CeMAP Mortgage Application Process 2 — Questions and Answers
Question 1: At which stage of the mortgage process does the lender's valuation typically take place?
- Before the Decision in Principle
- After the full application has been submitted (Correct answer)
- After the mortgage offer has been issued
- At the point of completion
Correct answer: After the full application has been submitted
The lender arranges a valuation of the property after receiving the full mortgage application to confirm the property's worth as security.
Once a full mortgage application is submitted, the lender instructs a valuation of the property. This is primarily to protect the lender's interest — confirming the property provides adequate security for the loan. The valuation may be a physical inspection, desktop valuation, or automated valuation model (AVM) depending on the lender and loan-to-value ratio. The borrower typically pays for this valuation. It is not a survey and may not identify structural defects.
Question 2: What is the role of a mortgage broker's compliance department in the application process?
- To negotiate better rates with lenders
- To check that advice given meets regulatory standards before submission (Correct answer)
- To carry out credit checks on behalf of the lender
- To arrange buildings insurance for the client
Correct answer: To check that advice given meets regulatory standards before submission
The compliance department reviews case files to ensure advice meets FCA regulatory standards and the firm's own procedures.
A mortgage broker's compliance department performs quality assurance on advice files before and after submission. They check that the fact find is complete, the suitability report adequately justifies the recommendation, all required documents are obtained, and the advice meets MCOB requirements. This protects both the consumer and the firm. Compliance may reject or require amendments to files that do not meet standards. Regular auditing helps identify training needs and systemic issues.
Question 3: What does the term 'gazumping' mean in the UK property market?
- A buyer withdrawing from a purchase at the last minute
- A seller accepting a higher offer from another buyer after already accepting an offer (Correct answer)
- A lender withdrawing a mortgage offer before completion
- A surveyor downvaluing a property
Correct answer: A seller accepting a higher offer from another buyer after already accepting an offer
Gazumping occurs when a seller accepts a higher offer from a competing buyer after having already verbally accepted an earlier offer.
Gazumping is possible in England and Wales because a verbal agreement to sell property is not legally binding — the transaction only becomes binding upon exchange of contracts. A seller may accept a higher offer at any point before exchange, leaving the original buyer having potentially spent money on surveys, legal fees, and searches. Scotland's system is different — once an offer is formally accepted, it creates a binding contract. Some buyers use lock-out agreements or insurance to mitigate this risk.
Question 4: What are local authority searches and why are they important in the mortgage process?
- They verify the borrower's identity for anti-money laundering purposes
- They reveal planning decisions, road schemes, and other matters that could affect the property (Correct answer)
- They confirm the property's council tax band
- They check whether the property is listed on the Land Registry
Correct answer: They reveal planning decisions, road schemes, and other matters that could affect the property
Local authority searches reveal important information about planning permissions, road proposals, conservation areas, and other factors that could affect the property's value or use.
Local authority searches are a standard part of the conveyancing process and include information about planning permissions and applications, building control records, road proposals and traffic schemes, conservation area status, tree preservation orders, contaminated land registers, and smoke control zones. This information is crucial because it can significantly affect the property's value and the borrower's enjoyment of it. Lenders require these searches before issuing a mortgage offer. They typically take 1-4 weeks depending on the local authority.
Question 5: What happens if a mortgage offer expires before completion?
- The borrower must find a new property
- The borrower or their solicitor must request an extension or a new offer from the lender (Correct answer)
- The mortgage is automatically renewed on current terms
- The lender must complete regardless of the expiry
Correct answer: The borrower or their solicitor must request an extension or a new offer from the lender
If a mortgage offer expires, typically after 3-6 months, the borrower must request an extension which may involve reassessment.
Mortgage offers typically have a validity period of 3-6 months. If completion does not occur within this time, the offer expires. The borrower or their solicitor must contact the lender to request an extension. The lender may simply extend the offer, but in some cases they may require a fresh valuation, updated income evidence, or a new credit check. If market conditions or the borrower's circumstances have changed, the lender could withdraw the offer entirely or offer different terms.
Question 6: Under anti-money laundering regulations, what must a mortgage adviser verify about a client's deposit?
- Only that the deposit exists in a bank account
- The source of the deposit funds and that they are legitimate (Correct answer)
- That the deposit is at least 25% of the property value
- That the deposit has been held for at least 6 months
Correct answer: The source of the deposit funds and that they are legitimate
AML regulations require advisers to verify the legitimate source of deposit funds to prevent money laundering through property transactions.
Under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, mortgage advisers must conduct customer due diligence which includes verifying the source of deposit funds. Acceptable sources include savings (evidenced by bank statements), gifts (requiring a gifted deposit letter), inheritance, property sale proceeds, or other legitimate sources. The adviser must be satisfied the funds are not the proceeds of crime. Red flags include cash deposits, multiple transfers from unknown sources, or deposits from overseas with no clear connection to the borrower.
CeMAP Mortgage Application Process 2
At which stage of the mortgage process does the lender's valuation typically take place?