CeMAP Credit Assessment and Affordability 1 — Questions and Answers
Question 1: What does a lender's affordability assessment primarily evaluate when considering a mortgage application?
- The applicant's employment history only
- Whether the borrower can sustain mortgage repayments over the term (Correct answer)
- The value of the property being purchased
- The applicant's credit card limit
Correct answer: Whether the borrower can sustain mortgage repayments over the term
Affordability assessments determine whether a borrower can sustain mortgage repayments both now and if interest rates rise.
Question 2: Which of the following is considered a 'hard' credit search?
- Checking your own credit report
- A lender performing a full credit check upon mortgage application (Correct answer)
- A comparison site providing a pre-approval quote
- An employer verifying identity
Correct answer: A lender performing a full credit check upon mortgage application
A hard credit search is recorded on a borrower's credit file and occurs when a lender performs a full check upon application.
Question 3: What is the typical maximum loan-to-income (LTI) multiple most mainstream UK lenders apply?
- 3 times income
- 4 to 4.5 times income (Correct answer)
- 6 times income
- 7.5 times income
Correct answer: 4 to 4.5 times income
Most mainstream lenders cap borrowing at approximately 4 to 4.5 times the borrower's gross annual income.
Question 4: Which regulation requires lenders to conduct a 'stress test' on mortgage affordability?
- The Consumer Credit Act 1974
- The Mortgage Market Review (MMR) 2014 (Correct answer)
- The Financial Services Act 2012
- The Data Protection Act 2018
Correct answer: The Mortgage Market Review (MMR) 2014
The Mortgage Market Review (MMR) 2014 introduced mandatory affordability stress tests to ensure borrowers can cope with rate rises.
Question 5: Which income type is typically treated most cautiously by mortgage lenders when assessing affordability?
- Basic employed salary
- State pension income
- Self-employed profit averaged over two years (Correct answer)
- Guaranteed overtime
Correct answer: Self-employed profit averaged over two years
Self-employed income is treated cautiously because it can fluctuate, and lenders usually average the last two to three years of accounts.
Question 6: What does a credit utilisation ratio measure?
- The number of credit applications made in a year
- The percentage of available revolving credit currently in use (Correct answer)
- The total debt outstanding versus property value
- The frequency of missed payments
Correct answer: The percentage of available revolving credit currently in use
Credit utilisation ratio measures what proportion of available revolving credit (e.g., credit cards) is currently being used.
CeMAP Credit Assessment and Affordability 1
What does a lender's affordability assessment primarily evaluate when considering a mortgage application?