
an understanding of:

The principal factors affecting the


value of property, including their
implications for consumers
seeking mortgages and when
consumers should be referred
for specialist advice

U5.1

Type of property

U5.2

Location

U5.3

Building materials and any


restrictions

U5.4

Age of property

U5.5

Freehold/commonhold/leasehold
(England & Wales)

U5.6

Tenure

U5.7

Multiple use

U5.8

Vacant possession

U5.9

Reinstatement value

U5.10 Whether it is insurable; including


but not limited to risk of
flooding/subsidence/heave
U5.11 Planning permission
U5.12 Building regulations
U5.13 Contract guarantees
U5.14 Listed/heritage
U5.15 Easements, including but not limited
to rights of way
U5.16 Due diligence enquiries, including
but not limited to outstanding
disputes
U5.17 Covenants.
6

xxxvi

The different forms of valuation


and survey and which might be
appropriate for different
properties and/or the borrowers
circumstances

The need to obtain Local Authority


planning consent for house
development/extensions

U6.1

Forms of valuation and or survey


(basic valuations, homebuyers
report, building survey, full
structural survey)

U6.2

Requirements of lenders

U6.3

Rights of the consumer

U7.1

The legal basis of local authority


planning procedures

U7.2

The main procedures in obtaining


local authority planning consent

U7.3

Development limitations that apply


to different categories of listed
buildings

ifs School of Finance 2013

CeMAP Module 3

Unit 5 Mortgage Payment Methods and Products


Attainment
Level
Outcome
Demonstrate 1 The key features of the different
an undertypes of mortgage repayment
standing of:
options and their benefits and
drawbacks for different types
of borrower

2 The key features of the common


types of mortgage product
and interest rate options

Indicative Content
U1.1

Capital and interest repayment


(repayment mortgages)

U1.2

Interest payment (interest only


mortgages)

U1.3

Implications for the consumer of the


under-performance of repayment
options

U1.4

Repayment vehicles used in conjunction


with interest-only mortgages endowment
policies; pension arrangements; ISAs;
OEICs; Unit Trusts, Investment Trusts

U2.1

Standard variable rate mortgages

U2.2

Tracker mortgages (variable


rate/LIBOR/base rate tracker
mortgages)

U2.3

Fixed rate mortgages

U2.4

Capped rate (including capped and


collared) mortgages;
Discounted rate (including cash
back/gift) mortgages
Low start mortgages

U2.5

Equity release mortgages (links to


mortgage/home reversion schemes)

U2.6

Flexible mortgages

U2.7

All in one/current account


mortgages/offset mortgages, including
drawdown facilities

U2.8

CAT marked mortgages

U2.9

Hybrid arrangement products, for


example part and part mortgages

U2.10 The performance and volatility of


fixed and variable interest rates for
different types of borrower

ifs School of Finance 2013

xxxvii

Synoptic paper booklet syllabus


3 The structure and features of
other types of mortgage

U3.1

Commercial mortgages

U3.2

Equity release including home


reversion plans

U3.3

Low start mortgages

U3.4

Self build mortgages

U3.5

Mortgages in excess of 100% of


property value

U3.6

Foreign currency mortgages

U3.7

New build mortgages

U3.8

Buy to let mortgages (including


types of tenancy)

U3.9

Right to buy Council property


mortgages

U3.10 Shared appreciation mortgages


U3.11 Shared ownership mortgages
(Housing Association)
U3.12 Equity share mortgages; including
Homebuy schemes
U3.13 Adverse credit/sub-prime
mortgages (for non-conforming
or non-status borrowers, with,
eg CCJs/arrears/discharged
bankruptcy)
U3.14 Shariacompliant mortgages (also
known as Islamic mortgages)
4 The main features and functions
of different forms of life assurance
and other insurances (eg mortgage
payment protection insurance
(MPPI), life, accident and sickness
insurance (ASU), building
insurance, contents insurance)
associated with arranging a
mortgage

xxxviii

U4.1

Life assurance; Pension term


assurance

U4.2

Accident/sickness/critical illness/
unemployment/redundancy
insurance

U4.3

Income Protection insurance

U4.4

Buildings and contents insurance

U4.5

Waiver of premium benefit

ifs School of Finance 2013

CeMAP Module 3

Unit 6 Mortgage Arrears and Post-completion


Attainment
Level
Outcome
Demonstrate 1 The principles and procedures
an underassociated with raising additional
standing of:
money and the circumstances
when further borrowing might
be appropriate

2 The principles, procedures and


costs of transferring mortgages

3 The principles of using mortgages


within debt consolidation
arrangements

ifs School of Finance 2013

Indicative Content
U1.1

Equity release products

U1.2

Further advances

U1.3

Draw down facilities

U1.4

Release of part security

U1.5

Remortgages, second mortgages

U1.6

Bridging loans

U1.7

Charging structures

U1.8

Legal implications

U2.1

Transfer of mortgage to a new


lender

U2.2

Implications of property moves

U2.3

Converting one mortgage to


another

U2.4

Removing or adding one party from


or to a joint mortgage

U2.5

Implications of redeeming a mortgage


before/at the end of its term

U2.6

Making additional/lump sum capital


repayments on a mortgage, during
its term

U3.1

Relationship between costs/


penalties/repayments/term

U3.2

Risk to the consumer associated


with consolidation

U3.3

Risks associated with moving loans


from unsecured to secured status

U3.4

Draw down facilities

xxxix

Synoptic paper booklet syllabus


4 The implications for the borrower
of the non-payment of mortgages,
other breaches of the Mortgage
Deed, non-payment of building
insurance and the options
available

5 The legal rights and remedies


available to lenders in respect
of non-payment from borrowers

6 The main provisions made by


the State to assist consumers
in difficulties over the
repayment of mortgages

xl

U4.1

When to provide a mortgage


warning, ensuring that this is
understood

U4.2

Possible courses of action available


(eg Scotland mortgage to rent
scheme)

U4.3

Regulatory requirements regarding


the treatment of those in arrears

U4.4

Mortgage Rights Act (Scotland)

U5.1

Role of Citizens Advice and


other agencies

U5.2

Rights of subrogation of insurers


to pursue borrowers

U5.3

Legal remedies for the lender


on default

U6.1

Income Support for Mortgage


Interest (ISMI)

U6.2

52 week linking rule

ifs School of Finance 2013

Holistic Assessment of Knowledge and


Understanding Covered in Units 1 6
Certificate in Mortgage Advice and Practice
(CeMAP)
Module 3 Syllabus

Learning Outcomes
Unit 7 Holistic assessment of knowledge and
understanding covered in Units 1 6
Demonstrate an ability to analyse consumers circumstances and suitable
mortgage solutions taking account of any existing arrangements
Demonstrate and ability to apply suitable mortgage solutions to specific
consumers circumstances
Demonstrate the ability to identify consumers needs and demands and
recommend suitable and affordable mortgage solutions, using their knowledge
and understanding of
t

the advice process

the UK finance industry, and the regulatory and ethical framework for
giving mortgage advice

the different types of mortgage solution and the criteria for determining
their suitability and affordability

The holistic paper will test analysis, synthesis and evaluation.

ifs School of Finance 2013

xli

Synoptic paper booklet syllabus

Detailed Syllabus
Unit 7 Holistic assessment of knowledge and
understanding covered in Units 16
Attainment
Level
Demonstrate
an ability to
analyse:

Demonstrate
an ability to
apply:

Outcome

Indicative Content

1 Consumers circumstances and


suitable mortgage solutions
taking account of any existing
arrangements

1.1

Factors shaping consumers


circumstances and borrowing
purposes

1.2

How to assess affordability and


suitability

1.3

How to assess the long term


performance of mortgage products

1.4

Methods of identifying and


reviewing suitable product
solutions

1.5

How to assess the impact of new


solutions on existing arrangements

1.1

The range of solutions available to


suit different types of circumstance

1.2

The criteria for matching solutions


to consumer needs and demands

1.3

How to explain interest rates,


volatility and related technical
matters to lay people

1.4

Factors influencing the way in


which recommendations are
presented

1.5

How to check consumers


understanding of
recommendations

1.6

Consumer rights and the


regulatory requirements apply to
the provision of investment advice

1 Suitable mortgage solutions


to specific consumers
circumstances

Demonstrate the ability to identify consumers needs and demands and recommend suitable and
affordable mortgage solutions, using their knowledge and understanding of
t

the advice process

the UK finance industry, and the regulatory and ethical framework for giving mortgage advice

the different types of mortgage solution and the criteria for determining their suitability and
affordability

xlii

ifs School of Finance 2013

The FCAS Mortgage Conduct


of Business Rules

ifs School of Finance 2013

MCOB 1

The FCAS Mortgage Conduct of Business Rules

Introduction
The Financial Services Authority (FSA) took over the regulation of mortgage
sales from 31 October 2004. The Financial Services Bill (2012) amended the
Bank of England Act 1998, the Financial Services & Markets Act (2000) and the
Banking Act (2009). From a mortgage perspective the main change was the
transfer of regulation from the FSA to the Financial Conduct Authority (FCA)
for the sale and marketing of mortgages. The regulations now apply to all
Home Finance Activities, which include:
t Regulated mortgage contracts (including lifetime mortgages)
t Home purchase plans
t Home reversion plans
t Regulated sale and leaseback arrangements
For the purpose of this study text we will focus on the rules applying to
regulated mortgage contracts.
The following are excluded from regulation by the FCA:
t second charges;
t corporate mortgages, ie loans to companies.
To be more precise, the FCA now regulates the sale and administration of
home finance activities that satisfy each of the following critieria:
t the lender is providing the plan to an individual or trustee;
t in the case of a mortgage, the borrowers obligation to repay the
mortgage is secured by a first legal mortgage on land (other than
timeshare accommodation) in the UK;
t at least 40% of that land is used, or is intended to be used, as or in
connection with, a dwelling by the individual or by a related person.
A related person means either
t the borrowers spouse; or
t the borrowers parent, brother, sister, child, grandparent or grandchild.
ifs School of Finance 2013

MCOB 3

The FCAS Mortgage Conduct of Business Rules

For ease of reading we will use the term mortgage as a generic term for home
finance unless otherwise stated.
A mortgage contract will be classed as a regulated contract only if the three
criteria described above are satisfied at the time the contract is entered into.
Contracts that were entered into before 31 October 2004 cannot
subsequently be regarded as regulated mortgage contracts, even if they satisfy
the required criteria.
The majority of residential mortgages will meet the above criteria, as well as
some commercial mortgages where the borrower or related person occupies
at least 40% of the land as a dwelling.

The structure of the MCOB sourcebook


2.1 The Mortgage Conduct of Business Rules (MCOB) are a separate
sourcebook within the FCA Handbook.They comprise 13 chapters, which
are summarised as follows.
Chapter

Title

What does it include?

MCOB 1

Application and Purpose

helps firms understand which


parts of the MCOB rules apply
to them

provides guidance on the


application of other parts of the
FCA Handbook

general requirements that apply


throughout the mortgage
sourcebook

communications must be clear,


fair and not misleading

rules on inducements

content requirements for


qualifying credit promotions

rules banning unsolicited realtime promotions (cold calling)

MCOB 2

MCOB 3

MCOB 4

Conduct of Business
Standards: General

Financial Promotions

ifs School of Finance 2013

CeMAP Module 3

MCOB 4

Advising and Selling


Standards

the initial disclosure document

independence

suitability of advice

non-advised sales

MCOB 5

Pre-application Disclosure t timing and content of the key


facts illustration (KFI)

MCOB 6

Disclosure at the Offer


Stage

content of the offer document

MCOB 7

Disclosure at Start of
Contract and After Sale

start of contract information


requirements

annual statements

information requirements for


post-sale contract variations
(such as further advances)

MCOB 8

Equity release:
Advising and Selling
Standards

a tailored regime for advising and


selling lifetime mortgages

MCOB 9

Equity release:
Product Disclosure

tailored product disclosure


requirements for lifetime
mortgages

MCOB 10 Annual Percentage Rate

how to calculate the APR

MCOB 11 Responsible Lending and


responsible financing of
home purchase plans

a requirement for lenders to


check the consumers ability to
repay

MCOB 12 Charges

charges in key areas (for


example, arrears and early
repayment charges) must be
reasonable, based on the cost to
the lender

charges must not be excessive

MCOB 13 Arrears and Repossessions t information requirements for fair


treatment of borrowers in
arrears and facing repossession
The structure of the MCOB sourcebook
ifs School of Finance 2013

MCOB 5

The FCAS Mortgage Conduct of Business Rules

The key points of each of these chapters (except 8, 9 and 10) that are
considered to be most relevant to this qualification are produced in a simplified
format in the following pages. Paragraphs shown in bold type represent actual
Rules, whereas those shown in ordinary type represent either an
interpretation of, or commentary on, those Rules.

Chapter 1
Application and purpose
1.1 The purpose of this chapter is to set out:
t

to whom the MCOB Rules apply

within what territorial limits the Rules apply

the activities to which the Rules apply.

1.2 The MCOB Rules apply to every firm that carries on regulated mortgage
activities.
1.3 The application of the Rules is expressed by reference to four types of
firm, ie:
t

home finance lenders

home finance administrators

home finance arrangers

home finance advisors

1.4 The MCOB Rules apply if the customer of a firm carrying on regulated
mortgage activities is resident in:
t

the United Kingdom, or

another European Economic Area (EEA) State and the regulated


activity is carried on from an office maintained by the firm in the UK.

1.5 The Rules also apply to those business loans where the customer is not a
large business customer. A large business customer is defined as one with
a turnover (or group turnover if part of a group) of more than 1m a year.
1.6 Only regulated mortgage contracts entered into on or after 31 October
2004 are subject to the MCOB Rules. Any variation made to a contract
that was entered into before that date will not be subject to the Rules,
but the provisions of the Consumer Credit Act 1974 may apply instead.
MCOB 6

ifs School of Finance 2013

CeMAP Module 3

1.7 It is the responsibility of a firm that, before entering into a contract, it


must establish whether the contract will be regulated and therefore
subject to the MCOB Rules.
1.8 If, however, a firm mistakenly treats a contract as unregulated when it is
in fact a regulated contract, then the firm must as soon as possible
t

contact the customer and provide a statement to the effect that the
contract is regulated and subject to the MCOB Rules, and stating the
position with regard to any redress or compensation

provide a statement that the Consumer Credit Act 1974 will not
continue to apply to the contract, if this was originally the case.

Chapter 2
Conduct of business standards general
2.1 This chapter applies to:
t

all regulated home finance activities;

those activities that are carried on after a regulated mortgage contract


has come to an end following the sale of a repossessed property.

Prescribed terms
2.2 In any communication to a customer, a firm must:
t

describe any early repayment charge as an early repayment charge


and not use any other expression to describe such a charge;

describe any higher lending charge as a higher lending charge and not
use any other expression to describe such a charge;

describe any lifetime mortgage as a lifetime mortgage; and

describe any home reversion plan as a home reversion plan.

Communication of information
2.3 When a firm communicates information to a customer, it must take
reasonable steps to communicate it in a way that is clear, fair and not
misleading.
ifs School of Finance 2013

MCOB 7

The FCAS Mortgage Conduct of Business Rules

2.4 When considering how to comply with this Rule, a firm should take into
account the level of the customers knowledge of the regulated mortgage
contract to which the information relates.
2.5 This Rule covers all forms of communication with customers, ie oral
statements, written statements, telephone calls and correspondence.

Inducements
2.6 The purpose of the following Rule is to ensure that firms conduct business
with integrity, act in the interests of customers and treat them fairly.
2.7 A firm must take reasonable steps to ensure that it, and any person acting
on its behalf, does not:
t

offer, give, solicit or accept an inducement, or

refer any actual or potential business in relation to a regulated


mortgage contract to another person if it is likely to conflict with the
firms duty to its customer.

2.8 A firm must not operate a system of giving or offering inducements to a


mortgage intermediary whereby the value of the inducement increases if
the intermediary achieves set business targets.
2.9 A mortgage lender must quantify in cash terms any material inducement
it offers to a mortgage intermediary or third party.
This quantification must take account of any subsequent payments made to the
intermediary or other third party whilst the customers regulated mortgage
contract remains in place.

Accessibility of records
2.10 The records that a firm is required to keep by the MCOB Rules must be
readily accessible for inspection by the FCA.
2.11 Records are deemed to be readily accessible if they are available for
inspection within two business days of the request being received.

MCOB 8

ifs School of Finance 2013

CeMAP Module 3

Chapter 3
Financial promotion
3.1 This chapter applies to every firm that approves a qualifying credit
promotion, ie a financial promotion for a regulated mortgage contract as
well as a promotion for qualifying credit.
3.2 An example of a qualifying credit promotion that complies with the
MCOB Rules detailed in this chapter is shown below.

ABC ASSOCIATES
Finance Broker
With access to hundreds of products from most main lenders
were sure to find the right solution for you.
Need advice on whats best?
No problem all our staff are fully-trained
Our charges are usually just 250.
Call us today on
0800 000 000
Your home may be repossessed if you do not keep up
repayments on your mortgage.

3.3 Certain qualifying credit promotions are exempt from the MCOB Rules.
Essentially, these are promotions that contain only one or more of the
following:
t

the name of the firm;

a logo;

a contact point, ie address, email address, telephone or fax number;

a brief, factual statement of the firms main business.

3.4 This chapter distinguishes between real time and non-real time qualifying
credit promotions.
ifs School of Finance 2013

MCOB 9

The FCAS Mortgage Conduct of Business Rules

A real time qualifying credit promotion is one that is communicated in the


course of a personal visit or telephone conversation.
A non-real time qualifying credit promotion is one made by letter, email or that
is contained in a newspaper, journal, magazine, website or television or radio
programme.
3.5 A non-real time qualifying credit promotion must contain the name of the
firm and either an address or a contact point from which an address can
be obtained eg an email address or telephone number.
3.6 A firm must be able to show that it has taken reasonable steps to ensure
that a non-real time qualifying credit promotion is clear, fair and not
misleading.
3.7 A non-real time qualifying credit promotion that includes a comparison
must:
t

use a comparison that meets the same needs or is intended for the
same purpose

not discredit or denigrate the services or activities of a competitor

not take any unfair advantage of the reputation of a competitor

not create any confusion in the market place between the firm and a
competitor.

3.8 It is recommended that firms should avoid the use of small print to qualify
claims that are made in a prominent way in a non-real time promotion.
3.9 If a non-real time promotion includes information on the firms
performance, interest rates or market conditions then such information
should be relevant and recent.
3.10 A non-real time qualifying credit promotion that promotes a product that
is conditional upon the customer obtaining further products or services
must prominently state the compulsory nature of these purchases.

MCOB 10

ifs School of Finance 2013

CeMAP Module 3

Required risk statements


3.11 A non-real time promotion must always include the statement Your
home may be repossessed if you do not keep up repayments on your
mortgage.
3.12 If the mortgage is to be denominated in a currency other than sterling,
the following statement must be included in the promotion
Changes in the exchange rate may increase the sterling equivalent of
your debt.
3.13 The prominence of relevant information is essential in ensuring that a
communication is clear, fair and not misleading.

Annual percentage rate (APR)


3.14 If a non-real time qualifying credit promotion contains price information,
it must also:
t

state the APR

express the APR as follows the overall cost for comparison is x% APR

clearly distinguish the APR from any other rate quoted, but ensuring
that no other information is placed between the two figures.

The firm is not required to explain the basis on which the APR is calculated,
or to provide a figure for the total charge for credit.

Solicited and unsolicited real time qualifying credit


promotions
3.15 A solicited real time qualifying credit promotion is one that is made in the
course of a personal visit or telephone call that was initiated by the
customer.
3.16 A firm must not make an unsolicited real time qualifying credit promotion
unless the customer has an established existing customer relationship
with that firm and expects to receive such unsolicited promotions.
3.17 In interpreting this Rule it is important for firms to remember that an
exempt unsolicited promotion is not prohibited (see paragraph 3.3).
ifs School of Finance 2013

MCOB 11

The FCAS Mortgage Conduct of Business Rules

Form of real time qualifying credit promotions


3.18 A firm must ensure that an individual who makes a real time qualifying
credit promotion on the firms behalf:
t

does not contact the customer at an unsocial hour, unless previously


agreed;

does not contact the customer on an unlisted telephone number


unless the customer has previously agreed to such calls on that
number;

identifies himself and the firm he represents;

checks that the recipient wishes him to proceed if the time and
method of communication were not previously agreed;

terminates the communication if the recipient does not wish him to


proceed;

does so in a way in which is clear, fair and not misleading;

does not make any untrue claims.

3.19 An unsocial hour means:


t

before 9am or after 9pm on Monday to Saturday;

at any time on a Sunday or other days or times when the firm is aware
that the customer would not wish to be called.

3.20 The Rule detailed above in paragraph 3.18 also applies to call centre
operators who initiate communication with customers.

Records
3.21 A firm must make an adequate record of each non-real time qualifying
credit promotion. The record must be retained for at least one year from
the date the promotion was last communicated.
3.22 Records can be kept in such form as the firm chooses, provided it is
readily accessible for inspection by the FCA.

MCOB 12

ifs School of Finance 2013

CeMAP Module 3

Chapter 4
Advising and selling standards
4.1 The whole of this chapter applies to all mortgage lenders, mortgage
advisors and mortgage arrangers.
4.2 The purpose of this chapter is to ensure that:
t

customers are adequately informed about the nature of the service


that they may receive from a firm in relation to regulated mortgage
contracts;

if any advice is given, it is suitable for the customer.

4.3 A firm must take reasonable steps to ensure that the scope of the service
given to a customer, and the regulated mortgage contracts offered, is
based on a selection from one of the following:
t

the whole market;

a limited number of mortgage lenders;

a single mortgage lender.

Whole of market
4.4 A firm which states that it gives information or advice to customers on
regulated mortgage contracts from the whole market must not give such
information or advice unless it has considered a sufficiently large number
of regulated contracts that are generally available from the market.
4.5 Every firm that offers customers a selection from the whole market must
make sure that its analysis and knowledge of the market is kept up-todate.
4.6 The whole market approach can be satisfied by a firm using a panel of
lenders, although the panel should comprise lenders representative of the
whole market.

ifs School of Finance 2013

MCOB 13

The FCAS Mortgage Conduct of Business Rules

Independence
4.7 When providing information or giving advice to a customer on regulated
mortgage contracts, a firm must not imply that it is acting independently
unless it intends to:
t

provide that service wholly or predominately based on the whole


market, and

enable the customer to pay a fee for the provision of that service.

4.8 It is acceptable for a firm that sells investments and regulated mortgage
contracts to act independently for one but offer only a limited range for
the other. In such circumstances, the firm must ensure that all of its
communications are clear, fair and not misleading so that customers fully
understand the nature of the services provided.
4.9 It is also acceptable for a firm to provide a customer with other payment
options, such as a combination of a fee and commission.

From 26 April 2014


4.10 The firm must disclose the range of products it will offer advice from and
the way it will be paid. Information only will not be an option the firm
can offer as a standard service.
4.11 Firms are required to state whether there are any limitations on the
service they can offer. This is intended to make sure the customer
understands whether the firm offers only its own products, products
from a restricted range or products from an unlimited range.
4.12 The firm must include either a list of the names of all the mortgage
lenders whose products it is offering or state the number of mortgage
lenders whose products it is offering and that the customer has the right
to request a list of those lenders.

MCOB 14

ifs School of Finance 2013

CeMAP Module 3

Initial disclosure requirements


4.13 A firm must ensure that, on first making contact with a customer other
than by telephone, and it anticipates giving personalised information or
advice on a regulated mortgage contract, it:
t

establishes with the customer whether it will provide advice or


information;

establishes with the customer how much he will pay for that advice or
information;

provides the customer with an initial disclosure document.

An initial disclosure document does not have to be provided if a previously


issued document is still likely to be accurate and appropriate for the customer.
The Initial Disclosure Document must be in the prescribed format.
4.14 It is the mortgage lenders responsibility to provide the initial disclosure
document in a direct sale. Where a number of firms are involved in a
transaction, those firms are expected to take reasonable steps to establish
that the customer has been provided with an initial disclosure document.
4.15 If a firm is certain that the proposed contract will not be a regulated
mortgage contract then an initial disclosure document need not be provided.
4.16 Where initial contact with the customer is by telephone, the following
information must be provided at the outset:
t

the name of the firm and the commercial purpose of the call;

the scope of the service provided by the firm (see paragraph 4.3);

if the scope of the service is not based on the whole market, that the
customer can request a copy of the list of mortgage lenders whose
regulated mortgage contracts are offered;

whether or not the firm will provide the customer with advice on
those regulated mortgage contracts it offers.

All the above information must be confirmed in writing.


4.17 If the telephone call has not led the firm to conclude that the customer
is ineligible for any of its regulated mortgage contracts, the firm must send
to the customer a copy of the required initial disclosure document within
five business days of the telephone call.
ifs School of Finance 2013

MCOB 15

The FCAS Mortgage Conduct of Business Rules

From 26 April 2014


4.18 The information can be provided in a manner and medium that is
appropriate to the channel used, and can be in a format designed by the
firm. For spoken interaction the information can be given orally, whilst for
online and other non-interactive channels it must be included as part of
the information provided in the appropriate medium.

Advised sales
4.19 A firm must take reasonable steps to ensure that it does not make a
personal recommendation to a customer to enter into a particular
regulated mortgage contract unless that contract will be suitable for that
customer.
4.20 The above Rule also applies where a firm gives a personal
recommendation to vary an existing regulated mortgage contract.
4.21 A regulated mortgage contract will be deemed to be suitable if, having
regard to the facts disclosed by the customer, the firm has reasonable
grounds to conclude that:
t

the customer can afford to enter into the regulated mortgage


contract;

the contract is appropriate to the needs and circumstances of the


customer;

the contract is the most suitable of those that the firm is able to offer
within the scope of the service provided.

4.22 The firm must explain to the customer that the assessment of whether
he can afford to enter into a regulated mortgage contract based on:
t

current interest rates, which might rise in the future;

the customers current circumstances, which might change in the


future.

4.23 No personal recommendation must be made if there is no regulated


mortgage contract from within the scope of the service provided by the
firm that is appropriate to the needs and circumstances of the customer.
4.24 This means that if a firm offers regulated mortgage contracts from either
a limited number of lenders or from a single lender, it is not acceptable
MCOB 16

ifs School of Finance 2013

CeMAP Module 3

to recommend a mortgage that almost meets the customers needs on


the basis that it does not offer a product that fully meets those needs.
4.25 If a firm makes a personal recommendation to a customer to enter into
a regulated mortgage contract, the main purpose of which is to
consolidate existing debts, the following matters must also be taken into
account in determining the suitability of the contract:
t

the cost associated with increasing the period over which the debt is
to be repaid

whether it is appropriate for the customer to secure a previously


unsecured loan

if the customer is known to have payment difficulties, whether it would


be more appropriate for him to negotiate an arrangement with his
creditors than to take out a regulated mortgage contract.

4.26 In assessing whether a customer can afford to enter into a particular


regulated mortgage contract, a firm should consider:
t

information provided by the customer about his income and


expenditure, and any other resources he has available

any likely change to the customers income, expenditure and resources

the costs that the customer will be required to meet once any
discount period comes to an end.

4.27 In assessing whether a particular regulated mortgage contract is


appropriate to a customers needs and circumstances, a firm should
consider whether
t

the customers requirements meet the eligibility criteria of the


contract, eg the amount of required advance and the loan-to-value
ratio

the customer should have an interest-only or repayment mortgage, or


a combination of the two

the customer has a preference for a particular mortgage term

the customer has a preference or need for stability in monthly


payments

the customer has a preference or need for monthly payments to be


reduced at the outset, eg for a discounted rate mortgage

ifs School of Finance 2013

MCOB 17

The FCAS Mortgage Conduct of Business Rules


t

the customer intends to make early payments

the customer has a preference or need for any other features of a


mortgage contract, eg payment holidays.

4.28 The above Rule does not require a firm to provide advice on regulated
investments.
4.29 It is important to note that the assessment of suitability should not be
limited to types of regulated mortgage contract that a firm offers. It is not
acceptable to recommend the product that is closest to meeting a
customers needs and circumstances if the firm does not have access to
products which would be fully appropriate to those needs and
circumstances.
For example, a firm that only offers sub-prime products should not
recommend one of these products to a customer with an unblemished credit
record.

Record keeping
4.30 A firm must make and retain a record:
t

of all information provided by the customer, including that relating to


his needs and circumstances;

that explains why the firm has concluded that its personal
recommendation satisfies the suitability requirements.

The record must be retained for a minimum period of three years from the date
on which the personal recommendation was made. There is no requirement to
keep a record if the customer decides not to make an application.

Non-advised sales
4.31 If a firm arranges a regulated mortgage contract without giving a personal
recommendation, it must ensure that all the questions it asks the
customer about his needs and circumstances are scripted in advance.
4.32 Information provided to a customer in a non-advised sale must be clear,
fair and not misleading. The scripted questions should also be clear, fair
and not misleading.
MCOB 18

ifs School of Finance 2013

CeMAP Module 3

4.33 If, in the course of a non-advised sale, a firm decides that a customer is
considering a regulated mortgage contract that is inappropriate for that
customer, the firm should tell the customer to seek advice. This would
mean that the firm would be paying due regard to the customers
interests and treating him fairly.
4.34 A firm must ensure that all staff using scripted questions:
t

are trained in the use of the script

understand the difference between what constitutes a personal


recommendation and what does not.

4.35 A firm must make, and keep up to date, a record of all scripted questions
used. The record must be made on the date on which the questions are
first used.
The record must be kept for one year from the date that the questions were
replaced by up-to-date ones.

From 26 April 2014


4.36 The principle built into the April 2014 rule changes is that borrowers
should always receive qualified advice, which removes the option for a
firm to offer an information only service.
4.37 In the interest of customer freedom of choice, the regulator has defined
three broad exceptions, where individuals can opt for execution only,
provided they have done so at their own request and they understand the
consequences of losing the protection of the advice process:
t

High Net Worth and professional customers;

Where the service is through non-interactive channels, such as


internet or postal sales;

In the interests of freedom of choice, those considering equity release


or debt consolidation will be able to reject advice offered and
purchase another product on an execution only basis.

4.38 In addition, those customers who are looking to vary the terms of an
existing mortgage, either with their current lender or by moving to a new
lender may be dealt with on an execution only basis as long as the loan
amount will not increase.
ifs School of Finance 2013

MCOB 19

The FCAS Mortgage Conduct of Business Rules

4.39 A high net worth customer is defined as one with a minimum annual net
income of 300,000, or minimum net assets of 3m. In the case of joint
applicants at least one of them must meet the definition in their own
right. The firm must satisfy itself that the customer meets the
requirements for treatment as a high net worth customer and keep
records of the sale for at least three years from the start of the contract.
4.40 Lenders can apply higher-level requirements to high net worth
customers, based on three main factors;
t

Disclosure lenders can use a tailored approach, which primarily


focuses on the wording used;

Advice interactive sales may be conducted on an execution-only


basis, provided the customer has confirmed in writing that they are
aware of the consequences of losing the protections of the rules on
suitability;

Responsible lending lenders can be a little more flexible in the


assessment of affordability

4.41 A professional customer is defined as someone who has worked in the


finance sector for at least a year, in a professional position that requires
knowledge of the product or arrangements to be arranged, and who the
firm reasonably believes to be capable of understanding the risks involved
in the proposed arrangements. As long as the firm is satisfied that it has
evidence that the customer meets the criteria, it can deal with the
customer on an execution only basis. Records of the sale must be kept
for at least three years from the start of the contract.
4.42 A regulated mortgage for business purposes is a mortgage where the
mortgage will be secured on a property that meets the requirements for
a regulated mortgage (40% of the land occupied as a main residence, etc),
but the sole purpose of the loan, remortgage or further advance is to
raise additional money for the use of a business. MCOB will apply if the
business has annual turnover below 1m (i.e not a large business). The
lender must have seen a business plan or other evidence that the loan is
for business purposes, and the evidence must be kept for at least three
years from the date it was obtained.
4.43 Firms are expected to provide advice wherever the sales process involves
interactive dialogue, except for high net worth mortgage customers,
professional customers and loans solely for a business purpose where the
customer has positively opted not to receive advice.
MCOB 20

ifs School of Finance 2013

CeMAP Module 3

4.44 If a customer has rejected the advice given and wishes to take out a
different mortgage on an execution-only basis, the firm can arrange that
as long as the MCOB rules on execution-only sales are satisfied.
4.45 Execution only sales can normally be arranged only in cases where:
t there is no spoken or other interactive dialogue between the firm and
the customer during the sale; or
t if there is spoken or other interactive dialogue between the firm and
the customer during the sale the customer is a high net worth
mortgage customer or a professional customer or the loan is solely
for a business purpose. If any of these apply the customer must
positively elect to proceed on an execution-only basis;
t the customer has rejected advice, identified the product he wants,
provided the firm with details about the chosen product and positively
elected to proceed with an execution-only sale, as described above.
4.46 With the exception of loans to high net worth customers, professional
customers or mortgages solely for business purposes, a firm must not
enter into or arrange an execution-only sale if:
t the customer is intending to use it to exercise a statutory right to
buy their home; or
t the main purpose of the customers entering into it is to raise funds
for debt consolidation; or
t there is spoken or other interactive dialogue between the firm and the
customer at any point during the sale.
4.47 Borrowers seeking to vary the terms of an existing mortgage, either with
their existing lender or by moving to a new lender, can do so on an
execution only basis as long as the new arrangement does not involve
extra borrowing, other than to cover any product or arrangement fees.
4.48 Records of execution only sales must be kept for three years from the
start of the contract, and must include the details given by the customer
about the mortgage product chosen and details of any rejected advice.
4.49. Interest only mortgages are addressed in two parts of the 2014 MCOB
4.7a Advised Sales and 11.6 Responsible Lending. MCOB 4.7a requires a
firm to make sure that the customer demonstrates he has arranged a
clearly understood and credible repayment strategy that the lender has
assessed at the time to have the potential to repay the capital at the end
of the term. The lender is not required to provide advice on that strategy.
ifs School of Finance 2013

MCOB 21

The FCAS Mortgage Conduct of Business Rules

Chapter 5
Pre-application disclosure
5.1 A customer must be provided with an illustration before he submits an
application to a mortgage lender.
5.2 An illustration must be provided if a firm:
t

makes a personal recommendation to a customer to enter into a


regulated mortgage contract, or

provides information to a customer that is specific to the amount that


he wants to borrow, or

provides the means for a customer to make an application to it.

has already provided an illustration and the terms of the proposed


mortgage have materially changed between then and the application. A
revised illustration must be given before an application is made.

5.3 The purpose of this chapter is to ensure that, before a customer submits
an application, he is supplied with information that makes clear:
t

the features of the regulated mortgage contract for which an


application is to be made;

any linked borrowing or tied products that will be required;

the price that the customer will be required to pay.

5.4 A firm must be able to show that it has taken reasonable steps to ensure
that any illustration it issues is clear, fair and not misleading.
5.5. An illustration on a particular regulated mortgage contract issued by, or
on behalf of, a mortgage lender, must be an accurate reflection of the
costs of that contract.
5.6 A mortgage intermediary must take reasonable steps to ensure that an
illustration which it issues, or which is issued on its behalf by any firm
other than a mortgage lender, is no more than 1% or 1, whichever is the
greater, below the actual figures charged by the lender for:
t

the total amount that must be repaid

the amount to be paid for each 1 borrowed

the amount to be paid by regular monthly instalments

MCOB 22

ifs School of Finance 2013

CeMAP Module 3
t

the amount by which the monthly instalment would increase following


a 1% increase in the interest rate charged.

In addition, the APR quoted in the illustration must not be understated by


more than 0.1%.
5.7 There are no restrictions on figures being quoted higher than those
actually charged by the lender. However, this should not be purposely
done in order to make one contract look more expensive than another.
5.8 In providing an illustration to a customer, a firm must explain to the
customer the importance of reading and understanding it.
This Rule can be satisfied by drawing the customers attention in a face-to-face
meeting of the importance of reading and understanding the illustration,
or by referring to this in a covering letter sent with the illustration.
5.9 If a customer accesses a quotation on the Internet, the following warning
must be displayed prominently on each page on screen
This information does not contain all of the details you need to choose a
mortgage. Make sure that you read the separate illustration before you make
a decision.

Record keeping
5.10 A firm must make an adequate record of each illustration it issues. The
record must be retained for a year from the date of the customers
application.
5.11 The record should contain the following information;
t

the date on which the illustration was provided to the customer;

the date of the customers application;

how the illustration was provided, eg by post or accessed on a


website.

5.12 A firm is not required to keep a record of any illustration that is issued
to a customer where he does not apply to enter into that particular
contract.

ifs School of Finance 2013

MCOB 23

The FCAS Mortgage Conduct of Business Rules

Tied products
5.13 If an illustration provided to a customer does not contain an accurate
quotation or reasonable estimate of the payments the customer will be
required to make in connection with any tied product, then:
t

an accurate quotation must be provided as soon as possible after an


application has been made, and before an offer of advance is issued;

the customer has a right to withdraw his application for a period of


seven days from receipt of the quotation for the tied product;

the quotation for the tied product must be accompanied by a notice


explaining that the customer can withdraw his application within seven
days from receipt and receive a full refund of any fees paid.

Timing
5.14 An illustration for a regulated mortgage contract must be provided
before the customer submits an application for that particular contract.
5.15 An illustration for a regulated mortgage contract must be issued at the
point at which any personal recommendation is made to the customer. If
the personal recommendation is made by telephone, the illustration must
be provided within five business days.
5.16 An illustration must also be provided if a firm provides written
information that is specific to the amount that the customer wishes to
borrow on a particular regulated mortgage contract.
5.17 A firm must not accept fees or commission a valuation until the customer
has had the opportunity to consider an illustration.

MCOB 24

ifs School of Finance 2013

CeMAP Module 3

No preference expressed on method of repayment


5.18 If a customer expresses no preference between a repayment and an
interest-only mortgage, the firm must:
t

provide an illustration for a repayment mortgage;

make the customer aware that the illustration has been prepared on
this basis.

Format and content of an illustration


5.19 An illustration provided to a customer must:
t

contain all the material set out in the specimen illustration (see
below);

follow the prescribed template;

use font sizes and typefaces that make it sufficiently legible to a typical
customer.

An illustration must not contain any material other than that prescribed in the
Rules.
5.20 It is not acceptable for an illustration to contain information relating to
more than one regulated contract, ie comparisons between different
products must not be made.

Format of the illustration


The standard format and content of an illustration is shown below. It is
followed by explanatory notes for each section.

ifs School of Finance 2013

MCOB 25

The FCAS Mortgage Conduct of Business Rules

Personalised illustration for:


Date produced:
Insert details of how long the illustration is valid for, and if appropriate when
the mortgage needs to commence by
This is not a legally binding mortgage offer and it does not oblige (name of
mortgage lender) to provide you with the mortgage described in this
illustration.

1. About this illustration


We are required by the Financial Conduct Authority (FCA) the independent
watchdog that regulates financial services to provide you with this
illustration.
All firms selling mortgages are required to give you illustrations like this one,
that contain similar information presented in the same way.
Ensure that you obtain other illustrations if you want to compare this
mortgage with mortgages from other lenders.

2. Which service are we providing you with?


We recommend, having assessed your needs, that you take out this mortgage.
We are not recommending a particular mortgage for you. However, based
on your answers to some questions, we are giving you information about this
mortgage so that you can make your own choice.

3. What you have told us


4. Description of this mortgage

MCOB 26

ifs School of Finance 2013

CeMAP Module 3

5. Overall cost of this mortgage


The total amount you must pay back,
including the amount borrowed is

...

This means you pay back

... for every 1 borrowed

The overall cost for comparison is

...%APR

6. What you will need to pay each (insert frequency of payments)

This box is required only where all or part of


the mortgage is an interest-only mortgage. It
must be deleted for repayment mortgages.
Cost of repaying the capital
This section is required only for deferred interest rate mortgages.
This table shows the effect of the deferred interest being added to the amount
you owe. Where the interest rate is variable: The amounts in the table could
be considerably different if the interest rate changes.
Year

Interest
deferred

Amount of
deferred interest
that is added to
the mortgage

Remaining debt
before deferred
interest is added

Remaining debt
with deferred
interest added

7. Are you comfortable with the risks?

ifs School of Finance 2013

MCOB 27

The FCAS Mortgage Conduct of Business Rules

8. What fees must you pay?

Fee amount

Fees payable to (insert name of mortgage lender) Insert amount of each fee
Other fees

Insert amount of each fee

9. Insurance

Insert frequency of
payments for premium
quoted payments

Insurance you must take out through (insert


name of mortgage lender or mortgage
intermediary)

Insert amount(s) if
appropriate

Insurance you must take out as a condition of


this mortgage but that you do not have to
take out through (insert name of mortgage
lender or mortgage intermediary)

Insert amount(s) if
appropriate

This box is required only where quotations


for optional insurance are provided in
the illustration

Insert amount(s)

Optional insurance

10. What happens if you do not want this mortgage any more?
Early repayment charges
What happens if you move house?

11. What happens if you want to make overpayments?

12. Additional features

MCOB 28

ifs School of Finance 2013

CeMAP Module 3

13. Using a mortgage intermediary


(This section is required only when the illustration is provided to a customer
by, or on behalf of, a mortgage intermediary. If the illustration is provided by a
mortgage lender, this section must be removed and Section 14 must be
renumbered Section 13)

14.Where can you get more information about mortgages?


The Money Advice Service publishes useful guides on choosing a mortgage.These
are available free through its website: www.moneyadviceservice.org.uk, or
by calling 0300 500 5000. The website also provides Comparative Tables to help
you shop around.
Your home may be repossessed if you do not keep up repayments on
your mortgage
For foreign currency mortgages add the following risk warning:
Changes in the exchange rate may increase the sterling equivalent
of your debt
Section 1 about this illustration
5.21 The prescribed text shown in the specimen illustration must be included.
Section 2 which service are we providing you with?
5.22 The appropriate check box must be marked prominently to indicate the
level of service provided to the customer.
Section 3 what you have told us
5.23 The following information must be included:
t

the amount of the loan required;

the price of the property to be purchased;

the mortgage term;

whether the contract is to be an interest-only or repayment


mortgage, or a combination of the two.

ifs School of Finance 2013

MCOB 29

The FCAS Mortgage Conduct of Business Rules

Any other relevant information given by the customer can also be included.
5.24 Any fees and other charges that are to be added to the loan must be
shown clearly after the amount of the loan
5.25 Similarly, any insurance premiums that are to be added to the loan must
also be shown clearly.
5.26 If the customer is required to pay any fees or charges, but these are not
being added to the amount to be borrowed, the following text must be
added after the loan amount.
No fees have been added to this amount but the fees you need to pay are
shown in section 8.
5.27 If no fees or charges are required to be paid by the customer, and no
insurance premiums are being added to the loan, the following text must
be added after the loan amount
We do not charge any fees for this mortgage.
5.28 If the illustration is in respect of a contract that is part interest-only and
part repayment, it must show the amount that is being borrowed on each
basis.
5.29 At the end of Section 3 of the illustration a statement must be included
making it clear that any changes to the information obtained from the
customer, or any change to the property valuation, could alter the
illustration, and encouraging the customer to ask for a revised illustration.
Section 4 description of this mortgage
5.30 This section of the illustration must
t

state the name of the lender providing the mortgage

provide a description of the interest rate type (eg fixed, discounted,


capped etc) and the rate of interest to be charged

unless the interest rate applies for the full term of the loan, confirm
the period during which it will apply and the date on which it ends

where there is more than one interest rate type or rate of interest,
specify the amount of the loan to which each applies

MCOB 30

ifs School of Finance 2013

CeMAP Module 3
t

if the customer is obliged to buy a tied product or take out a linked


current or savings account, state the details of the products required

where the interest rate, payments or terms and conditions of the


contract reflect the customers adverse credit history, include the
following text

The terms of this mortgage reflect past or present financial difficulties.


Section 5 overall cost of this mortgage
5.31 In the case of an interest-only mortgage, the following text must be
inserted
However, it excludes any payment that you may need to make into a separate
savings plan to build up a lump sum to repay the amount borrowed.
5.32 In the case of a repayment mortgage, the following text must be inserted
With a repayment mortgage you gradually pay off the amount you have
borrowed, as well as the interest, over the life of the mortgage.
5.33 This section of the illustration must show:
t

the total amount to be repaid, ie the amount borrowed plus all


interest charged;

the amount to be repaid per 1 borrowed, ie the figure given above


divided by the amount borrowed;

the overall cost for comparison, ie the APR.

5.34 At the end of this section the following text must be included:
Unless the interest rate is fixed throughout the term of the mortgage, the
figures given in this section will vary following interest rate changes.
Section 6 what you will need to pay each month
5.35 This section must contain:
t

the amount of the loan on which the illustration is based, including all
fees, charges and insurance premiums that have been added to it;

the date on which the mortgage is expected to start;

ifs School of Finance 2013

MCOB 31

The FCAS Mortgage Conduct of Business Rules


t

the number of monthly payments;

whether the interest rate is fixed or variable;

the interest rate charged on the mortgage at the time the illustration
is issued;

the amount of each monthly instalment at the interest rate quoted.

An example of how this last piece of information can be presented is as


follows. Assume a mortgage term of 25 years, where the interest rate is fixed
for the first five years. The information shown will be:
60 payments at a fixed rate of x%
followed by
240 payments at a variable rate, currently y%.
5.36 In the case of a deferred interest mortgage, the following text must be
inserted:
The deferred interest will be added to your mortgage.
5.37 For an interest-only mortgage, the following text must be inserted under
the heading Cost of repaying the capital
You will still owe (insert the amount of the loan) at the end of the mortgage
term. You will need to make separate arrangements to repay this. When
comparing the payments on this mortgage with a repayment mortgage,
remember to add the payment that you may need to make into a separate
savings plan.
5.38 If the customer is required to take out a repayment vehicle that is a tied
product then this section must include the appropriate details and an
accurate quotation or a reasonable estimate of the payments to be made.
If a quotation cannot be provided it must be clearly stated that it is not
available at present but will be provided as soon as possible. If the quotation is
found to be unacceptable, then the application can be cancelled with a full
refund of all fees.

MCOB 32

ifs School of Finance 2013

CeMAP Module 3

Section 7 are you comfortable with the risks?


5.39 Under the heading What if interest rates go up? this section must include
t

if the interest rate is fixed throughout the mortgage term, an


explanation that monthly payments will not vary

if the interest rate is fixed for part of the term, an explanation of how
increases in the interest rate charged will affect the customers
monthly repayments

if the interest rate is capped or collared, or both, and this applies


throughout the mortgage term, an explanation that this is the case.

if the interest rate is capped or collared , or both, and this applies for
only part of the mortgage term, an explanation of how increases in the
interest rate charged will affect the customers monthly payments

the following statement in respect of the effect of increases in the


interest rate charged, ie:

The monthly payments shown in this illustration will increase by x


for each 1% increase in the interest rate charged.

the following statement under the heading What if your income goes
down?

You will still have to pay your mortgage if you lose your job or if illness
prevents you from working. Think about whether you could do this.

5.40 The amount by which the customers payments would increase following
an interest rate increase (see 5.39) must be calculated using:
t

the total amount borrowed, or

the amount outstanding from the earliest date at which the rate
charged can vary, eg on a fixed rate mortgage, this would be the date
on which the fixed rate ends; and

the interest rate charged at the date the illustration was issued.

5.41 The following text must be included at the end of this section:
The FCAs guide entitled You can afford your mortgage now, but what if,
will help you consider the risks.

ifs School of Finance 2013

MCOB 33

The FCAS Mortgage Conduct of Business Rules

Section 8 what fees must you pay?


5.42 This illustration must:
t

itemise all fees that are included in the APR calculation, excluding any
compulsory mortgage payment protection insurance;

include the following statement:

You may have to pay other taxes or costs in addition to any fees shown here.
Fees to be itemised in this section include a fee to re-inspect the property
following completion of works (if known at the time the illustration is
issued), and any fee payable when the loan is fully repaid.
5.43 The fees payable to the lender must be shown separately to any other
fees payable. Other fees include those charged by a mortgage
intermediary for giving advice and arranging a mortgage.
5.44 The following information must be provided for each fee included in this
section:
t

a description of the fee;

the amount payable;

to whom the fee is payable, where it is not payable to the lender;

when the fee is payable;

whether or not it is refundable;

whether the fee is accurate or estimated.

5.45 If a fee is to be added to the loan, this should also be stated.


5.46 If a higher lending charge is payable by the customer, the following
statement must be included
A higher lending charge is payable because you are borrowing x% of the
propertys price or value (estimated if not known when issuing the
illustration).
5.47 A lender must provide a tariff of charges on request by the customer.

MCOB 34

ifs School of Finance 2013

CeMAP Module 3

Section 9 insurance
5.48 This section must include details of any:
t

insurance product which is a tied product;

insurance product required as a condition of the mortgage which is


not a tied product;

insurance products that are optional.

It must be clearly stated from whom any tied insurance product must be
purchased, ie the lender or the mortgage intermediary.
5.49 The following information must also be included in respect of each tied
insurance product:
t

for how long the customer is obliged to purchase the insurance;

an accurate quotation or reasonable estimate of the payments


required;

details of when the payments for such insurance change, eg if they are
reviewed annually.

5.50 If the customer is not required to take out any tied insurance product
then this must be clearly stated in this section.
5.51 If the lender or intermediary makes a charge where the customer decides
not to purchase a compulsory insurance product through the lender or
intermediary, this must be clearly stated. The amount of the charge and
the frequency with which it is payable must also be stated.
5.52 If the customer has asked for any insurance premiums to be added to the
amount borrowed, the following statement must be included
The annual insurance premium will be added to your mortgage account. This
will increase the amount you owe.
This statement must also give the period within which the premium can be
paid before interest is charged on it.

ifs School of Finance 2013

MCOB 35

The FCAS Mortgage Conduct of Business Rules

Section 10 what happens if you do not want this mortgage any more?
5.53 The following information must be included under the heading Early
repayment charges:
t

whether the customer is not permitted to repay the mortgage early;

whether any early repayment charges are payable, and, if so, when;

an explanation of any other fees that are payable if the mortgage is


repaid early, and the current level of those fees;

an explanation of the basis on which early repayment charges are


calculated, including details of any cashback or other incentives that
must be repaid;

the maximum amount of any early repayment charge payable.

5.54 Under the heading What happens if you move house? details must be
provided of whether the mortgage is portable on moving house and if any
conditions or restrictions will apply.
Section 11 what happens if you want to make overpayments?
5.55 This section must include details of any restrictions that apply to lump
sum and regular overpayments, together with a statement as to whether
or not the amount of the loan on which interest is calculated is reduced
immediately on receipt of any lump sum or regular overpayment.
If such recalculation of interest is not immediate, details must also be included
of when the recalculation will be made.
Section 12 additional features
5.56 This section must include details of any additional features under the
following headings:
1
Underpayments
Details of the circumstances in which underpayments can be made and
whether any conditions apply.
2
Payment holidays
Details of the circumstances in which payment holidays can be taken and
whether any conditions will apply.
MCOB 36

ifs School of Finance 2013

CeMAP Module 3

3
Borrow back
Details of the circumstances in which the customer can borrow back any
moneys overpaid and whether any conditions will apply.
4
Incentives
Details of any incentives, eg cashback. If a cashback is provided, the amount of
the cashback and when it will be paid must also be provided.
5
Additional borrowing available without further approval
Details of the circumstances in which the customer can increase the amount
of the loan on which the illustration is based without further approval by the
lender, eg if there are drawdown facilities.
6
Additional secured borrowing
Details of the circumstances in which additional secured lending is offered.
7
Unsecured borrowing
Details of the circumstances in which unsecured lending is offered.
8
Credit card
This must state whether a credit card is offered with the mortgage.
9
Linked current account
Whether a linked current account is compulsory or optional and an
explanation of the interest rates that apply under different circumstances to
the account. The firm providing the linked current account, if not the mortgage
lender, must also be stated.
10 Linked savings account
Whether a linked savings account is compulsory or optional and the interest
rate paid if it differs from the interest rate charged on the mortgage. The firm
providing the linked savings account, if not the mortgage lender, must also be
stated.

ifs School of Finance 2013

MCOB 37

The FCAS Mortgage Conduct of Business Rules

5.57 If any of the additional features under headings 5, 6 and 7 apply, then the
following information must also be given:
t

the maximum additional amount available;

the total resulting debt that the customer could incur, including the
amount of the original loan;

the monthly payments on this total debt;

whether the additional borrowing must also be repaid in full if the


original loan is repaid in full;

if early repayment charges apply to the additional amount borrowed.

Section 13 using a mortgage intermediary


5.58 If the illustration is issued to a customer by, or on behalf of, a mortgage
intermediary the following information must be provided:
t

the amount payable by the lender to the intermediary;

the name of the lender who will make the payment, and the name of
the mortgage intermediary who will be paid.

5.59 If the amount payable by the lender to the intermediary is 250 or less,
the intermediary need only state that the amount is no more than 250,
unless the customer requests the actual amount.
5.60 The amount payable by the lender must include:
t

any procuration fee; and

a cash value for any material non-cash inducements.

Section 14 where can you get more information about mortgages?


5.61 This section must be renumbered Section 13 if the illustration is not
provided by, or on behalf of, a mortgage intermediary.
5.62 This section must include the following text
The Money Advice Service publishes useful guides on choosing a mortgage.
These are available free through its website: www.moneyadviceservice.org.uk,
or by calling 0300 500 5000. The website also provides Comparative Tables to
help you shop around.
MCOB 38

ifs School of Finance 2013

CeMAP Module 3

5.63 The name, address and contact point of the firm providing the illustration
must be given under the heading Contact details.
5.64 The following text must be prominently displayed after the contact
details:
Your home may be repossessed if you do not keep up repayments on your
mortgage.

Chapter 6
Disclosure at the offer stage
6.1 This chapter applies only to mortgage lenders and where an offer has
been made by a firm to a customer with a view to the firm
t

entering into a regulated mortgage contract; or

varying the terms of a regulated mortgage contract by:

adding or removing a party,

making a further advance, or

switching all or part of the mortgage from one type of interest rate
to another.

6.2 This chapter does not apply to regulated lifetime mortgage contracts.
6.3 If a firm offers to enter into a regulated mortgage contract with a
customer, it must provide an offer document containing an illustration.
The offer must be based on the information set out in the illustration.

Records
6.4 A firm must make an adequate record of each offer document it issues,
and this record must be retained for a year from the date of issue.

ifs School of Finance 2013

MCOB 39

The FCAS Mortgage Conduct of Business Rules

Amendments to the illustration


6.5 The illustration provided as part of the offer document must be suitably
adapted and revised to reflect that the firm is making an offer to the
customer.
The following text must be included under the heading About this offer
document in Section 1 of the illustration:
You are not bound by the terms of this offer document until you have signed
the legal charge.
You should compare this offer document with the illustration given to you
before you applied for this mortgage to see how the details may have changed.
6.6 The heading Which service are we providing you with? must be replaced
by Which service did we provide you with? The wording under this text
should be amended to read:
t

we have recommended, having assessed your needs, that you take out
this mortgage;

we have not recommended a particular mortgage for you. You must


make your own choice whether to accept this mortgage offer.

The appropriate box alongside these options should be marked prominently to


indicate the level of service provided.
6.7 Where all or part of the mortgage is on an interest-only basis, the
illustration that forms part of the offer document must:
t

clearly state that the payments cover only interest, and not the capital
borrowed;

state the repayment vehicle the customer intends to use where these
details are known if the firm does not know how the customer
intends to repay the capital, it must be clearly stated that the
repayment vehicle is unknown and the customer provided with a clear
reminder of the need to put suitable arrangements in place;

include a reminder to the customer to check regularly the


performance of any investment used as a repayment vehicle to see
whether it is likely to repay the capital at the end of the mortgage
term.

MCOB 40

ifs School of Finance 2013

CeMAP Module 3

6.8 In adapting and revising the original illustration a firm must:


t

avoid amending the format where possible as this could result in the
illustration that forms part of the offer document being difficult to
compare with the original illustration;

use, where possible, the same headings, order of information and


language that appeared in the original illustration.

6.9 The illustration that forms part of the offer document must form an
integral part of that document. It must not be a separate document.

Other information contained in the offer


6.10 A firm must ensure that the offer document contains a prominent
statement:
t

of the period for which the offer is valid;

explaining that once the mortgage has been completed there will be
no right of withdrawal;

explaining that the customer will have a right to repay the mortgage
in accordance with the terms of the contract;

explaining the consequences that might arise from the customer not
entering into the contract, eg any fees that have been paid that will not
be reimbursed.

6.11 A firm must ensure that under the heading Contact details, information
is given on how to complain to the firm about the services it has provided
and whether or not complaints may subsequently be referred to the
Financial Ombudsman Service.
6.12 The offer document must be accompanied by a tariff of charges that could
be incurred.

ifs School of Finance 2013

MCOB 41

The FCAS Mortgage Conduct of Business Rules

Chapter 7
Disclosure at start of contract and after sale
7.1 This chapter applies if a firm
t

enters into a regulated mortgage contract with a customer; or

administers a regulated mortgage contract entered into with a


customer; or

arranges or advises on or makes a further advance or other variation


to the terms of a regulated mortgage contract entered into with a
customer.

Disclosure requirements
7.2 A firm must provide the customer with the following information before
the first mortgage payment is made:
t

the amount of the first payment required;

the amount of subsequent payments if different from the first payment;

the method by which payments will be collected, eg by direct debit;

the date of collection of the first and subsequent payments;

confirmation of which, if any, associated insurance or investment


products have been purchased through the firm;

the premiums for any insurance or investment products purchased


through the firm, and confirmation of whether these premiums are to
be collected with the mortgage payment or separately;

whether the mortgage contract


underpayments to be made;

confirmation of whether the mortgage is repayment or interest-only,


or a combination of both;

if the mortgage is interest-only, a reminder to check that any


repayment vehicle is in place if this has not been provided by the firm;

what the customer should do if he falls into arrears, ie make early


contact with the firm, and drawing the customers attention to the
arrears charges set out in the tariff of charges, and the firms address
and telephone number of a contact point.

MCOB 42

allows

overpayments

or

ifs School of Finance 2013

CeMAP Module 3

Record keeping
7.3 A firm must make an adequate record of the information disclosed to
each customer at the start of the mortgage, and retain this record for a
year from the date the information is provided to the customer.

Annual statements
7.4 A firm must provide the customer with a statement at least once a year
covering the mortgage and any tied products purchased through the firm.
7.5 The annual statement must contain the following:
t

a clear statement of whether the mortgage is interest-only or


repayment, or a combination of both;

a prominent reminder, where the mortgage is interest-only, of whether


the monthly payment includes the premiums on any repayment vehicle
and that they should check the performance of any such investment;

details of the following transactions during the period since the last
statement was issued:

the date and amount of each payment made,


the amount of each payment that was due,
the rates of interest charged,
the amount of interest charged,
any other amounts or fees charged;
t

a reminder that the customer should contact the firm if he is unable


to make regular monthly payments

the amount owed by the customer on the date the statement is issued

the remaining mortgage term

the date on which any early repayment charges cease to apply

a revised tariff of charges if changes have been made since the last
annual statement was issued and these have not previously been
notified to the customer.

ifs School of Finance 2013

MCOB 43

The FCAS Mortgage Conduct of Business Rules

Further advances
7.6 Before a customer submits an application to a lender for a further
advance on an existing regulated mortgage contract, or for a further
advance that will be regulated, the firm must provide the customer with
the required illustration detailed in Chapter 5 pre-application
disclosure.
7.7 The illustration must
t

be based on the amount of the further advance only

use the term additional borrowing in place of the term mortgage


throughout the illustration

include a clear statement explaining the total amount that the


customer will owe if he takes out the additional borrowing, and what
the new monthly payment will be.

Rate switches
7.8 Covers change of interest rate type requires new illustration for the
whole loan.

Addition or removal of a party to the contract


7.9 A firm is not required to provide an illustration where the removal of a
party is due to the death of that party, and no other party is to be added
to the mortgage.
7.10 In all other cases, before a customer submits an application to add or
remove a party to a mortgage, a firm must provide any customer who will
remain or become a party to the mortgage with the illustration detailed
in Chapter 5 pre-application disclosure.
7.11 For the purposes of the previous two paragraphs, a guarantor is not
regarded as a party to a regulated mortgage contract.
7.12 The following text must be included in Section 2 of the illustration under
the heading Which service are we providing you with?
We are providing you with an illustration for the addition/removal of a
party/parties to this mortgage.You must make your own choice about whether
changing the parties to this mortgage is right for you.
MCOB 44

ifs School of Finance 2013

CeMAP Module 3

Changes to the monthly payment


7.13 If a customer requests, or agrees to, a change to the monthly payment on
a regulated mortgage contract, a firm must provide the customer with the
following information before the change in monthly payment takes effect
t the amount outstanding at the date the change is requested;
t the new payment due and the date from which it will take effect;
t the new interest rate to be charged and the date from which it will
take effect;
t details of any charges that apply for changing the monthly payment;
t if the mortgage is to be changed from repayment to interest-only, a
prominent reminder that the customer should have in place
arrangements to repay the capital.
7.14 The above Rule will apply in the following cases:
t if the customer requests a change to the term of his mortgage;
t the lender has agreed to capitalise arrears;
t a fixed, discounted or capped rate period is coming to an end.

Chapter 8
Equity Release
Chapter 8 applies to the advising on and arranging lifetime mortgages and
home reversion plans, both of which require specialist qualifications for
advisers. Apart from a general understanding of this type of product CeMAP
candidates will not have to demonstrate detailed knowledge of the area. This
MCOBs summary covers the basic requirements.
8.1 The general rules on mortgage advice and suitability apply to equity
release, so will not be repeated here. However, where the plan does not
require regular payments during the applicants lifetime, the rules on
affordability are not applicable.
8.2 The firm must take into account the effect the plan will have on the
customers tax position and eligibility for state benefits as part of the
suitability assessment. It must also consider whether alternative methods
of meeting the customers objectives may be more suitable.
8.3 With regard to non-advised sales, the provider must cover the same areas
when helping the customer to select a product.
ifs School of Finance 2013

MCOB 45

The FCAS Mortgage Conduct of Business Rules

Chapter 9
Lifetime mortgages: product disclosure
9.1 Product disclosure follows the principles for general mortgage advice
with adaptations to allow for the different features of the products, such
as the effect of rolling up interest and the effect of house price changes.

Chapter 10
Annual Percentage Rate
10.1 This chapter deals with the complexities of the annual percentage rate
(APR) calculation. This is not considered to be an essential requirement
of this qualification, although an explanation of the fundamentals of this
particular topic is given in the study material for Unit 5 of CeMAP
Module 2.

Chapter 11
Responsible lending
11.1 This chapter applies to mortgage lenders but only where the lender:
t

enters into a regulated mortgage contract with a customer; or

makes a further advance on an existing regulated mortgage contract.

11.2 A lender must be able to show that, before deciding to enter into a
regulated mortgage contract with a customer, account was taken of the
customers ability to repay.
11.3 A lender must make an adequate record to demonstrate that it has taken
account of the customers ability to repay. The record must be retained
for a year from the date on which the regulated mortgage contract is
entered into.
11.4 The Rules described in paragraphs 11.2 and 11.3 apply where a further
advance is made on a regulated mortgage contract.

MCOB 46

ifs School of Finance 2013

CeMAP Module 3

Responsible lending policy


11.5 A mortgage lender must put in place, and operate in accordance with, a
written policy setting out the factors it will take into account in assessing
a customers ability to pay.
A lender must make and keep up-to-date an adequate record of its responsible
lending policy. If the policy is changed, a record of the previous policy must be
retained for a year from the date of the change.

From 26 April 2014


11.6 The basic principles have been tightened.
t

Before entering into, or agreeing to vary, a regulated mortgage


contract or home purchase plan, a firm must assess whether the
customer (and any guarantor of the customer's obligations under the
regulated mortgage contract or home purchase plan) will be able to
pay the sums due; and

the firm must not enter into the transaction unless it can demonstrate
that the new or varied regulated mortgage contract or home purchase
plan is affordable for the customer (and any guarantor).

This requirement does not apply if the new arrangement is to vary the terms
of an existing mortgage or replace an existing mortgage with a new lender,
providing that no further borrowing is undertaken.
11.7 The new affordability measures mean that lenders will always have to
obtain reliable evidence and verification to confirm that the income
declared by the applicant is correct, and that the lending decision should
be based on that evidence.
11.8 The rules specifically prohibit self-certification and insist that evidence of
income must be obtained from a source that is independent of the
customer rather than from the customer.
11.9 Where the firm is, or reasonably should be, aware of any future changes
to the customers income or expenditure, it should take that into account
when assessing affordability.
11.10 If the term of the mortgage will extend beyond the customers expected
retirement date (or state pension age if that date is unknown) the firm
ifs School of Finance 2013

MCOB 47

The FCAS Mortgage Conduct of Business Rules

should take a prudent and proportionate approach to assessing income


beyond that date.
11.11 Affordability must be based on the applicants free disposable income
the amount left each month after normal expenses. There are three
types of expenditure to be considered:
t

Committed expenditure that will continue after the mortgage starts;

Basic essential expenditure of the household, which includes costs


needed to maintain the basic living needs of the household;.

Additional expenditure required to provide a basic quality of life


beyond the bare necessities.

Lenders can use exact figures or base this expenditure on statistical or


modelled data.
11.12 Debt consolidation if the increased mortgage would not be affordable
unless the other debts were paid off, the lender must take reasonable
steps to ensure that the debts are repaid on completion of the
mortgage.
11.13 Interest only mortgages where there is a credible method of capital
repayment, as mentioned in Chapter 4, affordability can be assessed on
an interest only basis, but the specific repayment vehicle costs (not an
estimate) must be taken into account. Lenders must ensure they obtain
evidence of the repayment strategy and its credibility at the application
stage and keep records relating to the rationale behind its lending
decision. Once the mortgage has started, the lender should take
reasonable steps to contact borrowers at least once during the
mortgage term to check on the repayment strategy.The check should be
carried out at such a time that allows the customer time before the end
of the term to rectify any potential underfunding issues.
11.14 Future interest rate increases the lender must look at the impact of
potential interest rate increases on the borrowers ability to maintain
mortgage payments in the future. Lenders must consider whether the
mortgage would still be affordable if interest rates reached a certain
figure, which can be established with reference to market expectations
over the next five years (or the mortgage term if it less than five years).
Lenders must use an independent and recognised source of information
when deciding on the rate, and must assume an increase of at least 1%
over the period.
MCOB 48

ifs School of Finance 2013

CeMAP Module 3

11.15 There are transitional arrangements for those borrowers who already
have a mortgage, but may be affected by the new rules when they seek
a new mortgage. For example, those who have an existing interest only
or self-certified loan and wish to move or remortgage. In these cases,
providing the applicant meets certain conditions, a new lender has the
discretion to grant a new mortgage. This can apply when the borrower:
t

Can demonstrate a good payment history for at least the previous 12


months;

Is not be seeking to borrow additional money;

The new monthly payment is the same as or lower than their current
payment.

11.16 A firm must make an adequate record for each customer of the steps it
takes to comply with the responsible lending rules. The records must be
in paper or electronic form and kept for the term of the mortgage.

Chapter 12
Charges
12.1 This chapter applies where a firm
t

enters into, or makes a further advance on, a regulated mortgage


contract; or

administers a regulated mortgage contract; or

arranges or advises on a regulated mortgage contract.

Early repayment charges


12.2 A firm must ensure that any regulated mortgage contract that it enters
into does not impose an early repayment charge other than one that is:
t

able to be expressed as a cash value; and

a reasonable pre-estimate of the costs payable if the customer repays


the full amount of the loan before the mortgage contract has reached
its termination date.

ifs School of Finance 2013

MCOB 49

The FCAS Mortgage Conduct of Business Rules

12.3 A firm is able to choose its own method for calculating early repayment
changes, except that it should not use the Rule of 78.
12.4 Before entering into a regulated mortgage contract, a firm must disclose
in the illustration provided as part of the offer of advance the maximum
amount payable as any early repayment charge that applies.

Arrears charges
12.5 A firm must ensure that any regulated mortgage contract it enters into
does not impose a charge for arrears on a borrower except where that
charge is a reasonable estimate of the cost for the additional
administration required as result of the borrower being in arrears.
12.6 The above Rule does not prevent a firm from entering into a regulated
mortgage contract under which the rate of interest charged on a fixed or
discounted rate mortgage can be increased to the firms standard variable
rate if the borrower goes into arrears.
However, the standard variable rate must not be one created especially for
borrowers in arrears.

Excessive charges
12.7
A firm must ensure that any regulated mortgage contract it enters into
does not impose excessive charges upon a borrower.
12.8

In determining whether a charge is excessive, a firm should consider:


t

charges for similar products or services on the market;

the extent to which the charge has been disclosed to the borrower;

the extent to which the charge is an abuse of the trust that the
borrower has placed in the firm.

MCOB 50

ifs School of Finance 2013

CeMAP Module 3

Chapter 13
Arrears and possessions
13.1 This chapter applies to the administration of a regulated mortgage
contract and the administration of a mortgage shortfall debt.
It continues to apply to a firm after a regulated mortgage contract has come
to an end following the sale of a repossessed property.
13.2 A firm must deal fairly with any customer who:
t

is in arrears on a regulated mortgage contract; or

has a mortgage shortfall debt.

13.3 A firm must put in place, and operate in accordance with, a written policy
and procedures for complying with the Rule described in paragraph 13.2.
13.4 A firm should ensure that its written policy and procedures include
t

using reasonable efforts to reach an agreement with a customer over


the method of repaying any payment shortfall or mortgage shortfall
debt

liaising with a third party source of advice regarding the payment


shortfall or mortgage shortfall debt

adopting a reasonable approach to the time over which the payment


shortfall or mortgage shortfall debt should be repaid , taking into
account the customers circumstances

granting, unless it has good reason not to do so, a customers request


to change the date on which the monthly payment is due or the
method by which the payments are made

giving consideration, where no reasonable payment arrangement can


be made, to the customer being allowed to remain in the property to
effect a sale

repossessing the property only when all other reasonable attempts to


resolve the position have failed.

13.5 The regulator takes the view that the determination of a reasonable
period for the repayment of arrears or a mortgage shortfall debt will
depend on the customers circumstances. In some cases this will mean
that repayments are arranged over the remaining term of the mortgage.
ifs School of Finance 2013

MCOB 51

The FCAS Mortgage Conduct of Business Rules

Record keeping
13.6 The lender must keep records of its dealings with borrowers who are in
arrears or have a shortfall debt. The records must be kept for three years
from the date of the dealings.

Provision of information to the customer


13.7 If a customer falls into arrears on a regulated mortgage contract, a firm
must provide the customer with the following information within 15
business days of becoming aware of the arrears:
t

the FCA information sheet on arrears What to do when you cant


meet your mortgage payments;

a list of the payments missed or only partly paid;

the total amount of the arrears;

the charges incurred as a result of the arrears;

the total outstanding debt, excluding any redemption charges;

the nature and level of charges that will be incurred unless the arrears
are cleared.

Procedure required before taking action for possession


13.8 Before commencing action for possession, a firm must:
t

provide a written update of the information required by the Rule


described in paragraph 13.7;

ensure that the customer is informed of the need to contact the local
authority to establish his eligibility for re-housing after possession has
been taken;

clearly state the possession procedure.

MCOB 52

ifs School of Finance 2013

CeMAP Module 3

Statement of charges
13.9 Where an account is in arrears and charges are being levied, a firm must
provide the customer with a regular written statement of the payments
due, the arrears, the charges incurred and the outstanding debt. The
statement should be provided at least once a quarter.
13.10 The written statement referred to above need not be sent if a
repayment plan is being adhered to and no charges are being made.
Pressure on customers
13.11 A firm must not put pressure on a customer through excessive
telephone calls or correspondence, or by contact at an unreasonable
hour.
13.12 A reasonable hour is considered to be between 8am and 9pm. However,
a firm should also take into account any knowledge that it has of a
customers work pattern or religious faith which might make it
unreasonable to contact him within these hours.

Marketing a repossessed property


13.13 A firm must ensure that when a property has been taken into
possession, steps are taken to:
t

market the property for sale as soon as possible; and

obtain the best price that might reasonably be paid, taking into account
market conditions and the increasing debt owed by the customer.

13.14 If the proceeds of sale are less than the outstanding debt, the customer
must be advised as soon as possible after the sale of:
t

the mortgage shortfall debt;

whether that shortfall debt may be pursued by another company, eg a


mortgage indemnity insurer.

13.15 If the firm decides to recover the mortgage shortfall debt, it must notify
the customer of this intention. Such notification must be made within six years
of the date of sale (five years if the mortgage is subject to Scots Law).

ifs School of Finance 2013

MCOB 53

The FCAS Mortgage Conduct of Business Rules

13.16 If the proceeds of sale are more than the outstanding debt, a firm must
take reasonable steps to inform the customer of the surplus and, subject
to the rights of any subsequent mortgagees, pay it to him.

MCOB 54

ifs School of Finance 2013

Certificate in Mortgage Advice


and Practice (CeMAP)
Sample synoptic paper
England and Wales

ifs School of Finance 2013

Case Study 1
Alec and Clare have lived in a rented flat since they were married two years
ago. Prior to this they redeemed their mortgage on their house when they sold
it to move to a different part of the country for work. They have approached
Western Bank to discuss the possibility of obtaining a mortgage. They are
hoping to purchase a leasehold flat which they have seen, having successfully
negotiated a 6,000 reduction in the original asking price of 254,000. The flat
is one of two above a high street shop, and has an unexpired lease of 75 years.
Each flat and the shop comprise equal floor areas.
They are both in full-time employment, earning guaranteed basic salaries of
44,000 and 40,000 respectively. They have asked the adviser for some
information on stocks and shares individual savings accounts (ISAs), as a friend
has suggested that it might be a good idea to use one of these as the
repayment vehicle for an interest-only mortgage.
Alec is expecting a substantial salary increase when he completes his training
in two years time, but until then he and Clare wish to know the maximum
monthly payment that they will be required to make. They want the cheapest
valuation option offered by Western Bank and are keen to protect the
mortgage with suitable life assurance.
Western Banks affordability criteria requires mortgage payments to be no
more than 80% of free disposable income taking into account committed
expenditure, basic essential expenditure and basic quality of living costs. The
maximum loan-to-value (LTV) is 90%. Additional security is required if the loanto-value ratio exceeds 80%.
Question 1
Which of the following statements is true in respect of the additional security
which the bank would require if an application is approved, the property is
valued at the agreed price, and Alec and Clare provide a 45,000 deposit?
A

It may be possible to add the charge to the advance.

Its primary purpose is to protect Alec and Claires interests.

The bank must encourage Alec and Claire to seek independent legal
advice.

The policy must be assigned to the bank.

ifs School of Finance 2013

Sample synoptic paper England and Wales

Question 2
Assuming they meet the lenders affordability criteria and the property is
valued at the agreed price, the maximum that Alec and Claire would be able to
borrow is:
A

198,400.

203,200.

223,200.

228,600.

Question 3
How much stamp duty land tax will be saved as a result of the agreed lower
purchase price?
A

60.

180.

5,140.

7,680.

Question 4
With regard to the freehold of the flat, which factor would prohibit its
purchase under current legislation?
A

The floor area of each property.

The number of flats in the block.

The purchase price of the property.

The remaining term of the lease.

ifs School of Finance 2013

CeMAP Module 3

Question 5
If Alec and Clare proceed with their preferred valuation option, what detail will
this confirm?A If the electrical system meets current standards.
B

If the plumbing system meets current regulations.

The amount for which the property should be insured.

The open market value for the property.

Question 6
Which of the following mortgage products would be most suitable for Alec and
Clare?
A

A Bank of England base rate tracker.

A discounted rate of 1.0% below the standard variable rate for a period
of five years.

A standard variable rate, currently 4.2%.

A variable rate, currently 4.2%, but capped at 4.4% for two years.

Question 7
In comparison to a similar sized flat in a purpose-built block in the same area,
Alec and Clare should understand that their flat is likely to be:
A

valued at a higher price.

valued at a similar price.

valued at a lower price.

impossible to compare to the price of the purpose-built flat.

ifs School of Finance 2013

Sample synoptic paper England and Wales

Question 8
With regard to the repayment vehicle in which they are interested, and their
desire for protection, of what should Alec and Clare be made aware?
A

Combining their chosen repayment vehicle with decreasing term


assurance will guarantee full repayment on death.

The need for protection is reduced due to the guaranteed maturity of


their chosen repayment vehicle.

Their chosen repayment vehicle automatically includes life assurance


cover.

Their protection product should cover the loan amount independently


of their repayment vehicle.

Question 9
Which of the following would not be a benefit of the type of repayment vehicle
being considered by Alec and Clare?
A

It may enable the mortgage loan to be repaid early.

The maturity date is fixed to coincide with the end of the mortgage
term.

The proceeds payable will be free of capital gains tax.

There is a wide choice of funds in which premiums can be invested.

Question 10
What specific information about the most suitable mortgage product must be
included in the key facts illustration provided to Alec and Claire before they
apply for their mortgage?
A

A description of the interest rates that may be available.

An explanation of how to switch to a different product.

That the rate will be fixed throughout the mortgage term.

What happens if they do not want their mortgage any more.

ifs School of Finance 2013

CeMAP Module 3

Case Study 2
Nathan and Louise are moving home and have approached the Island Building
Society for mortgage advice. Their existing mortgage is with their bank and
they have no protection products in place. Nathan, aged 40, is employed as an
operations manager in a local packing company. Louise is aged 39 and works
part-time in a local shop.
The property that Nathan and Louise intend to buy is a semi-detached house
built in 1980, costing 220,000. The couple have two children: Lorna, aged 20,
who is a full-time student, and Ethan, aged 16. Nathan and Louise require a
mortgage of 120,000 over 25 years. Although they regard their income as
adequate, they want to protect their outgoings against potential rises in
interest rates until Lorna completes her university course at the age of 23.
They are both entitled to three months sick pay, but Nathan is anxious to
protect their financial position if he is made redundant, or suffers an illness that
lasts longer than three months.
Nathan and Louise wish to ensure that their mortgage is paid off by the time
Nathan retires at age 65 and require appropriate life cover at the cheapest cost
available.
The couple asked Louises brother, a qualified surveyor, to informally look at
the property prior to making an offer. He has suggested that the house is
generally sound, the asking price fairly represents its value, but that it requires
some external decoration. He feels that the lender may ask for an undertaking
regarding the work.
Island Building Societys affordability criteria requires mortgage payments to be
no more than 80% of free disposable income. The maximum loan-to-value
(LTV) is 85%. As part of its affordability assessment, Island Building Society uses
figures available from the Office for National Statistics rather than exact figures

ifs School of Finance 2013

Sample synoptic paper England and Wales

Question 11
Island Building Societys method of assessing affordability means that Nathan
and Louise will not need to provide detailed evidence of their:
A

basic essential expenditure.

income from employment.

long-term commitments.

unsecured credit agreements.

Question 12
If Nathan and Louises monthly free disposable income is calculated by the
building society as 850, the maximum monthly mortgage payment they could
afford in line with the stated criteria is:
A

680.

722.50.

1,000.00.

1,062.50.

Question 13
In respect of the undertaking to complete the essential external decoration,
when must this be done?
A

Before exchange of contracts.

After exchange of contracts but before completion.

Within a specified time following completion.

Before the end of the mortgage term.

ifs School of Finance 2013

CeMAP Module 3

Question 14
To comply with the Mortgage Conduct of Business rules, the Island Building
Society adviser must ensure Nathan and Louise are aware of:
A

how he is remunerated.

how their credit score will be calculated.

the procuration fee that will apply.

the range of products he can recommend.

Question 15
If Nathan and Louise proceed with their mortgage, Island Building Society will
need to keep details of the illustration it issued in connection with their
application for:
A

six months.

one year.

three years.

twenty-five years.

Question 16
From the range of mortgage products available, which of the following most
closely matches Nathan and Louises requirements?
A

Standard variable rate, currently 4.49%.

Three-year base-rate tracker at 3.29%.

Three-year fixed rate at 4.00%.

Two-year discounted rate at 3.59%.

ifs School of Finance 2013

Sample synoptic paper England and Wales

Question 17
Bearing in mind their stated requirements, which life assurance product(s)
would be most suitable for Nathan and Louise in respect of the new
borrowing?
A

A level term assurance policy in joint names for 120,000.

A mortgage protection policy in joint names for 120,000.

Level term assurance policies for 60,000 each.

Mortgage protection policies for 60,000 each.

Question 18
The income protection product that would provide the protection Nathan
requires at lowest cost would:
A

be underwritten based on his occupation.

have a term matched to his retirement age

include a deferred period of 13 weeks.

pay benefits for a maximum period of one or two years.

Question 19
In respect of assessing the property as security, the building society is most
likely to:
A

accept Louises brothers findings.

insist on a building survey.

rely on Land Registry averages for the area.

require an independent valuation.

10

ifs School of Finance 2013

CeMAP Module 3

Question 20
If Nathan and Louise purchase the property at the stated price, what amount
of stamp duty land tax will they pay?
A

Nil.

1,200.

2,200.

6,600.

Case Study 3
Paul and Kelly are customers of Marsh Bank and they are seeking mortgage
advice. Paul, a sole trader, works as a graphic designer. Some years ago,
however, he worked for his father, who became insolvent and Paul is unsure
how this might affect his proposed mortgage application.
Paul is self-employed and full sets of accounts for each of the last few years
show steady profits. Last year he turned in a gross profit of 38,000. The net
profit was 28,000. Kelly is a systems analyst, and earns 24,000 pa.
They are looking to purchase a terraced house for 136,000, and have a
deposit of 24,200. The house was built in 1940 and, due to its age, Paul and
Kelly want to be sure that any defects in the property are identified before they
agree to the purchase.
For the past 10 years, Paul and Kelly have had an interest-only mortgage with
Marsh Bank of 68,000 on their flat, for which they have a unitised with-profits
endowment policy as the repayment vehicle. They would like a degree of
certainty regarding their mortgage arrangements and therefore wish their
additional borrowing to be on a repayment basis. However, they would like to
maintain the endowment as the repayment vehicle for the existing 68,000 as
it is currently on target.
They are considering a 36-month 3.85% capped rate mortgage that the bank
offers, compared with its standard variable rate of 4.00%. The initial mortgage
payments will be 490 per month. Marsh Banks affordability criteria require
mortgage payments to be no more than 85% of free disposable income taking
into account committed expenditure, basic essential expenditure and basic
quality of living costs. The maximum loan to value (LTV) is 90% and a higher
lending charge applies to loans above 80% LTV at a rate of 8%.
ifs School of Finance 2013

11

Sample synoptic paper England and Wales

Question 21
Paul is unsure what information the bank will require about his business in
order to assess his application. Which of the following will not be required?
A

Bank reference and / or statements.

Details of all regular outgoings.

Memorandum and Articles of Association.

Profit and loss account.

Question 22
What effect, if any, is Pauls fathers insolvency likely to have on any mortgage
application submitted by Paul and Kelly?
A

Only Kellys salary can be taken into account.

The banks normal maximum lending criteria will be reassessed.

Their application is likely to be automatically declined.

Their application should be processed on normal terms.

Question 23
Assuming the purchase proceeds at the agreed price, what amount of stamp
duty land tax, if any, will Paul and Kelly pay?
A

Nil.

1,360.

2,040.

2,380.

12

ifs School of Finance 2013

CeMAP Module 3

Question 24
Based on the figures quoted, to confirm affordability the lender will need to be
satisfied that Paul and Kellys monthly free disposable income is at least:
A

416.50.

490.00.

563.50.

577.00.

Question 25
The most appropriate report for Paul and Kelly to arrange in connection with
their proposed purchase is a:
A

Building Survey.

Condition Report.

Energy Performance Certificate.

HomeBuyer Report.

Question 26
Which of the following is incorrect with regard to the existing repayment
vehicle?
A

Life assurance cover is provided integrally within the policy.

Market value adjusters may apply on encashment before maturity.

Premiums buy units in the with-profits fund.

Unit values will rise or fall in line with the underlying fund(s) chosen.

ifs School of Finance 2013

13

Sample synoptic paper England and Wales

Question 27
Under the Mortgage Conduct of Business Rules, when advising Paul and Kelly,
Marsh Banks mortgage adviser does not need to provide:
A

a description of the types of interest rates available.

an explanation of whether their selected mortgage terms can be


continued if they move house.

details of the exact amount of any procuration fee.

details of any insurances required as a condition of the mortgage.

Question 28
Under Paul and Kellys preferred mortgage product, the interest rate will:
A

not change for the first three years.

not rise above the stated level for the first three years.

only change if the standard variable rate changes in the first three years.

only change when the standard variable rate increases.

Question 29
Paul and Kelly are likely to be aware that their endowment is on target:
A

due to the policys guaranteed maturity value.

from reviewing recent stock market returns.

from the providers past performance record.

from the latest review issued by the provider.

14

ifs School of Finance 2013

CeMAP Module 3

Question 30
If Marsh Bank agrees to lend the amount Paul and Kelly require, and the
property is valued at the agreed price, how much will the higher lending charge
be?
A

240.00.

1,936.00.

2,176.00.

3,000.00.

Case Study 4
Luke and Jessica, both aged 23, recently consulted an independent mortgage
adviser. They were keen to purchase their first property and needed advice
about how much they could borrow and the different repayment methods
available. Luke wanted to know in particular whether it would be worthwhile
using his personal pension plan to repay their mortgage, a method chosen by
his brother.
They have agreed a price of 140,000 on a two-bedroom terraced house. The
basic valuation carried out resulted in the need for an undertaking, although
the property was valued at the agreed price. Luke recently received an
inheritance and has total savings of 46,000 as a deposit.
Jessica has just completed a course of study and is now looking for suitable
employment. Luke is a researcher in the pharmaceutical industry and has been
working on a freelance basis for the past three years. He has achieved a net
profit of 34,000 and made personal drawings of 28,000 in the last year. His
trading in the previous two years produced similar results.
Luke is keen to have some peace of mind that his mortgage repayments are
protected in the event of his inability to work in the short term, particularly as
Jessica currently has no income. However, he wants to keep costs to a
minimum whilst his business is growing.
Luke and Jessica have been recommended a two-year base rate tracker
repayment mortgage at Bank of England base rate plus 2.19%. Bank of England
ifs School of Finance 2013

15

Sample synoptic paper England and Wales

base rate is currently 0.5% and the initial monthly cost per 1,000 borrowed
is 4.58. The recommended mortgage term is 25 years.
Having assessed their income and expenditure, the adviser has stated that,
based on the lenders affordability criteria, they are likely to be able to borrow
a maximum of 96,000. The lender pays a procuration fee of 0.35% of the
advance (minimum 250).
Question 31
To comply with the Mortgage Conduct of Business Rules, what procuration fee
will the broker have to declare to Luke and Jessica, assuming that the maximum
loan is taken?
A

Up to 250.

250.

329.

336.

Question 32
In assessing the affordability of Luke and Jessicas proposed mortgage, stress
testing will involve the lender considering the impact of:
A

potential cost of living rises.

potential interest rate rises.

projected investment returns.

projected taxation changes.

16

ifs School of Finance 2013

CeMAP Module 3

Question 33
Ignoring other costs, if Luke and Jessica use all of Lukes savings as a deposit,
their initial monthly mortgage payments will be:
A

210.72.

215.20.

430.52.

439.68.

Question 34
The results of the valuation carried out on Luke and Jessicas new property
indicate that:
A

a specialist report will be required.

the full advance will be retained until the work has been completed.

the lender may require a second inspection.

the loan will be made in two stages.

Question 35
Lukes idea of using his personal pension plan with the intended mortgage is
unsuitable because of his:
A

age.

employment status.

protection needs.

tax status.

ifs School of Finance 2013

17

Sample synoptic paper England and Wales

Question 36
In connection with the recommended mortgage product, Luke and Jessica
should be aware that the interest rate may change:
A

daily.

monthly.

quarterly.

annually.

Question 37
In connection with the repayment method chosen by Lukes brother, which of
the following is correct?
A

Any terminal bonus payable is not available for the purpose of repaying
the loan.

Only part of the investment fund can be used to repay the loan.

Only the fund element which is commutable attracts tax relief.

There are legal restrictions on the geographic range of investments.

Question 38
Bearing in mind Lukes needs and concerns regarding the protection of his
mortgage repayments, which one of the following products would be most
suitable?
A

Critical illness cover.

Income protection insurance.

Mortgage payment protection insurance.

Private medical insurance.

18

ifs School of Finance 2013

CeMAP Module 3

Question 39
An advantage of Luke and Jessicas proposed repayment method compared
with that chosen by Lukes brother is:
A

Gradually increasing equity.

Guaranteed portability of product terms.

Integrated life cover.

Lower legal fees.

Question 40
Which of the following is true regarding the most appropriate form of life
cover for Luke and Jessica?
A

A separate policy for each of them is necessary.

Premiums will remain level throughout the term.

Tax relief on the premiums is available.

The sum assured will accurately reflect the outstanding capital at all
times.

ifs School of Finance 2013

19

Sample synoptic paper England and Wales

Case Study 5
Greg and Cheryl have a 102,000 interest-only mortgage with the Brunswick
Building Society on a property that they own on a joint tenancy basis.
A unit-linked endowment policy supports the mortgage, with a remaining term
of 15 years. The plan is currently projected to have a shortfall of 11,000. In
view of this, they plan to switch the shortfall to a repayment basis and arrange
a further advance using the same repayment method. Three years ago, they
took out a secured personal loan for 7,500, from Kenton Finance, the
proceeds of which they used to buy a home entertainment system.
Repayments on the loan are 155 per month.
Greg is employed as a full-time Administration Manager, earning 37,500 p.a.,
and Cheryl is a full-time physiotherapist and earns 24,500 p.a. They have two
children: Joanne, aged 24. who is employed and lives in a rented flat with her
boyfriend, and Tom, aged 15, who lives at home.
Greg and Cheryl have now approached the society for a further advance of
27,000 to finance a loft conversion on their existing property. They intend to
contribute 5,000, from their savings, towards the cost of this building work.They
estimate that conversion will increase the value of their property to 172,000.
Brunswicks affordability criteria require mortgage payments to be no more
than 80% of free disposable income taking into account committed
expenditure, basic essential expenditure and basic quality of living costs. The
maximum loan to value (LTV) is 85%. A higher lending charge applies if the LTV
exceeds 80%.
Question 41
How will the personal loan arrangement affect Greg and Cheryls application?
A

Payments will be taken into account when assessing their ability to repay.

The Brunswick Building Society will consolidate the personal loan into
the further advance.

The loan will have to be repaid as a condition of making the further


advance.

The valuation of the property for mortgage purposes will be reduced by


the amount of the loan outstanding.

20

ifs School of Finance 2013

CeMAP Module 3

Question 42
Greg and Cheryls existing repayment vehicle:
A

does not guarantee to fully repay the loan either on death or maturity.

features tax relief at basic rate on the premiums.

guarantees to fully repay the loan should either of them die, provided
premiums are up to date.

is guaranteed to provide a tax free surplus on maturity.

Question 43
Which of the following will the society require when processing Greg and
Cheryls application?
A

Consent from Kenton Finance to confirm they approve the conversion


plans.

Consent of their buildings insurance provider.

Evidence that planning permission has been granted, or is not required.

Evidence that the design of the extension is in keeping with the


neighbourhood.

Question 44
The term of the further advance offered by Brunswick is most likely to be:
A

a term chosen by Greg and Cheryl.

no longer than the date of Gregs or Cheryls retirement, whichever is


later.

the residual term of the existing policy.

the residual term of the existing mortgage.

ifs School of Finance 2013

21

Sample synoptic paper England and Wales

Question 45
In relation to the further advance, when might tacking be required?
A

If it is consolidated with the personal loan.

If Kenton Finance does not agree to the further advance.

If the original mortgage deed does not oblige Brunswick to make further
advances.

If the society postpones its prior charge.

Question 46
How are Greg and Cheryls payments to Kenton Finance likely to be treated
by Brunswick in their assessment of affordability, if at all?
A

As a basic quality of living cost.

As basic essential expenditure.

As committed expenditure.

They are unlikely to be included.

Question 47
What requirement for additional security, if any, is likely to be a condition of
the offer by the building society if the further advance application is approved?
A

A higher lending charge.

Assignment of the existing endowment policy.

Mortgage payment protection insurance for both Greg and Cheryl.

None.

22

ifs School of Finance 2013

CeMAP Module 3

Question 48
In the event of Greg predeceasing Cheryl, his portion of the property will:
A

be shared between Cheryl and Joanne only.

pass as directed by his will.

pass as a life interest to Cheryl and to the children on her death.

vest automatically in Cheryl.

Question 49
As a result of the further advance and re-arrangement of the existing loan,
Greg and Cheryl should:
A

arrange a mortgage protection policy to cover the further advance.

arrange either a mortgage protection policy or level term assurance to


cover the full mortgage.

arrange level term assurance to cover the further advance.

increase their endowment to cover the full advance.

Question 50
Which of the following will not be required in connection with Greg and
Cheryls application?
A

A consent to mortgage form.

An updated credit search.

Confirmation of Cheryls earnings.

Details of the outstanding personal loan.

ifs School of Finance 2013

23

Sample synoptic paper England and Wales

Case Study 6
James and Diane purchased their flat four years ago for 130,000 with the help
of an interest-only mortgage for 90,000. The repayment vehicle is a low-cost
endowment policy, which has not been assigned to the lender. They are now
divorcing and have agreed that James will pay 40,000 to Diane in return for
taking full ownership of the property, which is now thought to be worth
approximately 150,000.
James has approached his mortgage adviser, Osmans plc, for advice on the
possibility of seeking a further advance from his existing lender, London Bank,
to fund the agreement. Diane has already vacated the property and James has
explained that he is now working in Scotland and has therefore let the
property to a friend for a six-month period. The bank had not consented to
the tenancy, and indeed had actually declined Jamess request to let several
weeks ago.
James expects to return home within twelve months, and it is likely that his
new partner, Sally, will then move into the property with him. He would like
her name to be added to the mortgage as soon as Diane has been released
from her obligations. Sally is a regular equity ISA investor and has told James
that she intends to use the proceeds of this ongoing investment to help repay
part or all of the mortgage early.
Question 51
In relation to the proposed divorce settlement, before releasing Diane from
the mortgage deed, the lender will:
A

ask Diane to act as guarantor for James.

carry out a search on Dianes credit file.

carry out an assessment of Jamess ability to service the loan on his own.

require Sally to be a party to the mortgage immediately.

24

ifs School of Finance 2013

CeMAP Module 3

Question 52
Before making any firm decisions regarding the continued use of his present
mortgage repayment vehicle, Jamess first priority should be to:
A

check current reversionary bonus rates.

confirm whether it is currently on target.

enquire if it remains a qualifying policy.

ensure that it can be suitably increased to cover the new loan.

Question 53
What additional action, if any, should James consider in respect of the
repayment vehicle?
A

Assignment to the lender.

Immediate surrender, with the proceeds being applied to the mortgage


account.

Transfer or assignment into Jamess sole name.

None.

Question 54
What form of additional security is the lender most likely to require if the
further advance is agreed?
A

A higher lending charge.

A personal guarantee.

A signed disclaimer from Diane.

Re-assignment of the low-cost endowment policy.

ifs School of Finance 2013

25

Sample synoptic paper England and Wales

Question 55
James has been advised that if his application is successful, a new mortgage
deed may not need to be drawn up. This is most likely to be because:
A

it is a puisne mortgage.

the current mortgage deed permits further advances to be made.

the loan will be exempt from regulation.

there are no subsequent charges registered against the property.

Question 56
What guidance should Osmans give James with regard to the impact of the
unauthorised tenancy?
A

His application may be refused because of the breach of the mortgage


covenants.

His application will be approved based on the rental income received.

It should have no effect if the mortgage account is up-to-date.

The loan cannot be granted while neither borrower occupies the


property.

Question 57
James has asked Osmans what additional actions may be required by London
Bank. Which of the following will not be required?
A

A credit assessment check on Diane.

A property valuation.

Confirmation of Jamess current income.

Dianes agreement.

26

ifs School of Finance 2013

CeMAP Module 3

Question 58
If Sally moves in with James but does not become a party to the mortgage,
what, if anything, will the lender require?
A

Completion of a consent to mortgage form.

Confirmation of Sallys income.

No further action will be required.

The consent of the freeholder.

Question 59
Which of the following is the lender likely to consider to be of most
importance if Sally is to be added to the mortgage deed?
A

Confirmation of Sallys income.

Confirmation of Sallys ISA fund.

Evidence of a satisfactory credit history.

The consent of the endowment provider.

Question 60
Which of the following differentiates Sallys ISA from Jamess endowment?
A

Benefits at the end of the mortgage term will be free from tax.

In the main, the underlying investment will be equity based.

It cannot be held in joint names.

It does not guarantee a maturity or final value.

ifs School of Finance 2013

27

28

ifs School of Finance 2013

CeMAP Module 3

Case Study 1 Answer and Justifications


Q1

A U3.2

Correct. A higher lending charge is required because the loan of


203,000 exceeds 80% of the LTV. It is common for lenders to add the
higher lending charge to the loan.

The additional security relates to a higher lending charge. This is for the
potential benefit of the lender in the event of their having to take
possession of the property and sell it, and the amount realised being
insufficient to repay the loan.

The additional security relates to a higher lending charge. There is no


requirement to encourage borrowers to seek independent advice in
such cases, unlike in the case of potential guarantors.

The additional security relates to a higher lending charge. The lender


may use this to purchase a mortgage indemnity guarantee policy but it
will not be assigned.

Q2

C U1.1

198,400 assumes maximum borrowing of 80% LTV. The maximum LTV


is 90% provided that they meet the affordability criteria (a higher lending
charge will apply).

203,200 assumes maximum borrowing of 80% LTV based on the


original property price of 254,000 rather than the agreed reduced
price. The maximum LTV is 90% provided that they meet the
affordability criteria (a higher lending charge will apply).

Correct. The maximum LTV is 90%. 90% of the reduced purchase price
of 248,000 is 223,200.

228,600 assumes maximum borrowing of 90% LTV based on the


original property price of 254,000 rather than the agreed reduced
price.

ifs School of Finance 2013

29

Sample synoptic paper England and Wales

Q3

C U4.9

An answer of 60 assumes that SDLT is 1% on both 254,000 and


248,000. In fact the rate would be 3% on 254,000 and 1% on
248,000.

An answer of 180 assumes that SDLT is 3% on both 254,000 and


248,000. In fact the rate would be 3% on 254,000 and 1% on
248,000.

Correct. The price reduction takes the purchase price into the lower
SDLT band. SDLT of 3% on 254,000 is 7,620 and SDLT of 1% on
248,000 is 2,480. The saving is therefore 5,140.

An answer of 7,680 correctly identifies that the reduced purchase price


takes it into the lower SDLT band, but assumes that the charge on
254,000 would be 4%.

Q4

A U1.9A Correct. We are told that the 2 flats and the shop each have
equal floor areas.This means the shop occupies 33% of the internal floor
area. As this exceeds 25% the freehold purchase is not a right.

We are told that the 2 flats and the shop each have equal floor areas.
This means the shop occupies 33% of the internal floor area. As this
exceeds 25% the freehold purchase is not a right. Otherwise two or
more flats is within scope.

We are told that the 2 flats and the shop each have equal floor areas.
This means the shop occupies 33% of the internal floor area. As this
exceeds 25% the freehold purchase is not a right. The purchase price is
not an issue.

We are told that the 2 flats and the shop each have equal floor areas, so
the shop occupies 33% of the internal floor area. As this exceeds 25%
the freehold purchase is not a right. The lease exceeds 21 years, so
would be within scope.

30

ifs School of Finance 2013

CeMAP Module 3

Q5

C U6.1

Alec and Clare want the cheapest survey which is a basic valuation. A
Condition Report or a HomeBuyer Report would be more expensive
and should give at least some detail on electrics, but a full survey would
include an inspection of the state of the electrical system.

Alec and Clare want the cheapest survey which is a basic valuation. This
will not disclose information regarding the plumbing; a building survey or
specialist reports would be needed to identify such issues.

Correct. In essence the cheapest survey is a basic valuation which


confirms to the lender if the property is adequate security, together with
a suggestion as to insurance value.

Alec and Clare want the cheapest survey which is a basic valuation. This
will provide a value for lending purposes and the insurance value. Either
of these could be substantially different from the open market value.

Q6

D U2.4

Alec expects a substantial salary increase in two years. Until then they
wish to know the maximum payment that they will be required to make.
Either a fixed rate product or a capped product would meet the
required outcome. A base rate tracker does not have a ceiling.

Alec expects a substantial salary increase in two years. Until then they
wish to know the maximum payment that they will be required to make.
Either a fixed rate product or a capped product would meet the
required outcome. A discounted rate does not have a ceiling.

Alec expects a substantial salary increase in two years. Until then they
wish to know the maximum payment that they will be required to make.
Either a fixed rate product or a capped product would meet the
required outcome. A standard variable rate would fluctuate.

Correct. Alec expects a substantial salary increase in two years. Until


then they wish to know the maximum payment that they will be
required to make. Either a fixed rate product or a capped product would
meet the required outcome.

ifs School of Finance 2013

31

Sample synoptic paper England and Wales

Q7

C U5.7

Flats above shops tend to have a lower value than those in purpose-built
blocks due to the multi-use nature of the building.

Flats above shops tend to have a lower value than those in purpose-built
blocks due to the multi-use nature of the building.

Correct. Flats above shops tend to have a lower value than those in
purpose-built blocks due to the multi-use nature of the building.

Flats above shops tend to have a lower value than those in purpose-built
blocks due to the multi-use nature of the building.

Q8

D U1.4

The repayment vehicle is an ISA. The capital will remain constant during
the mortgage term as it will be an interest-only loan. There is no
guarantee that the ISA value plus decreasing term assurance will meet
the full loan value at death because ISA values can fluctuate during the
investment period.

ISAs do not offer guarantees as indeed do few investment products


unless they are extremely expensive in relative terms.

An ISA is an investment-only product which does not include life cover.

Correct. They would be investing in an ISA in the expectation that this


will repay the loan at the end of the term. The value of the ISA will
fluctuate so any protection product taken out should cover the full
amount of the loan.

32

ifs School of Finance 2013

CeMAP Module 3

Q9

B U1.4

The ability to repay the mortgage early if the investment performs well
would be a positive benefit given the saving in interest payments.

Correct. ISAs are investments which are open-ended. The funds can be
withdrawn whenever the investor wishes.

The proceeds of ISAs are not liable to capital gains tax: clearly a positive
benefit.

Equity ISAs are able to invest in a wide choice of funds. This is one way
to spread risk which is a positive benefit.

Q10 D U1.8
A

Under MCOB5 a customer-specific illustration will, amongst other


items, be required to disclose to the customer what happens if the
mortgage is not wanted any more. This will cover areas such as early
repayment charges and moving house.

Under MCOB5 a customer-specific illustration will, amongst other


items, be required to disclose to the customer what happens if the
mortgage is not wanted any more. This will cover areas such as early
repayment charges and moving house.

Under MCOB5 a customer-specific illustration will, amongst other


items, be required to disclose to the customer what happens if the
mortgage is not wanted any more. This will cover areas such as early
repayment charges and moving house.

Correct. Under MCOB5 a customer-specific illustration will, amongst


other items, be required to disclose to the customer what happens if the
mortgage is not wanted any more. This will cover areas such as early
repayment charges and moving house.

ifs School of Finance 2013

33

Sample synoptic paper England and Wales

Case Study 2 Answer and Justifications


Q11 A U1.1
A

Correct. Lenders can use statistical or modelled data to estimate basic


essential expenditure.

Evidence of income will need to be provided.

Evidence of long-term commitments will need to be provided.

Evidence of unsecured credit agreements (eg-personal loans) will need


to be provided

Q12 A U1.8
A

Correct. A maximum of 80% of free disposable income can be used as


the monthly mortgage repayment. Therefore 850 x 80% = 680.

This figure assumes that the maximum percentage of free disposable


income used is 85%.

This figure assumes that 850 is 85% of the monthly mortgage payment
allowed.

This figure assumes that 850 is 80% of the monthly mortgage payment
allowed.

34

ifs School of Finance 2013

CeMAP Module 3

Q13 C U6.2
A

The purchaser who will be responsible for the decoration will not own
the property until completion. It follows that they cannot decorate
before contracts are exchanged.

The purchaser who will be responsible for the decoration will not own
the property until completion. It follows that they cannot decorate
before that date.

Correct. An undertaking will apply a time limit on when a particular


action like external decoration takes place.

An undertaking will apply a time limit on when a particular action like


external decoration takes place. This time limit will usually be a few
months, well short of the full mortgage term.

Q14 D U1.8
A

It is not necessary for advisers that represent the lender to provide


details of remuneration.

A detailed explanation of how the credit score is calculated does not


need to be given.

No procuration fee will apply as the adviser represents the lender.

Correct. It must be made clear to Nathan and Louise that the adviser
can only recommend Island Building Society products.

ifs School of Finance 2013

35

Sample synoptic paper England and Wales

Q15 B U1.8
A

A record of illustrations provided must be kept for one year. They do


not need to be kept if no application is made.

Correct. A record of illustrations provided must be kept for one year.


They do not need to be kept if no application is made.

A record of illustrations provided must be kept for one year. They do


not need to be kept if no application is made.

A record of illustrations provided must be kept for one year. They do


not need to be kept if no application is made.

Q16 C U2.3
A

By definition, the standard variable rate will not provide the protection
from interest rate rises required by the borrowers.

The initial period of this product matches the borrowers requirements


but as it is variable, interest costs may rise which does not match their
wishes.

Correct. This rate meets the targeted three-year criterion required by


the borrowers and they are protected from interest rate rises.

A discounted mortgage has a variable rate so does not meet the


requirement that the borrowers wish to protect their outgoings against
potential rises in interest rates. Also, the initial period does not match
the borrowers need for protection for three years.

36

ifs School of Finance 2013

CeMAP Module 3

Q17 B U4.1
A

A mortgage protection policy is more suitable than level term assurance


as they require a repayment mortgage.

Correct. A mortgage protection policy is suitable as a repayment


mortgage meets their needs. Joint life cover for the full amount of the
mortgage should usually be arranged.

Arranging life cover for only half of the mortgage amount each is not
appropriate as it would leave one party with a mortgage debt to service
in the event of the other ones death. A mortgage protection policy is
suitable as a repayment mortgage meets their needs.

Arranging life cover for only half of the mortgage amount each is not
appropriate as it would leave one party with a mortgage debt to service
in the event of the others death.

Q18 D U4.2
A

The product that would meet Nathans needs for cover against illness
and redundancy at lowest cost is mortgage payment protection
insurance (MPPI). Underwriting based on occupation is a feature of
income protection insurance, not MPPI.

lowest cost is mortgage payment protection insurance (MPPI). Matching


the term to the retirement age is a feature of income protection
insurance, not MPPI.

The product that would meet Nathans needs for cover against illness
and redundancy at lowest cost is mortgage payment protection
insurance (MPPI).The deferred period for MPPI would usually be 28 days
or one month. A deferred period of 13 weeks would be appropriate for
income protection insurance.

Correct. The product that would meet Nathans needs for cover against
illness and redundancy at lowest cost is mortgage payment protection
insurance (MPPI). Benefits are paid for a maximum period of one or two
years.

ifs School of Finance 2013

37

Sample synoptic paper England and Wales

Q19 D U6.1
A

Although Louises brother is a qualified surveyor, he has only conducted


an informal inspection and may not be on the lenders panel.

The lender is not likely to insist on a building survey as the property is


fairly modern.

The lender is likely to require an independent valuation.

Correct. The lender will require the value for mortgage purposes and a
reinstatement amount for insurance purposes.

Q20 C U4.9
A

SDLT is charged at 1% for purchases between 125,000 and 250,000.

SDLT is charged on the purchase price not the amount of the loan.
1,200 assumes 1.0% on the loan amount of 120,000.

Correct. SDLT is charged at 1% for properties with a purchase price of


125,000 to 250,000.

6,600 assumes 3% of 220,000.

38

ifs School of Finance 2013

CeMAP Module 3

Case Study 3 Answer and Justifications


Q21 C U1.1
A

A bank reference and/or statements will indicate how Paul has operated
his accounts and will therefore contribute towards the lending decision.

Details of outgoings will be required to assess affordability.

Correct. Memorandum and Articles of Association are only required for


limited companies.

The profit and loss account will confirm the profit information provided
by Paul and will be used by the lender to make a decision.

Q22 D U1.1
A

Paul and Kelly should be assessed on criteria related to them. The fact
that Paul worked for someone, even his father, who became insolvent
should not be relevant.

Paul and Kelly should be assessed on criteria related to them. The fact
that Paul worked for someone, even his father, who became insolvent
should not be relevant.

Paul and Kelly should be assessed on criteria related to them. The fact
that Paul worked for someone, even his father, who became insolvent
should not be relevant.

Correct. Paul and Kelly should be assessed on criteria related to them.


The fact that Paul worked for someone, even his father, who became
insolvent should not be relevant.

ifs School of Finance 2013

39

Sample synoptic paper England and Wales

Q23 B U4.9
A

Purchase prices over 125,000 attract SDLT @ 1% up to 250,000.

Correct. Purchase prices over 125,000 attract SDLT @ 1% up to


250,000.

Purchase prices over 125,000 attract SDLT @ 1% up to 250,000. An


amount of 2,040 assumes an SDLT rate of 1.50%.

Purchase prices over 125,000 attract SDLT @ 1% up to 250,000. An


amount of 2,380 assumes an SDLT rate of 1.75%.

Q24 D U1.1
A

This figure is the mortgage payment of 490 x 85%.

This is the mortgage payment quoted. However, the mortgage payments


must not exceed 85% of free disposable income.

This figure is the monthly mortgage payment of 490 plus 15%.

Correct. The monthly mortgage payment is 490 which must be no


more than 85% of their free disposable income. 490 / 85 x 100 =
577(rounded up).

Q25 A U6.1
A

Correct. Only a Building Survey will uncover defects in the property as


required by Paul and Kelly.

A Condition Report would not uncover all potential defects in the


property.

An Energy Performance Certificate will be provided by the vendor.

A HomeBuyer Report will identify more obvious defects, but to provide


the level of comfort Paul and Kelly require a building survey is required.

40

ifs School of Finance 2013

CeMAP Module 3

Q26 D U1.4
A

Under unitised with-profit endowments, life cover is inlcuded as part of


the structure of the plan.

The existing plan is a unitised with-profits endowment and it can be


expected that, as with most with-profit unitised plans, a market value
adjustment can be made by the provider on early encashment.

A unitised with-profits endowment is by definition a with-profits plan


invested in the with-profits fund with the proportion identified by the
allocation of units.

Correct. The units are purely invested in the with-profits fund and as
such do not go down, although fund growth is subject to underlying
investment performance of the with-profits fund.

Q27 C U1.8
A

MCOB does require that a description of the types of interest rates


available be provided.

MCOB does require an explanation of what happens on moving house


to be provided.

Correct. Advisers who are employees of a lender are not required to


provide details of remuneration they may receive. If the adviser was a
mortgage broker he would have to provide the amount of any
procuration fee, unless it was under 250. In that case a statement can
be made stating just that, without stating the actual amount.

MCOB requires the disclosure of details of any conditional insurances


to be made as part of the pre-application process.

ifs School of Finance 2013

41

Sample synoptic paper England and Wales

Q28 B U2.4
A

A capped rate mortgage, the preferred product, may vary but will not
exceed a stated interest ceiling for an agreed period, in this case three
years.

Correct. A capped rate mortgage, the preferred product, may vary but
will not exceed a stated interest ceiling for an agreed period, in this case
three years.

A capped rate is linked to the standard variable rate, but will be frozen
at its ceiling should the standard variable rate fluctuate above that
ceiling.

Once the capped rate hits its ceiling, it will no longer increase even if the
standard variable rate continues to rise.

Q29 D U1.4
A

The guaranteed maturity value will be less than the mortgage amount as
this is a low-cost plan rather than a full endowment.

Current stock market returns may not continue in future and may not
be fully reflected in the providers bonus rates.

Past performance may not reflect future performance.

Correct. The provider is obliged to issue regular review letters


confirming whether or not the policy is on target.

Q30 A U4.17
A

Correct. Paul and Kelly need to borrow 111,800 (136,000 - 24,200


deposit). The HLC applies from 80% of 136,000 (108,800) so 3,000
is subject to the rate of 8% quoted = 240.

This figure is 136,000 less 111,800 x 8%.

This figure is 136,000 less 108,800 x 8%.

This is the amount of borrowing subject to the higher lending charge.


The charge quoted is 8% of this figure.

42

ifs School of Finance 2013

CeMAP Module 3

Case Study 4 Answer and Justifications


Q31 D U1.8
A

Under MCOB rules the actual procuration fee must be stated if it


exceeds 250. The maximum loan stated is 96,000. Therefore 96,000
x 0.35% = 336.

Under MCOB rules the actual procuration fee must be stated if it


exceeds 250. The maximum loan stated is 96,000. Therefore 96,000
x 0.35% = 336.

Under MCOB rules the actual procuration fee must be stated if it


exceeds 250. The maximum loan stated is 96,000. Therefore 96,000
x 0.35% = 336.

Under MCOB rules the actual procuration fee must be stated if it


exceeds 250. The maximum loan stated is 96,000. Therefore 96,000
x 0.35% = 336.

Q32 B U1.1
A

This is not a requirement.

Correct. The couple may be able to afford the mortgage payments while
interest rates are low, but stress testing looks at the impact if rates rise
in the future.

This is not a requirement

This is not a requirement.

ifs School of Finance 2013

43

Sample synoptic paper England and Wales

Q33 C U1.1
A

This is the interest only payment at 2.69% on 94,000.

This is the interest-only payment at 2.69% on 96,000.

Correct. The purchase price is 140,000, less 46,000 deposit =


94,000. The stated cost per 1,000 is 4.58 so 94 x 4.58 = 430.52
monthly cost.

This figure assumes that the couple borrow 96,000, the maximum
indicated by the adviser.

Q34 C K3.2
A

The property appears to meet its valuation although some work is


needed, hence the undertaking. Undertakings do not usually relate to
work needing specialist investigation.

A retention, not an undertaking, involves holding back capital.

Correct. The lender may wish to inspect the property at the end of the
undertaking period to ensure the work has been carried out.

An undertaking requires work to be carried out. It does not include any


form of retention or stage payments.

Q35 A U1.4
A

Correct. Luke is 23. He will not be able to draw benefits under his
pension plan unless he is at least 55, which is 32 years away. The
mortgage is for 25 years.

Lukes employment status is not a key factor, the age at which he can
draw benefits is the issue.

Even if a personal pension is used as a repayment vehicle, separate


arrangements can be made to put in place protection plans.

Lukes tax status is not a key factor, the age at which he can draw
benefits is the issue.

44

ifs School of Finance 2013

CeMAP Module 3

Q36 B U2.2
A

The product tracks the Bank of England base rate which may change
monthly when the Monetary Policy Committee meets.

Correct. The product tracks the Bank of England base rate which may
change monthly when the Monetary Policy Committee meets.

The product tracks the Bank of England base rate which may change
monthly when the Monetary Policy Committee meets.

The product tracks the Bank of England base rate which may change
monthly when the Monetary Policy Committee meets.

Q37 B U1.4
A

A terminal bonus, if paid, is just one element of the total fund under a
personal pension and 25% of that total fund can be taken as a tax-free
lump sum.

Correct. Lukes brother uses a personal pension as his investment


vehicle. Under a personal pension only the tax-free lump sum will
provide capital to repay the mortgage. This lump sum is restricted to
25% of the total fund.

Any tax benefits arising apply to the whole of the fund while it is
invested under a personal pension.

No specific restrictions apply under personal pensions regarding the


geographic range of investments.

ifs School of Finance 2013

45

Sample synoptic paper England and Wales

Q38 C U4.2
A

Critical illness cover only pays out a lump sum in respect of a range of
specific illnesses.

Whilst income protection insurance pays out a monthly sum it is a longterm not short-term arrangement and is more expensive than MPPI.

Correct. Luke seeks short-term cover. MPPI will provide cover for
accident and illness and pay monthly amounts for up to 2 years.

Private medical insurance offers no regular payment protection. It purely


pays for private treatment instead of using the NHS.

Q39 A U1.1
A

Correct. Luke and Jessica will be paying off capital during the term and
therefore the equity in the property will increase. Lukes brother is only
paying interest so the equity will not increase.

Portability is likely to be the same regardless of the repayment method.

Neither repayment method has built-in life cover.

Legal fees are likely to be the same.

Q40 B U4.1
A

Joint policies are available.

Correct. A Mortgage Protection policy is appropriate for a repayment


mortgage. The sum assured reduces but the premium stays the same
throughout the term.

No tax relief is available.

There is no direct link between the life policy and the mortgage. The
sum assured reduces in line with assumptions made in the policy
document - in the event of a claim the amount paid out may differ from
the outstanding mortgage.

46

ifs School of Finance 2013

CeMAP Module 3

Case Study 5 Answer and Justifications


Q41 A U1.2
A

Correct. When additional loans are required, a lender must assess the
applicants ability to afford the payments and therefore the loan
payments will be taken into account.

Consolidation is not relevant. This relates to where one borrower has


different mortgages on different properties from the same lender.

A further loan can be made without the need to repay the existing loan,
providing the lender is satisfied that the borrowers can afford both.

When additional loans are required, a lender must assess affordability


and will reduce the amount they will lend to take into account the
customers other loan commitments.

Q42 C U1.4
A

Whilst there is a potential shortfall at maturity, the endowment in place


will normally pay out a sum assured on death equal to the outstanding
mortgage capital, provided premiums are paid to date.

Endowment assurances started in recent years do not attract life


assurance premium relief on the payments made.

Correct. Whilst there is a potential shortfall at maturity, the endowment


in place will normally pay out a sum assured on death equal to the
outstanding mortgage capital, provided premiums are paid to date.

As a unit-linked policy, the existing plan cannot be guaranteed going


forward. Indeed, a shortfall is already anticipated.

ifs School of Finance 2013

47

Sample synoptic paper England and Wales

Q43 C U7.2
A

Whilst Kenton hold a personal secured loan, they will not be a party to
the new borrowing.

The buildings insurance provider will not be involved in the application


process.

Correct. Loft conversions may fall under the permitted development


criteria and therefore planning permission is not required. Brunswick
will not lend further funds without being satisfied that this is the case or
that appropriate planning consent has been granted if required.

The design of the extension is a matter for the planning authorities, not
the lender.

Q44 D U1.2
A

A further advance is really a top-up loan and is usually over the


remaining term of the existing loan. The lender will usually decide the
term.

Greg and Cheryls retirement dates, if known, could be an issue, but a


further advance is really a top-up loan and is usually over the remaining
time of the existing loan.

A further advance is really a top-up loan and is usually over the


remaining term of the existing loan.

Correct. A further advance is really a top-up loan and is usually over the
remaining term of the existing loan.

48

ifs School of Finance 2013

CeMAP Module 3

Q45 C U1.8
A

The personal loan is with a different lender.

Kenton will not have any power of veto over the new lending.

Correct. The Kenton loan is secured and is therefore a second charge. If


there is no obligation to make additional lending tacking could be
applied to make Brunswicks new loan an additional first charge.

The society, Brunswick, is providing the new loan as well as holding the
first charge.

Q46 C U1.1
A

From the information provided it appears that the loan has


approximately two years left to run and the payments will therefore
form part of the couples committed expenditure.

From the information provided it appears that the loan has


approximately two years left to run and the payments will therefore
form part of the couples committed expenditure.

Correct. From the information provided it appears that the loan has
approximately two years left to run and the payments will therefore
form part of the couples committed expenditure.

From the information provided it appears that the loan has


approximately two years left to run and the payments will therefore
form part of the couples committed expenditure.

ifs School of Finance 2013

49

Sample synoptic paper England and Wales

Q47 D U3.2
A

The borrowing represents 75% loan to value and therefore a higher


lending charge would not apply according to the lenders criteria.

There is no reason for the existing endowment to be assigned.

Mortgage payment protection insurance may be appropriate for Greg


and Cheryl but it would not be a condition of the offer.

Correct. From the information provided no additional security is likely


to be required.

Q48 D U1.9
A

The property is owned on a joint tenancy basis. If one or the other of


Greg or Cheryl die, the property is fully owned automatically by the
survivor.

The property is owned on a joint tenancy basis. If one or the other of


Greg or Cheryl die, the property is fully owned automatically by the
survivor.

The property is owned on a joint tenancy basis. If one or the other of


Greg or Cheryl die, the property is fully owned automatically by the
survivor.

Correct. The property is owned on a joint tenancy basis. If one or the


other of Greg or Cheryl die, the property is fully owned automatically
by the survivor.

50

ifs School of Finance 2013

CeMAP Module 3

Q49 A U1.3
A

Correct. The new loan is on a capital and interest repayment basis. A


mortgage protection policy should be put in place to pay the residual
capital in the event of early death.

The original part of the mortgage is covered at death by the life


assurance element of the endowment. This will not need to be covered
again.

As the new advance is on a capital and interest repayment basis, the


capital outstanding will reduce during the term. Therefore, level term
assurance is over-insuring and a mortgage protection policy would be
more appropriate.

As the new advance is on a capital and interest repayment basis, the


capital will reduce over time and be fully paid off at the end of the term.
Additional investment funding is therefore not necessary.

Q50 A U1.2
A

Correct. This is not required as Joanne is not dependent on Greg and


Cheryl and does not live with them, and Tom is only aged 15.

A credit search will be undertaken to check if there have been any credit
issues since the original mortgage was granted.

Details of earnings for both Greg and Cheryl will be required as part of
the affordability assessment.

Details of the personal loan will form part of the affordability


assessment.

ifs School of Finance 2013

51

Sample synoptic paper England and Wales

Case Study 6 Answer and Justifications


Q51 C U2.4
A

Effectively Diane is being removed totally from the mortgage as a result


of the settlement. She will neither be asked nor wish to act as guarantor.

As Diane is asking to be release from the loan, her credit information


will not be relevant. The lender will want to ensure James can afford the
loan in his own right.

Correct. The lender will need to be confident that James can service the
loan before they release Diane, otherwise financial difficulties will quickly
arise and a possible solution will have been removed.

Sally is not currently living in the property and the future may be
considered speculative so there will be no immediate requirement
placed on her.

Q52 B U1.3
A

Reversionary bonuses are only given on with-profits policies.

Correct. The endowment should be checked to ascertain whether there


is a potential shortfall.

The divorce will not affect the policys qualifying status.

If the policy remains in force and is on target then there is no need to


organise an increase.

52

ifs School of Finance 2013

CeMAP Module 3

Q53 C U2.4
A

As James is buying Diane out, he will want her to agree to a transfer or


assignment of the policy into his name and thereby give up her interest.

James will want the endowment policy to continue. He will want Diane
to transfer the policy to him.

Correct. As he is buying Diane out James will want her to agree to a


transfer or assignment of the endowment policy into his name, thereby
giving up her interest.

As he is buying Diane out James will want her to agree to a transfer or


assignment of the endowment policy into his name, thereby giving up
her interest.

Q54 A U1.2
A

Correct.The new lending will increase the borrowing to 130,000 which


is over 86% of the supposed current value. At this level of loan to value
a mortgage indemnity guarantee policy may be required.

The new lending will increase the borrowing to 130,000 which is over
86% of the supposed current value. At this level of loan to value a
mortgage indemnity guarantee policy may be required.

The new lending will increase the borrowing to 130,000 which is over
86% of the supposed current value. At this level of loan to value a
mortgage indemnity guarantee policy may be required.

The new lending will increase the borrowing to 130,000 which is over
86% of the supposed current value. At this level of loan to value a
mortgage indemnity guarantee policy may be required.

ifs School of Finance 2013

53

Sample synoptic paper England and Wales

Q55 B U1.2
A

A puisne mortgage is a second or subsequent mortgage where the


deeds are not held as part of the security. As the first lender London
Bank will wish any further loan to carry the same status.

Correct. If the original mortgage did oblige the lender to make further
advances, the new loan can be tacked on.

Regulation is irrelevant to the mortgage deed. If the original mortgage


did oblige the lender to make further advances, the new loan can be
tacked on.

If the original mortgage did oblige the lender to make further advances,
the new loan can be tacked on.

Q56 A U1.8
A

Correct. Allowing the unauthorised breach of the mortgage agreement


means the tenant could in some circumstances obtain a right of
residence much to the lenders potential disadvantage. The application
could be refused.

Allowing the unauthorised breach of the mortgage agreement means


the tenant could in some circumstances obtain a right of residence much
to the lenders potential disadvantage.

When considering the unauthorised tenancy, the mortgage payment


situation is not relevant.

The loan could go ahead, but the lender would not be happy with this
situation unless their rights were fully protected.

54

ifs School of Finance 2013

CeMAP Module 3

Q57 A U2.4
A

Correct. Diane will not be involved in the ongoing loan and therefore a
credit assessment is not appropriate.

If a further advance is to be made, London Bank will need to know the


current property value to ensure the property provides sufficient
security.

London Bank will need to know Jamess salary to help assess


affordability.

Diane will need to agree to changes until she is removed from the
agreement.

Q58 A U2.4
A

Correct. London Bank will require a consent to mortgage form so that


Sally waives her right of occupation.

If Sally is not a party to the mortgage, she is considered to have no part


in it and therefore her income is not relevant.

London Bank will require a consent to mortgage form so that Sally


waives her right of occupation.

The freeholders approval would not be required in connection with


simple changes in occupation.

ifs School of Finance 2013

55

Sample synoptic paper England and Wales

Q59 C U1.2
A

Sallys income is relevant, but not as important as her credit history.

Sallys ISA fund is not relevant to her being added to the mortgage deed.

Correct. If Sally is to be added to the mortgage deed, the lender will


wish to carry out initial checks. If Sally has a poor credit history the
lender may not agree to her being added to the mortgage.

The endowment lender would not be required to provide any consent.

Q60 C U1.4
A

Benefits arising from both low cost endowments and ISAs would be tax
free when taken at the end of the mortgage term.

Endowments are usually significantly invested in equities.

Correct. An ISA cannot be held in joint names whereas endowments


can.

Neither an ISA nor a low cost endowment provide guarantees of


maturity or final value. A low cost endowment will offer a guarantee on
death before the maturity date.

56

ifs School of Finance 2013

Certificate in Mortgage Advice


and Practice (CeMAP)
Sample synoptic paper
Scotland

ifs School of Finance 2013

57

Case Study 1
Roy and Agnes are married with 13 year old twin sons. Their jointly owned
property is worth 250,000 and they have an ISA-backed interest-only
mortgage with the Midland Building Society for 180,000 and a remaining term
of 19 years. They paid a higher lending charge of 1,100 when they arranged
the original mortgage. They have consulted a mortgage adviser about arranging
a remortgage to raise a further 20,000 for home improvements and require
more certainty regarding eventual repayment of the mortgage.
The equity ISA that supports their mortgage has not performed satisfactorily
and they now realise it was perhaps too adventurous for them. They want to
ensure that the mortgage will be repaid in 19 years; they are prepared to make
higher payments if necessary. They now plan to use the ISA funds to help with
university fees for their sons.
Roy earns a basic salary of 31,500 pa, which equates to 2,000 per month net.
He is keen to protect the monthly mortgage payments in the event of his longterm illness. Agnes earns 15,000 pa part-time (1,100 net per month). The
lender adopted the new April 2014 MCOB affordability and responsible
lending rules from March 2013, and will allow maximum mortgage repayments
of no more than 80% of their free disposable income. This is calculated as their
net income less committed expenditure and statistically assessed expenditure.
They have monthly committed expenditure of 250 per month, and the
monthly statistical expenditure used is shown as 800 for a couple and 150
for each dependant.
Their adviser has recommended a base rate tracker repayment mortgage with
a different lender with an initial interest rate of 4%. The lenders mortgage
affordability rate used to assess affordability is 5.9%, which works out at 6.46
per thousand per month. A higher lending charge is required for loans in excess
of 75% of the property value at the rate of 6.5%.
Roy feels strongly that he should not have to pay for another valuation as he
can vouch for the condition and soundness of the property.
If Roy and Agnes take up their advisers recommendation, the adviser will be
entitled to a fee from the lender of 0.3% of the agreed advance.

ifs School of Finance 2013

59

Sample synoptic paper Scotland

Question 1
Based on the recommended lender's affordability criteria, the maximum loan
available to Roy and Agnes would be approximately:
A

200,000.

216,000.

247,000.

270,000.

Question 2
Which of the following must the adviser do to comply with the Mortgage
Conduct of Business Rules?
A

Advise Roy and Agnes of the exact amount of the fee he will receive
from the lender.

Confirm that the fee he will receive from the lender will be less than
250.

Provide a tariff of fees only on request.

Provide a copy of his tariff of fees annually.

Question 3
Which of the following products would be most suitable for Roy and Agnes to
provide the necessary life cover?
A

Convertible term assurance.

Decreasing term assurance.

Mortgage payment protection.

Level term assurance.

60

ifs School of Finance 2013

CeMAP Module 3

Question 4
Which of the following actions is the adviser obliged to take in order to comply
with the Mortgage Conduct of Business rules in dealing with Roy and Agnes?
A

Explain the lender's process for assessing their ability to repay the loan.

Give them the reasons for recommending the tracker mortgage


immediately after their application has been received.

Give them a full list of mortgage lenders who offer a similar contract.

Inform them of any limitations on the range of products the firm can
offer.

Question 5
Which of the following statements is true in answer to Roy's point about the
need for valuation?
A

He can avoid the cost, but a lower loan-to-value ratio will apply.

He can avoid the cost only if additional security can be provided.

It is required to ensure that the lender has adequate security for the
loan.

It is a legal requirement for all mortgage lenders.

Question 6
Which of the following statements is true in relation to the proposed new
mortgage?
A

The amount of interest paid each month will gradually increase over the
term.

The balance of monthly interest and capital repaid is fixed at the start of
the mortgage.

The higher the interest rate charged, the more capital is repaid each
month.

The term will be shortened if the original payments are maintained


when interest rates reduce.

ifs School of Finance 2013

61

Sample synoptic paper Scotland

Question 7
If Roy and Agnes accept their adviser's recommendation, which of the following
statements is true in respect of the interest rate charged?
A

It is guaranteed never to exceed the Bank of England base rate.

It will always be more than the lender's standard variable rate.

It will always be the same as the Bank of England base rate.

It will rise and fall in line with the Bank of England base rate.

Question 8
Which of the following is true of a new mortgage? Roy and Agnes will:
A

have to pay a higher lending charge but will be able to claim a partial
refund of their original higher lending charge.

have to pay a higher lending charge on the new mortgage.

not have to pay a higher lending charge because they have already paid
one.

only have to pay a small top up higher lending charge because their
original fee can be carried forward to the new mortgage.

Question 9
Which of the following products would be most suitable in light of Roy's
needs?
A

Critical illness cover.

Income protection insurance.

Mortgage protection insurance.

Private medical insurance.

62

ifs School of Finance 2013

CeMAP Module 3

Question 10
Which of the following would be included in Roy and Agnes's committed
expenditure figure?
A

Childcare costs.

Council tax.

Electricity bills.

Personal loan.

Case Study 2
Heather, aged 32, is employed as an area manager by a well-known soft drinks
company where she has worked for nine years. She earns a salary of 42,000
pa, plus an annual bonus which has grown to 5,000 this year. She is single with
no dependants.
Heather wishes to buy a new semi-detached house for 165,000 built by a
developer who is participating in the NewBuy Guarantee scheme.
Heather has applied for a 90% interest-only mortgage from Glen Building
Society, a NewBuy participating lender.The interest rate is discounted from the
standard variable rate by 1% for the first two years. The building societys
capped-rate product over the same period is currently 0.25% lower than the
discounted rate. The building society routinely carries out credit searches on
prospective borrowers through Equifax. Heather has asked why this is
necessary.
Her friend, who has recently purchased a property with an 85% mortgage, had
to pay a higher lending charge (HLC), and Heather would like to know if she
will have to pay a similar charge.
Heathers parents are elderly and, as an only child, she expects to inherit a
substantial lump sum of money before the end of the term of her proposed
mortgage. She is likely to use this money to reduce the outstanding balance at
that time.
Glen Building Society requires mortgage payments to be no more than 80% of
free disposable income, taking into account committed expenditure, basic
essential expenditure and basic quality of living costs.
ifs School of Finance 2013

63

Sample synoptic paper Scotland

Question 11
Why is it unlikely that Heather will have to pay a higher lending charge like her
friend?
A

Heather plans to use a future inheritance to reduce the balance of her


mortgage at a later date.

Her mortgage will be arranged on a capital and interest basis.

She is borrowing from a building society, not a bank.

She is borrowing using the NewBuy Guarantee scheme.

Question 12
Which of the following is true in respect of the valuation options available to
Heather?
A

A valuation is not necessary as the property is being purchased through


the NewBuy Guarantee scheme, which is a government guarantee.

The lender is likely to insist on a building survey because the property


is new and there may be structural defects.

The lender will only require a basic valuation to confirm the value for
mortgage purposes and insurance reinstatement value.

The lender will require either a RICS HomeBuyer report plus a basic
valuation, or a building survey.

Question 13
What stamp duty land tax (SDLT), if any, will Heather have to pay on the
purchase of this property?
A

Nil.

400.

1,485.

1,650.

64

ifs School of Finance 2013

CeMAP Module 3

Question 14
MCOB rules state that early repayment charges must be capable of being
expressed as a cash value and be:
A

a reasonable pre-estimate of the costs payable if the customer repays


the full amount of the loan before the end of the mortgage term.

calculated using the Rule of 78.

no more than a certain percentage of the initial mortgage advance, as


specified by the regulator.

only applicable to fixed-rate and capped-rate mortgages.

Question 15
If Heather decided to effect a life assurance policy to ensure that her mortgage
would be repaid in the event of her death, which type of policy would be most
appropriate?
A

Increasing term assurance.

Level term assurance.

Mortgage payment protection insurance.

Mortgage protection assurance.

Question 16
As part of the affordability assessment, Glen Building Society is likely to ask
Heather to provide evidence of income from employment:
A

excluding bonus, but including basic essential expenditure only.

excluding bonus, but including basic quality-of-living costs only.

including bonus and basic essential expenditure only.

including bonus and all expenditure.

ifs School of Finance 2013

65

Sample synoptic paper Scotland

Question 17
The search carried out on Heather by Glen Building Society was necessary:
A

because she was not on the electoral roll.

because the loan-to-value ratio was greater than 80%.

to obtain information regarding her creditworthiness.

to satisfy money-laundering regulations.

Question 18
Which of the following statements is true in the event that Glen Building
Society has to make a claim on the government guarantee provided under the
NewBuy Guarantee scheme?
A

As with a normal mortgage indemnity guarantee, Heather is still


ultimately responsible for any shortfall.

Glen Building Society will claim any shortfall from the house builder, who
will seek reimbursement from the government, not Heather.

Heather could not be pursued for any shortfall.

The lender's claim would be restricted to a maximum of 16,500; this


being an amount equivalent to Heather's deposit.

Question 19
The interest rate offered by the building society means that Heather:
A

benefits from a genuine saving on her initial payments.

will pay increased payments from year three onwards in order to repay
the discount over the remaining term.

will not suffer if interest rates rise before year three.

will owe an increased amount of capital in year three.

66

ifs School of Finance 2013

CeMAP Module 3

Question 20
When considering the building society's discounted and capped rate mortgage,
Heather should understand that:
A

both rates may fluctuate but the capped-rate may not go above a specific
ceiling.

only the capped-rate will fluctuate.

only the discounted rate will fluctuate.

the capped-rate will always be above the lender's standard variable rate.

Case Study 3
Andrew, a 29 year old higher-rate taxpayer, is in partnership with Eric in an
accountancy business. Andrew is selling his first house and has had an offer of
220,000 accepted on his next property. He recently received an inheritance
of 15,000 which he intends to use as a deposit, and he needs a mortgage for
the balance.
Andrew would like to combine the repayment of his new mortgage with his
retirement planning needs by using his existing personal pension as a
repayment vehicle. He started this personal pension in June 2006, and took out
a pension-linked life assurance at the same time. Andrews sister, Helen, intends
to use the spare bedroom in the house while she finishes her degree at the
nearby university.
His mortgage adviser, Anita, has recommended an interest-only, two-year base
rate tracker mortgage, at 1.8% above the Bank of England base rate.This is with
Northchester Building Society, and she will receive a procuration fee of 220
from them if the mortgage goes ahead.
Northchester Building Society require mortgage payments to be no more than
80% of free disposable income, taking into account committed expenditure,
basic essential expenditure and basic quality of living costs.
Andrew has a personal pension illustration related to his existing pension
which shows, at the lowest illustrated growth rate, a projected total pension
fund of 1,000,000 at his chosen retirement age.
ifs School of Finance 2013

67

Sample synoptic paper Scotland

Question 21
What is the minimum mortgage term Andrew could choose in order to tie in
with his preferred mortgage repayment vehicle?
A

21 years.

26 years.

31 years.

36 years.

Question 22
Assuming that the lowest projection rate is exactly achieved under Andrews
preferred mortgage repayment vehicle, what maximum tax-free surplus will be
available after the mortgage is repaid?
A

5,000.

20,000.

30,000.

45,000.

Question 23
Andrew has earmarked 2,000 for the cost of stamp duty land tax. Assuming
that everything goes ahead as planned, this will leave a shortfall of:
A

50.

200.

1,625.

4,600.

68

ifs School of Finance 2013

CeMAP Module 3

Question 24
To comply with the Mortgage Conduct of Business rules, what disclosure, if
any, must the adviser make to Andrew regarding the building society
procuration fee if the case goes ahead as planned?
A

None.

The exact amount must be advised.

A statement must be made that the amount is no more than 250.

An indication need only be given that a payment is to be received.

Question 25
What rate of tax relief, if any, will Andrew receive on payments into his
preferred mortgage repayment vehicle?
A

None.

18%.

20%.

40%.

Question 26
If Andrew opts for the recommended mortgage, what rate will he be paying on
his mortgage after the end of the second year?
A

1.8%.

Northchester Building Societys standard variable rate at that time.

Northchester Building Societys standard variable rate at that time, or


1.8%, whichever is lower.

The Bank of England base rate.

ifs School of Finance 2013

69

Sample synoptic paper Scotland

Question 27
If Andrew takes his adviser's recommended mortgage product, the interest
rate paid by him during the first two years will be influenced by decisions made
by the:
A

Bank of England Monetary Policy Committee.

Council of Mortgage Lenders.

Financial Policy Committee.

Northchester Building Society.

Question 28
Assuming that Andrew chooses the recommended mortgage in conjunction
with his preferred mortgage repayment vehicle, what rate of tax relief, if any,
will apply to the monthly interest payments?
A

None.

10%.

22%

40%.

Question 29
What is Northchester Building Society likely to require from Andrew's sister
if she goes ahead with her intention to occupy Andrews spare room while she
finishes her studies?
A

A consent to mortgage form signed by her.

A formal rental agreement between her and Andrew.

Proof of income, or evidence that she is attending university, and for


how long.

Two forms of identification, at least one of which must include a photo.

70

ifs School of Finance 2013

CeMAP Module 3

Question 30
Compared with ordinary level term assurance, the key advantage of Andrews
existing form of mortgage protection is that it:
A

benefits from tax relief on the premiums.

is cheaper because the life cover decreases each year.

includes critical and terminal illness cover.

operates throughout the whole of his life.

Case Study 4
Robert, aged 23, has been a self-employed sole-trading landscape gardener for
the last five years. Following his recent engagement to Jenny, a full-time student,
they are looking to buy their second property.
They have found a small house on sale for 128,000 but their initial conditional
offer of 124,500 was successful. They are funding the purchase with savings of
15,200 and a mortgage on the balance.
Robert and Jenny have recently held discussions with their mortgage adviser.
Due to the expense of their forthcoming wedding and Roberts business
expansion plans, they have expressed a strong desire to keep costs to an
absolute minimum for the first two or three years and have a fixed budget.
During discussions on repayment methods, Jenny has indicated a preference
for a repayment mortgage, whereas Robert likes the idea of a mortgage
supported by an equity ISA.
They have been recommended East Coast Bank, who pay procuration fees of
0.35% to all mortgage advisers, as a suitable lender. The lenders policy with
regard to self-employed applicants is to consider net profits for the previous
three years. In terms of affordability, East Coast Bank requires mortgage
payments to be no more than 85% of free disposable income, taking into
account committed expenditure, basic essential expenditure and basic quality
of living costs.
For Robert to meet his financial commitments should he be unable to work,
the adviser has recommended that he consider either an income protection
insurance (IPI) policy with Acme Life, or an accident sickness and
unemployment (ASU) policy with All-Cover plc.
ifs School of Finance 2013

71

Sample synoptic paper Scotland

A valuation has recently been carried out on the new house and the valuer
recommended a retention.
Question 31
In order to assess borrowing capacity and affordability, Robert and Jennys
mortgage application to East Coast Bank should be accompanied by proof of
Roberts earnings. Which specific document will best provide the figures
required by the bank?
A

Balance sheet.

Business plan.

Cash flow statement.

Profit and loss account.

Question 32
Assuming that Robert and Jenny proceed with the recommended lender, what
information regarding the fee will their adviser have to disclose to them in
order to comply with the Mortgage Conduct of Business rules?
A

A statement indicating that it is under 250.

The exact amount, which will be 382.55.

A statement indicating that it is over 250.

A statement indicating that it is under 500.

Question 33
Which of the following types of mortgage product would best suit Robert and
Jennys needs?
A

Capped.

Discounted.

Fixed.

Standard variable rate.

72

ifs School of Finance 2013

CeMAP Module 3

Question 34
What key advantage is obtained by opting for Roberts preferred mortgage
repayment method compared with Jennys?
A

Automatic inclusion of accident and sickness cover.

A guaranteed maturity amount.

Lower monthly payments at the outset.

Potential to pay off the mortgage early.

Question 35
How much stamp duty land tax will Robert and Jenny save as a result of the
agreed reduction in asking price?
A

Nil.

35.

622.50.

1,280.

Question 36
If they proceed with Roberts preferred repayment vehicle, how would the
dividends received in the ISA be taxed?
A

They would be paid with a 10% tax credit that is not reclaimable.

They would be paid with a 20% tax credit that is not reclaimable.

They would be paid gross but taxable at 20%.

They would be paid net of basic-rate tax at 20%.

ifs School of Finance 2013

73

Sample synoptic paper Scotland

Question 37
If Robert accepts their adviser's recommendation and starts a policy with
Acme Life, how would any benefits paid as a result of a successful claim be
treated for tax purposes?
A

Only benefits paid in the first 12 months would be taxed.

Only benefits paid after the first 12 months would be taxed.

The benefits would be tax-free throughout payment.

The benefits would be taxed as a benefit in kind throughout payment.

Question 38
What are the likely implications of the retention recommended by the valuer
who carried out the valuation of the property Robert and Jenny wish to buy?
A

A more detailed inspection will be required before any funds can be


released.

A negative equity situation will exist at the outset.

A re-sale of the property cannot take place for a specified period.

A short-term need for extra funds will exist for Robert and Jenny.

Question 39
Of what should Robert be aware regarding his preferred repayment vehicle?
A

Part of the investment will be held in cash.

Separate life cover should be put in place.

Taxation of dividends is to change next year.

It can only be offered on a joint basis.

74

ifs School of Finance 2013

CeMAP Module 3

Question 40
What potential advantage would Robert obtain by choosing Acmes protection
policy instead of All-Covers protection policy?
A

A longer benefit payment period.

Greater tax relief on the cost of premiums.

Inclusion of redundancy cover.

Lack of an initial deferred period.

Case Study 5
Donald and Brenda, both aged 45, completed the purchase of their house on
5 November 2004 for 520,000. They have received a letter dated Friday 21
June from their mortgage lender, the Perthside Building Society, stating that
their last monthly payment has been missed.
The existing mortgage is on an interest-only basis, and Donald and Brenda are
both investing in ISAs with different providers to fund the final repayment of
the mortgage.
Brenda always invests the maximum allowed in a cash ISA and invests
additional contributions in a stocks and shares ISA, while Donald invests solely
in equity ISAs. However, neither has started funding into equity ISAs in the
current tax year. Brenda did not maximise her contributions for tax year
2012/13, only paying 2,500. They also have a level term assurance policy on a
joint life, first death basis.
The main reason for the arrears is the collapse in Donalds bonuses from his
high-flying City job, which he hopes will come on stream again in late 2013.
Donald and Brenda have always spent all of their income each month. Despite
the high bonuses, after repaying mounting credit card debts and earmarking
contributions to their respective repayment vehicles, they only have savings of
6,500. Donald and Brenda have now approached McConnells plc, their
mortgage adviser, as they have fallen into arrears.

ifs School of Finance 2013

75

Sample synoptic paper Scotland

Question 41
On which of the following dates would Perthside have been aware that the
account was in arrears?
A

18 March.

6 April.

18 May.

2 June.

Question 42
McConnells initial advice to Donald and Brenda will be to:
A

create an income / outgoings balance sheet.

contact Perthside Building Society.

ensure that they have alternative borrowing in place.

fully investigate the availability of Support for mortgage Interest (SMI).

Question 43
Which of the following options would be most suitable in helping Donald and
Brenda to manage their present situation?
A

An interest-only concession.

An extension of the mortgage term.

Trading down.

Partial suspension of monthly payments.

76

ifs School of Finance 2013

CeMAP Module 3

Question 44
Assuming that Brenda pays the maximum possible into a cash ISA, how much,
if anything, can Donald and Brenda pay into their respective equity ISAs in the
2013/14 tax year?
A

5,760 for Donald and nil for Brenda.

5,760 for Donald and 5,760 for Brenda.

11,520 for Donald and 5,760 for Brenda.

11,560 for Donald and 11,560 for Brenda.

Question 45
If Donald's bonuses do start again, as anticipated, and Brenda then increases
her contribution to ISAs to the maximum possible for her current tax year, by
how much will her annual contribution increase compared with last year?
A

3,260.

8,780.

9,020.

11,520.

Question 46
Donald asks McConnells if they think he has a chance of claiming Support for
Mortgage Interest (SMI), given his financial difficulties. They say that this is not
possible, because of Donald and Brendas:
A

employment status.

level of savings.

method of repayment.

size of mortgage.

ifs School of Finance 2013

77

Sample synoptic paper Scotland

Question 47
Donald and Brendas lender is likely to give them up to what maximum amount
of time to clear their mortgage arrears?
A

6 months.

12 months.

24 months.

36 months.

Question 48
A consolidating remortgage is often the best option for borrowers in a similar
situation to Donald and Brenda. However, there are a number of disadvantages
to this course of action, which include all of the following, except:
A

securing previously unsecured debts will reduce the equity in the


property and represent increased risk for the borrower.

the cost of a remortgage may be prohibitive.

the debts being consolidated will run for the rest of the mortgage term.

the rate of interest on the new mortgage will be higher than the original
loan.

Question 49
Under MCOB rules, the letter received by Donald and Brenda dated 21 June
must contain all of the following, except:
A

a list of due payments, either missed or partly paid.

the charges incurred as a result of the arrears.

the total amount of the arrears.

the total outstanding debt, including charges that may be made on


redemption.

78

ifs School of Finance 2013

CeMAP Module 3

Question 50
Given Donald and Brendas current financial difficulties, what does their
selected method of mortgage repayment specifically have in common with the
capital repayment method?
A

The ability to suspend capital funding.

Automatic payment protection insurance.

The ability for state benefits to be used to fund capital payments.

Interest deferment without capitalisation.

Case Study 6
Carol started her 25-year, interest-only mortgage ten years ago, using a unitlinked endowment policy as the repayment vehicle, which is assigned to her
lender, Lowtown Building Society. The current interest rate is 5.5% variable.
The loan amount was more than covered by her then salary of 27,000 but
since her redundancy six months ago, she has been unable to find work. She is
now three months in arrears, and has no insurance policy on which to claim,
although she did submit a claim for Support for Mortgage Interest (SMI) as
soon as she went into arrears.
The ten-year review on her endowment policy shows a projected maturity
value of 65,000, against the loan amount of 75,000. The insurer has
recommended that she increases her monthly premiums by 30. Carol does
not wish to do this and is looking for an alternative solution.
Her boyfriend, Harry, has returned from voluntary service overseas and will
shortly be moving in with her. They plan to marry when their joint financial
situation improves. Meanwhile, he will help to pay the household bills and is
anxious to help Carol clear the mortgage arrears. Carol wants Harry to be
added to the mortgage deed, and he has agreed to this.
They have also discussed renting their spare room to a lodger, which the
lender has provisionally indicated will be acceptable. Harry is starting a new job
as a warehouse manager, on an annual salary of 25,000. His employer offers
no other employee benefits.
ifs School of Finance 2013

79

Sample synoptic paper Scotland

They have arranged an appointment with Gordon, a mortgage adviser at


Lowtown Building Society, to discuss their situation. Carol has had her house
valued by a local estate agent who has stated that, if sold, it should be marketed
at 120,000.
Question 51
If the lender agrees to Harry's name being added to the standard security,
which of the following courses of action would be most suitable to deal with
the arrears situation?
A

Clear the arrears over a specified period of time.

Extend the mortgage term.

Surrender the endowment policy.

Suspend the monthly payments.

Question 52
What is Carols situation regarding her claim for Support for Mortgage Interest
(SMI)?
A

50% of her interest will have been paid from the end of month 3.

50% of her interest will become payable after 39 weeks.

100% of her interest will have been paid from the end of month 3.

100% of her interest will become payable after 39 weeks.

Question 53
What proportion, if any, of Carols accumulated arrears will qualify for SMI?
A

None.

25%.

50%.

100%.

80

ifs School of Finance 2013

CeMAP Module 3

Question 54
Where an endowment policy is assigned to the lender, as in Carols case, what
type of right does the lender have?
A

Assignment.

Equitable.

Legal.

Surrender.

Question 55
Before Harry is added to the standard security, he should be made aware that
he:
A

loses his rights under the Family Law Act 1996.

must sign a consent to mortgage form.

must also be added to the endowment policy.

will be subject to standard status enquiries.

Question 56
With regard to their proposals for their spare room, their adviser should point
out that:
A

any occupant should undergo standard status enquiries.

no rights of occupation should be created.

the building society will collect the rent to offset the arrears.

this will extend Carols exclusion period for SMI.

ifs School of Finance 2013

81

Sample synoptic paper Scotland

Question 57
The adviser should point out that, with regard to the repayment method and
taking the long-term view, the least advantageous solution is likely to be:
A

capitalising the arrears.

surrendering the policy.

spreading the arrears.

extending the term.

Question 58
To minimise the potential problems in 15 years time, what action should the
adviser discuss with Carol and Harry?
A

Converting part of the loan to a repayment basis.

Converting the endowment policy to a unitised with-profit basis.

Adding Harry to the policy as a joint life assured.

Extending the mortgage term.

Question 59
The results of the valuation will indicate to Gordon that, at this stage:
A

a further advance is viable.

Carol and Harry should consider trading down.

Carol and Harry need not follow the insurers recommendation.

the building societys interests remain protected.

82

ifs School of Finance 2013

CeMAP Module 3

Question 60
If Carol and Harry marry and the suggested alteration to the standard security
has not proceeded, what difference does this make to their occupancy rights
under current law?
A

Both have rights, but Carol has priority.

Carol retains sole occupancy rights.

Harry potentially gains a right of occupation.

Harry only gains tenancy rights.

ifs School of Finance 2013

83

Sample synoptic paper Scotland

84

ifs School of Finance 2013

Case Study 1 Answer and Justifications


Q1

B U1.1

This is the amount that they want to borrow, which is less than the
maximum. The lender's affordability criteria would support a mortgage
of approximately 216,000, calculated as 3,100 income 1,350
expenditure = 1,750 x 80% = 1400/6.46 per thousand = 216.72 x
1,000 = 216,720.

Correct. The lender's affordability criteria would support a mortgage of


approximately 216,000, calculated as 3,100 income 1,350
expenditure = 1,750 x 80% = 1400/6.46 per thousand = 216.72 x
1,000 = 216,720.

This leaves out committed expenditure from the calculation. The


lender's affordability criteria would support a mortgage of
approximately 216,000, calculated as 3,100 income 1,350
expenditure = 1,750 x 80% = 1400/6.46 per thousand = 216.72 x
1,000 = 216,720.

This assumes their full free disposable income would be used in the
calculation. The lender's affordability criteria would support a mortgage
of approximately 216,000, calculated as 3,100 income 1,350
expenditure = 1,750 x 80% = 1400/6.46 per thousand = 216.72 x
1,000 = 216,720.

Q2

A U1.8

Correct. If the fee is over 250 MCOB 5 requires the actual amount to
be disclosed. In this case the fee is 0.3% of the agreed advance
(200,000) which is 600.

If the fee is over 250 MCOB 5 requires the actual amount to be


disclosed. In this case the fee is 0.3% of the agreed advance (200,000)
which is 600.

If the fee is over 250 MCOB 5 requires the actual amount to be


disclosed. In this case the fee is 0.3% of the agreed advance (200,000)
which is 600.

If the fee is over 250 MCOB 5 requires the actual amount to be


disclosed. In this case the fee is 0.3% of the agreed advance (200,000)
which is 600.

ifs School of Finance 2013

85

Sample synoptic paper Scotland

Q3

B U4.1

They want to guarantee their mortgage repayment at the end of the


term. So a capital and interest loan will be required, protected by
decreasing term assurance. Convertible term assurance offers level
cover.

Correct. They want to guarantee their mortgage repayment at the end


of the term. So a capital and interest loan will be required, protected by
decreasing term assurance.

Mortgage payment protection does not usually include life cover.

They want to guarantee their mortgage repayment at the end of the


term. So a capital and interest loan will be required, protected by
decreasing term assurance. Level term assurance offers level cover.

Q4

D U1.8

Under MCOB 4/4a the adviser must inform the customer of any
limitations on the range of products offered, which will cover whether
the mortgages on offer are from the whole market, a panel of lenders
or one provider only.

Under MCOB 4/4a the adviser must inform the customer of any
limitations on the range of products offered, which will cover whether
the mortgages on offer are from the whole market, a panel of lenders
or one provider only.

Under MCOB 4/4a the adviser must inform the customer of any
limitations on the range of products offered, which will cover whether
the mortgages on offer are from the whole market, a panel of lenders
or one provider only.

Correct. Under MCOB 4/4a the adviser must inform the customer of
any limitations on the range of products offered, which will cover
whether the mortgages on offer are from the whole market, a panel of
lenders or one provider only.

86

ifs School of Finance 2013

CeMAP Module 3

Q5

C U6.1

The lender will require a new survey and Roy will have to pay for this.
It is not the practice of lenders to reduce the loan-to-value offered in
exchange for not having a survey.

The lender will require a new survey and Roy will have to pay for this.
The availability of additional security is not relevant to the requirement
for a survey.

Correct. The lender will require a new survey to ensure that the
property provides sufficient security for the loan.

A survey is not a legal requirement but an example of best practice and


common sense followed by lenders.

Q6

D U1.2

With a repayment mortgage the amount of interest payable each month


gradually reduces through the term. The term will be shortened if the
original payments are maintained when interest rates reduce.

With a repayment mortgage the amount of interest payable each month


gradually reduces through the term, which means the capital repaid
increases through the term. The term will be shortened if the original
payments are maintained when interest rates reduce.

The higher the interest rate, the less capital is repaid each month. The
term will be shortened if the original payments are maintained when
interest rates reduce.

Correct. If the original payments are maintained but the interest rate
reduces, the term of the mortgage will be shortened.

ifs School of Finance 2013

87

Sample synoptic paper Scotland

Q7

D U2.2

The product recommended is a base rate tracker. This means that it has
a fixed relationship with the Bank of England base rate at the outset, say
base rate plus 0.25%, and will maintain that relationship rising and falling
in line with the base rate.

The product recommended is a base rate tracker. This means that it has
a fixed relationship with the Bank of England base rate at the outset, say
base rate plus 0.25%, and will maintain that relationship rising and falling
in line with the base rate.

The product recommended is a base rate tracker. This means that it has
a fixed relationship with the Bank of England base rate at the outset, say
base rate plus 0.25%, and will maintain that relationship rising and falling
in line with the base rate.

Correct. The product recommended is a base rate tracker. This means


that it has a fixed relationship with the Bank of England base rate at the
outset, say base rate plus 0.25%, and will maintain that relationship rising
and falling in line with the base rate.

Q8

B U3.2

Higher lending charges are specific to a particular mortgage and cannot


be carried over to a new mortgage, refunded or altered. A remortgage
will mean that a new higher lending charge is required because the LTV
is more than the lender's 75% threshold.

Correct. Higher lending charges are specific to a particular mortgage


and cannot be carried over to a new mortgage, refunded or altered. A
remortgage will mean that a new higher lending charge is required
because the LTV is more than the lender's 75% threshold.

Higher lending charges are specific to a particular mortgage and cannot


be carried over to a new mortgage, refunded or altered. A remortgage
will mean that a new higher lending charge is required because the LTV
is more than the lender's 75% threshold.

Higher lending charges are specific to a particular mortgage and cannot


be carried over to a new mortgage, refunded or altered. A remortgage
will mean that a new higher lending charge is required because the LTV
is more than the lender's 75% threshold.

88

ifs School of Finance 2013

CeMAP Module 3

Q9

B U4.3

Roy is keen to protect the monthly payments in the event of his long
term illness. Critical illness cover only pays a lump sum in cases of
serious illness as defined in the policy.

Correct. Roy is keen to protect the monthly payments in the event of


his long-term illness. An income protection insurance policy provides a
monthly income when the policy holder is unable to work due to
accident or sickness, until retirement if necessary.

Roy is keen to protect the monthly payments in the event of his long
term illness. Mortgage payment protection insurance only provides
cover for up to two years.

Roy is keen to protect the monthly payments in the event of his long
term illness. Private medical insurance effectively offers an alternative to
the NHS and would not provide the ongoing protection identified by
Roy.

Q10 D U1.3
A

Credit commitments are included in 'committed expenditure'. Utility


bills and council tax are included in 'basic essential' expenditure and
childcare costs are included in 'basic quality of living' expenditure.

Credit commitments are included in 'committed expenditure'. Utility


bills and council tax are included in 'basic essential' expenditure and
childcare costs are included in 'basic quality of living' expenditure.

Credit commitments are included in 'committed expenditure'. Utility


bills and council tax are included in 'basic essential' expenditure and
childcare costs are included in 'basic quality of living' expenditure.

Correct. Credit commitments are included in 'committed expenditure'.


Utility bills and council tax are included in 'basic essential' expenditure
and childcare costs are included in 'basic quality of living' expenditure.

ifs School of Finance 2013

89

Sample synoptic paper Scotland

Case Study 2 Answer and Justifications


Q11 D U3.12
A

Under the NewBuy Guarantee Scheme, the government and house


builder guarantee to cover a limited amount of a lender's losses should
the borrower default, so there is no need for the lender to charge a
HLC with which to purchase a separate MIG. It has nothing to do with
whether or not a borrower may redeem all of part of their loan early.

Under the NewBuy Guarantee Scheme, the government and house


builder guarantee to cover a limited amount of a lender's losses should
the borrower default, so there is no need for the lender to charge a
HLC with which to purchase a separate MIG. It has nothing to do with
the method of repayment.

Under the NewBuy Guarantee Scheme, the government and house


builder guarantee to cover a limited amount of a lender's losses should
the borrower default, so there is no need for the lender to charge a
HLC with which to purchase a separate MIG. It has nothing to do with
whether the lender is a bank or a building society.

Correct. Under the NewBuy Guarantee Scheme, the government and


house builder guarantee to cover a limited amount of a lender's losses
should the borrower default, so there is no need for the lender to
charge an HLC with which to purchase a separate MIG.

Q12 C U6.1
A

It makes no difference whether the property is purchased through the


NewBuy Guarantee Scheme, the lender will always insist on a mortgage
valuation as a minimum requirement.

A building survey is only usually necessary with older properties or


recommended by the valuer if potential problems or defects are picked
up during the mortgage valuation. The lender will only require a
mortgage valuation with most new build properties.

Correct. A building survey is only usually necessary with older


properties or recommended by the valuer if potential problems or
defects are picked up during the mortgage valuation.The lender will only
require a mortgage valuation with most new build properties.

A lender will never insist on a RICS HomeBuyer report; this is a type of


inspection is carried out for the benefit of the borrower. For a new build
property, a lender will only require a mortgage valuation.

90

ifs School of Finance 2013

CeMAP Module 3

Q13 D U4.9
A

Between 125,000 and 250,000, SDLT is 1% of the purchase price. 1%


of 165,000 is 1,650.

Between 125,000 and 250,000, SDLT is 1% of the purchase price. 1%


of 165,000 is 1,650. The figure of 400 is 1% of difference between
165,000 and 125,000, which is wrong. SDLT is paid on the full
purchase price.

Between 125,000 and 250,000, SDLT is 1% of the purchase price. 1%


of 165,000 is 1,650. The figure of 1,485 is 1% of the mortgage, not
the purchase price, which is wrong.

Correct. Between 125,000 and 250,000, SDLT is 1% of the purchase


price. 1% of 165,000 is 1,650.

Q14 A U1.8
A

Correct. Under MCOB12, an early repayment charge must be able to be


expressed as a cash value, and be a reasonable estimate of the costs
payable if the customer repays the full amount of the loan before the
mortgage contract has reached is termination date.

Under MCOB12, an early repayment charge must be able to be


expressed as a cash value and be a reasonable estimate of the costs
payable if the customer repays the full amount of the loan before the
mortgage contract has reached is termination date. The lender can
choose their own method for calculating ERCs, but the rules specifically
state that they should not use the 'Rule of 78'.

Under MCOB12, an early repayment charge must be able to be


expressed as a cash value, and be a reasonable estimate of the costs
payable if the customer repays the full amount of the loan before the
mortgage contract has reached is termination date. The lender can
choose their own method for calculating ERCs.

Under MCOB12, an early repayment charge must be able to be


expressed as a cash value and be a reasonable estimate of the costs
payable if the customer repays the full amount of the loan before the
mortgage contract has reached is termination date. It can apply to any
type of mortgage product, not just fixed-rate and capped-rate mortgages.

ifs School of Finance 2013

91

Sample synoptic paper Scotland

Q15 D U4.1
A

Heather is single with no dependents, so the most appropriate policy


would be one where the sum assured reduces over the term in line with
the reducing balance of her mortgage, i.e. mortgage protection, which
would also be the cheapest. The sum assured under an increasing term
assurance increases over the term of the policy.

Heather is single with no dependants, so the most appropriate policy


would be one where the sum assured reduces over the term in line with
the reducing balance of her mortgage, i.e. mortgage protection, which
would also be the cheapest. The sum assured under a level term
assurance remains fixed throughout the term.

Heather is single with no dependants, so the most appropriate policy


would be one where the sum assured reduces over the term in line with
the reducing balance of her mortgage, i.e. mortgage protection, which
would also be the cheapest. Mortgage payment protection insurance
does not provide life cover.

Correct. Heather is single with no dependants, so the most appropriate


policy would be one where the sum assured reduces over the term in
line with the reducing balance of her mortgage, i.e. mortgage protection,
which would also be the cheapest.

Q16 D U1.1
A

Evidence will be required of income from employment, including bonus,


and all expenditure. Lenders can use statistical or modelled data to
estimate basic essential expenditure and basic quality-living costs but
these must be included in the calculation.

Evidence will be required of income from employment, including bonus,


and all expenditure. Lenders can use statistical or modelled data to
estimate basic essential expenditure and basic quality-living costs but
these must be included in the calculation.

Evidence will be required of income from employment, including bonus,


and all expenditure. Lenders can use statistical or modelled data to
estimate basic essential expenditure and basic quality-living costs but
these must be included in the calculation.

Correct. Evidence will be required of income from employment,


including bonus, and all expenditure. Lenders can use statistical or
modelled data to estimate basic essential expenditure and basic qualityliving costs but these must be included in the calculation.

92

ifs School of Finance 2013

CeMAP Module 3

Q17 C U1.1
A

Credit searches are an integral and routine part of the credit assessment
process. Equifax is an organisation that stores and maintains individuals'
credit histories. Their records will show credit problems for named
individuals.

Credit searches are an integral and routine part of the credit assessment
process. Equifax is an organisation that stores and maintains individuals'
credit histories. Their records will show credit problems for named
individuals.

Correct. Credit searches are an integral and routine part of the credit
assessment process. Equifax is an organisation that stores and maintains
individuals' credit histories. Their records will show credit problems for
named individuals.

Credit searches are an integral and routine part of the credit assessment
process. Equifax is an organisation that stores and maintains individuals'
credit histories. Their records will show credit problems for named
individuals.

Q18 A U3.2
A

Correct. In effect, the NewBuy Guarantee Scheme is a Mortgage


Indemnity Guarantee scheme underwritten by the government and the
house builder, at no cost to the borrower. However, the borrower is still
ultimately responsible for any shortfall.

In effect, the NewBuy Guarantee Scheme is a Mortgage Indemnity


Guarantee scheme underwritten by the government and the house
builder, at no cost to the borrower. However, the borrower is still
ultimately responsible for any shortfall.

In effect, the NewBuy Guarantee Scheme is a Mortgage Indemnity


Guarantee scheme underwritten by the government and the house
builder, at no cost to the borrower. However, the borrower is still
ultimately responsible for any shortfall.

In effect, the NewBuy Guarantee Scheme is a Mortgage Indemnity


Guarantee scheme underwritten by the government and the house
builder, at no cost to the borrower. However, the borrower is still
ultimately responsible for any shortfall.

ifs School of Finance 2013

93

Sample synoptic paper Scotland

Q19 A U2.4
A

Correct. Heather's mortgage is on a discounted basis for the first two


years. This is a genuine saving with no roll forward of interest.

This is a genuine discount with no roll forward of the shortfall amount


of interest.

The rate selected will be a discount against the standard variable rate
and can thus fluctuate while maintaining the 1% discount.

This is a genuine discount with no roll forward of the shortfall amount


of interest.

Q20 A U2.4
A

Correct. A discounted rate fluctuates in line with the lender's standard


variable rate and while the capped rate may also fluctuate in line with
the SVR it will not go above a specific ceiling for the duration of the
product.

The discounted rate will move in line with the lender's standard variable
rate.

Both rates will fluctuate but the capped-rate will not go above a specific
ceiling.

The capped rate will generally be below the SVR.

94

ifs School of Finance 2013

CeMAP Module 3

Case Study 3 Answer and Justifications


Q21 B U1.4
A

Andrew wishes to use his personal pension policy as a repayment


vehicle. The earliest he can retire under a personal pension, as he is not
in a special occupation, is at age 55, in 26 years' time.

Correct. Andrew wishes to use his personal pension policy as a


repayment vehicle. The earliest he can retire under a personal pension,
as he is not in a special occupation, is at age 55, in 26 years' time.

Andrew wishes to use his personal pension policy as a repayment


vehicle. The earliest he can retire under a personal pension, as he is not
in a special occupation, is at age 55, in 26 years' time.

Andrew wishes to use his personal pension policy as a repayment


vehicle. The earliest he can retire under a personal pension, as he is not
in a special occupation, is at age 55, in 26 years' time.

Q22 D U1.4
A

The lowest growth rate projection is 1,000,000. Under current rules


25% (250,000) can be taken as a tax-free lump sum. After deducting the
loan of 205,000, a cash sum of 45,000 will be left as surplus.

The lowest growth rate projection is 1,000,000. Under current rules


25% (250,000) can be taken as a tax-free lump sum. After deducting the
loan of 205,000, a cash sum of 45,000 will be left as surplus.

The lowest growth rate projection is 1,000,000. Under current rules


25% (250,000) can be taken as a tax-free lump sum. After deducting the
loan of 205,000, a cash sum of 45,000 will be left as surplus.

Correct. The lowest growth rate projection is 1,000,000. Under


current rules 25% (250,000) can be taken as a tax-free lump sum. After
deducting the loan of 205,000, a cash sum of 45,000 will be left as
surplus.

ifs School of Finance 2013

95

Sample synoptic paper Scotland

Q23 B U4.9
A

50 is based on the assumption that only the loan amount is liable for
SDLT thus 205,000 @ 1% = 2,050 less 2,000.

Correct. The agreed purchase price is 220,000 and with the SDLT at
1% the liability will be 2,200 of which 2,000 is earmarked, leaving
200.

The agreed purchase price is 220,000 and with the SDLT at 1% the
liability will be 2,200 of which 2,000 is earmarked, leaving 200.

The agreed purchase price is 220,000 and with the SDLT at 1% the
liability will be 2,200 of which 2,000 is earmarked, leaving 200. This
calculation assumes an SDLT of 3%.

Q24 C U1.8
A

MCOB rules allow where the fee is less than 250 for a statement to be
made that the fee will be no more than 250. In this case we are told
the fee is 220.

MCOB rules allow where the fee is less than 250 for a statement to be
made that the fee will be no more than 250. In this case we are told
the fee is 220.

Correct. MCOB rules allow where the fee is less than 250 for a
statement to be made that the fee will be no more than 250. In this
case we are told the fee is 220.

MCOB rules allow where the fee is less than 250 for a statement to be
made that the fee will be no more than 250. In this case we are told
the fee is 220.

96

ifs School of Finance 2013

CeMAP Module 3

Q25 D U1.4
A

Andrew will receive tax relief on his personal pension contributions.

Andrew will receive tax relief on his personal pension contributions, but
at the higher rate of 40%.

Andrew will receive tax relief on his personal pension contributions, but
at the higher rate of 40% rather than the basic rate of 20%.

Correct. Andrew will receive tax relief on his personal pension


contributions. As he is a higher-rate taxpayer, this will be at 40%.

Q26 B U2.2
A

After the first two years, Andrew's mortgage is likely to revert to the
lender's standard variable rate at that time.

Correct. After the first two years, Andrew's mortgage is likely to revert
to the lender's standard variable rate at that time.

After the first two years, Andrew's mortgage is likely to revert to the
lender's standard variable rate at that time.

After the first two years, Andrew's mortgage is likely to revert to the
lender's standard variable rate at that time.

ifs School of Finance 2013

97

Sample synoptic paper Scotland

Q27 A U2.2
A

Correct. If Andrew opts for the two-year base rate tracker mortgage,
the interest rate he pays during this time will be linked to the Bank of
England base rate, which is decided by the Monetary Policy Committee.

If Andrew opts for the two-year base rate tracker mortgage, the interest
rate he pays during this time will be linked to the Bank of England base
rate, which is decided by the Monetary Policy Committee.

If Andrew opts for the two-year base rate tracker mortgage, the interest
rate he pays during this time will be linked to the Bank of England base
rate, which is decided by the Monetary Policy Committee.

If Andrew opts for the two-year base rate tracker mortgage, the interest
rate he pays during this time will be linked to the Bank of England base
rate, which is decided by the Monetary Policy Committee.

Q28 A U1.2
A

Correct. Although Andrew will receive higher-rate tax relief on his


personal pension contributions, this will have no effect on the underlying
mortgage on which no relief can be obtained.

Although Andrew will receive higher-rate tax relief on his personal


pension contributions, this will have no effect on the underlying
mortgage on which no relief can be obtained.

Although Andrew will receive higher-rate tax relief on his personal


pension contributions, this will have no effect on the underlying
mortgage on which no relief can be obtained.

Although Andrew will receive higher-rate tax relief on his personal


pension contributions, this will have no effect on the underlying
mortgage on which no relief can be obtained.

98

ifs School of Finance 2013

CeMAP Module 3

Q29 A U5.8
A

Correct. As an adult occupant of the property who is not party to the


mortgage, Andrew's sister will be required by Northchester Building
Society to sign a 'consent to mortgage' form which prevents her from
deriving an overriding interest in the property.

As an adult occupant of the property who is not party to the mortgage,


Andrew's sister will be required by Northchester Building Society to
sign a 'consent to mortgage' form which prevents her from deriving an
overriding interest in the property.

As an adult occupant of the property who is not party to the mortgage,


Andrew's sister will be required by Northchester Building Society to
sign a 'consent to mortgage' form which prevents her from deriving an
overriding interest in the property.

As an adult occupant of the property who is not party to the mortgage,


Andrew's sister will be required by Northchester Building Society to
sign a 'consent to mortgage' form which prevents her from deriving an
overriding interest in the property.

Q30 A U1.4
A

Correct. Andrew's pension term assurance started in June 2006 so can


continue to benefit from tax relief on the cost. This ceased to apply for
those proposing after 14 December 2006.

Pension term assurance is usually on a level basis.

Pension term assurance does not include critical and terminal illness
cover.

Pension term assurance usually ceases at retirement age, but cannot run
beyond age 75.

ifs School of Finance 2013

99

Sample synoptic paper Scotland

Case Study 4 Answer and Justifications


Q31 D U1.1
A

The balance sheet is an important item of information for lenders.


However, the profit and loss account sets out a record of the income
and expenditure of the business for the trading year, allowing close
scrutiny by the lender.

The business plan contains useful information, but is looking forward. It


does not offer hard performance facts.

A cash flow statement is a useful item but are predictive rather than
reflecting the full past experience.

Correct.The profit and loss account sets out a record of the income and
expenditure of a business and how it is allocated, allowing close scrutiny
by the lender.

Q32 B U1.8
A

MCOB rules require that the exact amount of fees is stated if they
exceed 250. In this case, the loan is 124,500 less a deposit of 15,200
= 109,300 @ 0.35% = 382.55.

Correct. MCOB rules require that the exact amount of fees is stated if
they exceed 250. In this case, the loan is 124,500 less a deposit of
15,200 = 109,300 @ 0.35% = 382.55.

MCOB rules require that the exact amount of fees is stated if they
exceed 250. In this case, the loan is 124,500 less a deposit of 15,200
= 109,300 @ 0.35% = 382.55.

MCOB rules require that the exact amount of fees is stated if they
exceed 250. In this case, the loan is 124,500 less a deposit of 15,200
= 109,300 @ 0.35% = 382.55.

100

ifs School of Finance 2013

CeMAP Module 3

Q33 C U2.4
A

Robert and Jenny have indicated that they wish to keep costs to an
absolute minimum for the first two or three years and have a fixed
budget. A capped-rate mortgage product will be typically higher than a
fixed-rate over this period.

Robert and Jenny have indicated that they wish to keep costs to an
absolute minimum for the first two or three years while on a fixed
budget. A discounted mortgage product will offer a genuine reduction
over this period but if interest rates rise, their monthly payment will also
rise and impact on their fixed budget.

Correct. Robert and Jenny have indicated that they wish to keep costs
to an absolute minimum for the first two or three years while on a fixed
budget. A fixed-rate mortgage product will offer them security that their
payment will not change over this period.

Robert and Jenny have indicated that they wish to keep costs to an
absolute minimum for the first two or three years while on a fixed
budget. A standard variable rate will fluctuate and will not provide them
with the security they need.

Q34 D U1.4
A

Neither a repayment mortgage nor an interest-only mortgage linked to


an ISA allows for the automatic inclusion of accident and sickness cover.

Robert likes the idea of an interest-only mortgage linked to an ISA.


These offer no guarantees on maturity payments they are subject to
investment fluctuations.

Robert likes the idea of an interest-only mortgage linked to an ISA. If an


appropriate amount is invested in the ISA, this is likely to lead to a more
expensive monthly outlay than a repayment mortgage.

Correct. If the ISA performs well it could reach the value of the loan
early, allowing repayment.

ifs School of Finance 2013

101

Sample synoptic paper Scotland

Q35 D U4.9
A

The original purchase price was 128,000. SDLT is charged at 1% for


properties over 125,000 and below 250,000 for second time buyers
like Robert and Jenny. Negotiating the price to 124,500 would save
1,280.

The original purchase price was 128,000. SDLT is charged at 1% for


properties over 125,000 and below 250,000 for second-time buyers
like Robert and Jenny. Negotiating the price to 124,500 would save
1,280. This answer assumes SDLT is payable on the lower price (1,280
1,245= 35).

The original purchase price was 128,000. SDLT is charged at 1% for


properties over 125,000 and below 250,000 for second-time buyers
like Robert and Jenny. This answer assumes 124,500 x 0.5%.

Correct. The original purchase price was 128,000. SDLT is charged at


1% for properties over 125,000 and below 250,000 for second-time
buyers like Robert and Jenny. Negotiating the price to 124,500 would
save 1,280.

Q36 A U1.4
A

Correct. Dividends are paid with a 10% tax credit that is not
reclaimable. However there is no further tax payable.

Dividends are paid with a 10% tax credit that is not reclaimable.
However there is no further tax payable.

Dividends are paid with a 10% tax credit that is not reclaimable.
However there is no further tax payable.

Dividends are paid with a 10% tax credit that is not reclaimable.
However there is no further tax payable.

102

ifs School of Finance 2013

CeMAP Module 3

Q37 C U4.3
A

ACME Life's product is an income protection insurance policy under


which benefit payments are made tax free and are not subsequently
subject to any tax liability.

ACME Life's product is an income protection insurance policy under


which benefit payments are made tax free and are not subsequently
subject to any tax liability.

Correct. ACME Life's product is an income protection insurance policy


under which benefit payments are made tax free and are not
subsequently subject to any tax liability.

ACME Life's product is an income protection insurance policy under


which benefit payments are made tax free and are not subsequently
subject to any tax liability.

Q38 D U6.1
A

Money will be held back until specified work is completed, leading to a


short term financial gap.

Money will be held back until specified work is completed, leading to a


short term financial gap.

Money will be held back until specified work is completed, leading to a


short term financial gap.

Correct. Money will be held back until specified work is completed,


leading to a short term financial gap.

ifs School of Finance 2013

103

Sample synoptic paper Scotland

Q39 B U1.4
A

There is no reason for an equity ISA to hold funds in cash.

Correct. ISAs do not include built-in life cover.

There are no proposals for further changes to the treatment of ISA


dividends.

ISAs are only available on an individual basis.

Q40 A U4.3
A

Correct. Acme's product is an IPI which offers the potential for longterm claim payments up to retirement age. The ASU policy offered by
All-Cover will only pay out benefits for a maximum of 12 or 24 months.

Neither IPI nor ASU individual policies attract tax relief.

The ASU policy offers redundancy benefits, but an IPI will not. In any
event Robert is self-employed.

An IPI policy usually has a longer deferred period than an ASU policy.

104

ifs School of Finance 2013

CeMAP Module 3

Case Study 5 Answer and Justifications


Q41 D U4.1
A

The lender must write to the borrower within 15 (working) days of


becoming aware that the account is in arrears. 15 working days from 2
June is 21 June.

The lender must write to the borrower within 15 (working) days of


becoming aware that the account is in arrears. 15 working days from 2
June is 21 June.

The lender must write to the borrower within 15 (working) days of


becoming aware that the account is in arrears. 15 working days from 2
June is 21 June.

Correct. The lender must write to the borrower within 15 (working)


days of becoming aware that the account is in arrears. 15 working days
from 2 June is 21 June.

Q42 B U5.1
A

Creation of an income / outgoings balance sheet could be a useful


action. However, borrowers should always approach their lender as soon
as possible in cases of difficulty.

Correct. Borrowers should approach their lender as soon as possible in


cases of difficulty.

This is too early in the process to reach conclusions about a way


forward without first approaching the lender.

Assistance such as SMI might be important, but it should be noted that,


in this case, redundancy is not an issue. They should first, in any event,
approach their lender.

ifs School of Finance 2013

105

Sample synoptic paper Scotland

Q43 D U4.2
A

Their mortgage is already on an interest-only basis.

As this is an interest-only mortgage, an extension to the term would not


reduce their monthly outlay.

Only one monthly payment has been missed. No extreme remedial


action, such as trading down, appears necessary.

Correct. This appears, at least at present, to be a temporary problem. A


partial suspension of monthly payments could offer a matching
temporary solution.

Q44 C U1.4
A

Donald can invest the maximum equity ISA limit of 11,520. Brenda can
pay 5,760, as she is already investing the maximum 5,760 in her cash
ISA.

5,760 each is the maximum for cash ISAs.

Correct. Donald can invest the maximum equity ISA limit of 11,520.
Brenda is already investing the maximum in a cash ISA (5,760), so the
most she can invest is 5,760 into an equity ISA.

11,520 each is the maximum for equity ISAs. Brenda, however, also
invests in a cash ISA, so her equity ISA contribution is restricted.

Q45 C U1.4
A

This implies that Brenda is only paying into a cash ISA. 5,760 2,500
= 3,260.

This relates to the previous year's ISA limit of 11,280. 11,280 2,500
= 8,780

Correct. The maximum that Brenda can pay is 11,520 2,500 =


9,020.

11,520 is the maximum that can be invested in ISAs in the 2013/14 tax
year. However, this ignores the fact that the question relates to the
increase in amount.

106

ifs School of Finance 2013

CeMAP Module 3

Q46 A U6.1
A

Correct. As Donald and Brenda's employment status has not changed,


they will not be eligible for SMI, irrespective of any other issues.

As Donald and Brenda's employment status has not changed, they will
not be eligible for SMI, irrespective of any other issues.

As Donald and Brenda's employment status has not changed, they will
not be eligible for SMI, irrespective of any other issues.

As Donald and Brenda's employment status has not changed, they will
not be eligible for SMI, irrespective of any other issues.

Q47 B U4.2
A

Usually a maximum period of 12 months is permitted to bring payments


up to date.

Correct. Usually a maximum period of 12 months is permitted to bring


payments up to date.

Usually a maximum period of 12 months is permitted to bring payments


up to date.

Usually a maximum period of 12 months is permitted to bring payments


up to date.

Q48 D U1.4
A

Securing previously unsecured debts will reduce the equity and


represent increased risk for the borrower, so this is a disadvantage.

The cost of a remortgage may be prohibitive, so this is a disadvantage.

The debts being consolidated will now run for the rest of the mortgage
term, rather than for their original term (maybe five to seven years, or
less), so this is a disadvantage.

Correct. The rate of interest on the remortgage will not necessarily be


higher than the original one, in fact the borrower could pay less as they
may benefit from an introductory rate from the new lender.

ifs School of Finance 2013

107

Sample synoptic paper Scotland

Q49 D U1.4
A

The letter must contain a list of due payments, either missed or partly
paid.

The letter must contain details of charges incurred as a result of the


arrears.

The letter must contain the total amount of arrears.

Correct. Although the letter must contain the total outstanding debt,
this excludes charges that may be made on redemption.

Q50 A U1.4
A

Correct. Under a repayment mortgage, payments could be reduced to


an interest-only level. Under an ISA-linked mortgage, the payments into
the ISA could be stopped. In both cases, this amounts to a suspension of
capital payment.

Automatic payment protection insurance is not usually available under


either repayment methods.

SMI does not fund capital or repayment vehicles. It pays interest only. SMI
would not be appropriate as their job situation has not changed.

Interest deferment without capitalisation is not a specific feature,


although it is an option that a lender may consider.

108

ifs School of Finance 2013

CeMAP Module 3

Case Study 6 Answer and Justifications


Q51 A U4.2
A

Correct. All the indications signal increased income coming into the
house in the near future. The lender's approach is likely to be to request
repayment of the arrears over a specified period of time.

The mortgage is on an interest-only basis linked to a unit-linked


endowment. As such, there is no scope for reducing outlay by extending
the term.

The arrears situation appears capable of being addressed. Surrender of


the endowment would be viewed as an unnecessary step.

The monthly payments are interest-only payments. Their suspension will


only increase the arrears.

Q52 C U6.1
A

Carol is eligible to claim under the Support for Mortgage Interest (SMI)
scheme, which provides 100% of her interest-only payments after 13
weeks.

Carol is eligible to claim under the Support for Mortgage Interest (SMI)
scheme, which provides 100% of her interest-only payments after 13
weeks.

Correct. Carol is eligible to claim under the Support for Mortgage


Interest (SMI) scheme, which provides 100% of her interest-only
payments after 13 weeks.

Carol is eligible to claim under the Support for Mortgage Interest (SMI)
scheme, which provides 100% of her interest-only payments after 13
weeks.

ifs School of Finance 2013

109

Sample synoptic paper Scotland

Q53 A U6.1
A

Correct. SMI is not paid on arrears that accumulate during the exclusion
period.

SMI is not paid on arrears that accumulate during the exclusion period.

SMI is not paid on arrears that accumulate during the exclusion period.

SMI is not paid on arrears that accumulate during the exclusion period.

Q54 C U6.1
A

Assignment gives the lender legal rights over the policy, giving them the
right to receive the policy proceeds to repay the mortgage on death or
maturity.

Assignment gives the lender legal rights over the policy, giving them the
right to receive the policy proceeds to repay the mortgage on death or
maturity.

Correct. Assignment gives the lender legal rights over the policy, giving
them the right to receive the policy proceeds to repay the mortgage on
death or maturity.

Assignment gives the lender legal rights over the policy, giving them the
right to receive the policy proceeds to repay the mortgage on death or
maturity.

Q55 D U1.1
A

The Family Law Act relates to the rights of spouses.

The completion of a consent to mortgage form effectively waives rights


of residence, which is much the opposite of being added to the mortgage
deed.

The endowment policy is on a single life basis and will pay out on Carol's
death or at the end of the term. It is unlikely that this could be changed
to a joint-life basis. Harry may need level term assurance.

Correct. Someone moving in who intends to become a party to the


mortgage will be fully assessed by the lender, using the normal status
enquiries.

110

ifs School of Finance 2013

CeMAP Module 3

Q56 B U5.8
A

Only individuals intending to become parties to the mortgage will


require status checks.

Correct. If rights of occupation were allowed, this would affect Carol's


(and Harry's) overall rights.

Carol will be allowed to collect the rent which she may choose to use
to service the repayment agreement.

While various issues can affect SMI, the time periods are legally laid
down.

Q57 B U1.8
A

Capitalising the arrears could be an option.There are still 15years to run


on the mortgage and, while this would increase the capital, there should
be plenty of time to fund the additional amount.

Correct. The endowment policy has only been in force for a relatively
short period and the probability is that surrender would be
uneconomic. This option is only usually used in cases of serious default.

Spreading the arrears allows them to be paid off gradually probably the
most suitable solution.

The term could be extended, with the endowment still repaying the
majority of the mortgage after 25 years.

Q58 A U2.3
A

Correct. Carol's insurer is currently predicting a shortfall in the maturity


value of the endowment when it matures. It could be wise to reduce the
dependency on the maturing policy, by switching a proportion of the
mortgage to a repayment basis.

The endowment is already running in potential shortfall. Both unit-linked


and with-profits policies are similarly investment-geared and there is no
certainty that a with-profit plan conversion, if allowed, would perform
better.

Changing to joint life assured will not affect the performance of the plan.

Extending the term on its own, without funding the final repayment, is
just deferring the problem.

ifs School of Finance 2013

111

Sample synoptic paper Scotland

Q59 D U6.1
A

The 75,000 loan is easily covered by the current value of 120,000. As


long as the arrears are managed, the building society will not take
negative action.

The arrears situation appears temporary and the valuation is well in


excess of the mortgage. There seems to be no current need to trade
down.

The insurer's recommendations relate to repaying the mortgage, which


is not linked to the current value.

Correct. As the 75,000 loan is easily exceeded by the current value, the
property offers good protection to the building society.

Q60 C U5.8
A

Harry will gain a right of occupation under the Matrimonial Homes


(Family Protection) (Scotland) Act 1981. This right is not subordinated
to Carol.

Harry will gain a right of occupation under the Matrimonial Homes


(Family Protection) (Scotland) Act 1981. This right is not subordinated
to Carol.

Correct. Harry will gain a right of occupation under the Matrimonial


Homes (Family Protection) (Scotland) Act 1981. This right is not
subordinated to Carol.

Harry will gain a right of occupation under the Matrimonial Homes


(Family Protection) (Scotland) Act 1981. This right is not subordinated
to Carol.

112

ifs School of Finance 2013