Credit Assessment and Affordability Flashcards
6 cards from real CEMAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Credit Assessment and Affordability flashcards as text
What does 'Open Banking' allow lenders to do in the context of affordability assessments?
Answer: View real-time bank transaction data with the borrower's consent
Open Banking allows lenders to access a borrower's live transaction data (with consent) to make more accurate income and expenditure assessments.
Which of the following expenditures would a lender typically include in an affordability stress test?
Answer: Committed credit commitments, essential living costs, and childcare
Lenders include committed credit commitments, essential living costs, and childcare when stress-testing affordability.
What is a 'soft footprint' credit search in the context of mortgage applications?
Answer: A preliminary check that does not affect the applicant's credit score
A soft footprint search is a preliminary credit check visible only to the applicant that does not impact their credit score.
A borrower earns £50,000 per year and has monthly committed debt payments of £500. What is their monthly DTI ratio if their proposed mortgage payment is £1,200 per month?
Answer: 40%
Total monthly debt (£500 + £1,200 = £1,700) divided by gross monthly income (£50,000 ÷ 12 = £4,167) equals approximately 40%.
Which of the following best describes 'credit impairment' in mortgage lending?
Answer: A record of adverse credit events such as defaults, CCJs, or missed payments
Credit impairment refers to a history of adverse credit events that signals increased default risk to potential lenders.
Why might a lender request three months of bank statements during a mortgage application?
Answer: To assess income regularity, spending patterns, and existing commitments
Bank statements allow lenders to verify declared income, identify undisclosed commitments, and assess spending behaviour.