CeMAP 2 – Free Mock

When an adviser gathers the information to provide a mortgage recommendation they must first establish affordability. A self-employed borrower will have to provide information confirming their income and expenses using their self-assessment details and the Net Profit figure is used. This is calculated using: The record of  the turnover (income from the business activity) and expenditure. Gross profit = Gross turnover less raw materials and goods purchased to sell (i.e. stock). The Net profit = Gross profit less expenses.

A Higher Lending Charge (HLC) is a charge invoked by a lender if the borrower needs to borrow above the lenders maximum LTV threshold. The HLC is charged at a set percentage for any amount borrowed above the maximum LTV threshold. The value of the property is £200,000 and 80% LTV is the maximum borrowing of £160,000 (80% of £200,000). As they need to borrow £180,000 they are borrowing £20,000 above the threshold (£180,000 (required borrowing) less £160,000 (80% LTV threshold). The £20,000 is charged at a one off 7% = £1,400. 

Waiver of premium is a rider benefit that can be selected on most life assurance and income protection insurance policies. It is designed to maintain the premiums when the policy holder is unable to pay due to sickness. The cost is added to the premium and will often have a minimum deferral period of 13 weeks.

Within the 3 main Land Law Acts of 1925 the borrower has the right to "Let" a property, but must state to the lender that the mortgage is for Buy to let purposes. If a person buys a property for their own residence and then subsequently Let the property without notifying the lender this is a breach of the mortgage terms. Borrowers must request a "Consent to Let" if they want to Let out their property.

UK Residential mortgage regulation only came into force in October 2004. Any mortgage taken out before that date and any mortgage taken out since 2004 where the borrower or the property does not meet the FCA regulated mortgage definition is treated as an unregulated mortgage and will not be covered by the FOS or the FSCS.

Before a lender will provide a mortgage offer they will conduct the underwriting process. This will involve checks on the property and the borrower. During the inspection of the property any issues identified may involve an undertaking. An undertaking means that the building is basically in good repair but the lender requires the borrower to undertake to carry out minor repairs to bring the property up to the standard of an average property. This must be completed within 3 months of the offer and is a condition of the mortgage.

A capped rate mortgage is a variable interest rate mortgage often set at the lenders SVR and will move up and down, but will not exceed the cap within the special deal term. The Cap is the highest the rate will go.

A Guarantor agrees to stand by the debt of another. The borrower is responsible for the mortgage. The guarantor must pay if they default and can be a full or a limited guarantee. The guarantor must be advised to seek legal advice and can only be rendered invalid for a few reasons. This does not include a change of occupation.

Mortgage payment protection insurance (MPPI) is a short term income replacement insurance policy designed to cover the monthly mortgage payments in the event that the borrower cannot work due to accident, sickness or unemployment (the self-employed are excluded from the unemployment element). It is a pure protection policy with no surrender value and can be obtained relatively cheap as there is no medical underwriting.