CeMAP Applying Mortgage Advice Knowledge 2 — Questions and Answers
Question 1: Under FCA rules, what is the maximum period for a mortgage illustration to remain valid after issue?
- 14 days
- 28 days (Correct answer)
- 30 days
- 60 days
Correct answer: 28 days
A mortgage illustration (KFI/ESIS) remains valid for a minimum of 28 days, giving the customer adequate time to consider the offer.
The FCA's MCOB rules require that a mortgage illustration remains valid for at least 28 days from issue. This gives borrowers sufficient time to compare products and make informed decisions without pressure. The illustration must contain all key features including the total amount payable, the APRC, and any early repayment charges.
Question 2: A client has a joint mortgage but is going through a divorce. What is the adviser's primary obligation?
- Advise the client to sell the property immediately
- Ensure both parties receive independent legal advice (Correct answer)
- Transfer the mortgage to the higher earner
- Recommend a remortgage to release equity
Correct answer: Ensure both parties receive independent legal advice
The adviser must ensure both joint borrowers are treated fairly and recommend independent legal advice for both parties.
When joint borrowers are separating, the mortgage adviser has a duty of care to both named borrowers. The adviser should not take sides or make assumptions about the outcome. Both parties should be directed to obtain independent legal advice. Any changes to the mortgage, such as transfer of equity or sale, require the consent and legal representation of both parties.
Question 3: What does the abbreviation TCF stand for in the context of UK mortgage regulation?
- Total Cost of Finance
- Treating Customers Fairly (Correct answer)
- Terms and Conditions Framework
- Transaction Compliance Framework
Correct answer: Treating Customers Fairly
TCF stands for Treating Customers Fairly, one of the FCA's core principles for regulated firms.
Treating Customers Fairly (TCF) is embedded in the FCA's Principle 6 — 'A firm must pay due regard to the interests of its customers and treat them fairly.' TCF requires firms to demonstrate that fair treatment of customers is central to their corporate culture. The six consumer outcomes under TCF cover areas including product design, information clarity, advice suitability, and complaints handling.
Question 4: A borrower wants to port their existing mortgage to a new property. Which condition must typically be met?
- The new property must be of equal or lesser value
- The borrower must pass a new affordability assessment (Correct answer)
- The original mortgage must have been held for at least 5 years
- Porting is only available on fixed-rate products
Correct answer: The borrower must pass a new affordability assessment
Even when porting, lenders require a fresh affordability assessment under current criteria to ensure the borrower can still meet repayments.
Mortgage portability allows borrowers to transfer their existing mortgage terms to a new property. However, this is not automatic — the lender will conduct a new affordability assessment based on current income and expenditure. The new property must also meet the lender's criteria. If the borrower needs additional borrowing, that portion will typically be on current rates. Porting can save early repayment charges but does not guarantee approval.
Question 5: What is the purpose of a Decision in Principle (DIP) in the mortgage process?
- It legally commits the lender to providing a mortgage
- It provides an indication of how much the lender may be willing to lend (Correct answer)
- It confirms the property valuation has been completed
- It replaces the need for a full mortgage application
Correct answer: It provides an indication of how much the lender may be willing to lend
A DIP gives an indication of lending willingness based on initial information, but is not a binding commitment.
A Decision in Principle (also called Agreement in Principle or Mortgage Promise) is an indication from a lender of how much they may be willing to lend based on basic financial information. It typically involves a soft or hard credit check. A DIP is not a guarantee of a mortgage offer — it is subject to full underwriting, property valuation, and verification of the information provided. Estate agents often request a DIP as evidence that a buyer is serious.
Question 6: Under MCOB rules, when must an adviser provide a suitability report?
- Only when the client requests one
- Before the mortgage application is submitted (Correct answer)
- After the mortgage offer has been issued
- Only for buy-to-let mortgages
Correct answer: Before the mortgage application is submitted
MCOB requires that a suitability report explaining why the recommended mortgage is appropriate must be provided before the application is submitted.
The FCA's Mortgage Conduct of Business (MCOB) rules require that where advice is given, the adviser must provide a written suitability report before the customer submits an application. This report must explain why the recommended product is suitable for the customer's needs and circumstances. It should cover the type of mortgage, the repayment method, the term, and any features such as portability or overpayment facilities.
CeMAP Applying Mortgage Advice Knowledge 2
Under FCA rules, what is the maximum period for a mortgage illustration to remain valid after issue?