Sample practice questions

A few real questions from this free bank, with full explanations. Use the practice tool above for the whole set.

1. 1. UK Financial Services Regulation

   The Financial Conduct Authority (FCA) derives its powers principally from:

   • a.The Consumer Credit Act 1974 alone, together with the voluntary lending codes issued by the trade associations
   • b.The Mortgage Credit Directive
   • c.The Data Protection Act 2018
   • d.The Financial Services and Markets Act 2000, as amended by the Financial Services Act 2012

   Answer: d

   Explanation: FSMA 2000, as amended by the Financial Services Act 2012, established the FCA and sets out its objectives and rule-making powers. The other statutes address specific areas such as credit, mortgages and data protection, but do not constitute the FCA.

2. 2. UK Financial Services Regulation

   The FCA's SYSC sourcebook is primarily concerned with:

   • a.Registering land and legal charges at HM Land Registry and dealing with the conveyancing paperwork on behalf of the borrower
   • b.A firm's senior management arrangements, systems and controls
   • c.The wording of mortgage deeds
   • d.Setting stamp duty rates

   Answer: b

   Explanation: SYSC (Senior Management Arrangements, Systems and Controls) requires firms to organise and control their affairs responsibly and effectively, with adequate risk management, compliance, record-keeping and governance. It supports Principle 3, that a firm must take reasonable care to organise its affairs responsibly.

3. 3. UK Financial Services Regulation

   The FCA's competition operational objective is concerned with:

   • a.Eliminating all competition between lenders
   • b.Setting a single national mortgage rate
   • c.Guaranteeing every authorised firm an equal share of the market so that no single lender can ever dominate mortgage lending
   • d.Promoting effective competition in the interests of consumers

   Answer: d

   Explanation: One of the FCA's three operational objectives is to promote effective competition in the interests of consumers - for example through clear disclosure and low barriers to switching - alongside consumer protection and market integrity.

4. 4. Mortgage Law and Property

   In registered land, the interest of a person in actual occupation of the property may bind a lender even without being noted on the register. Such an interest is an example of:

   • a.A standard security
   • b.A ground rent
   • c.An overriding interest
   • d.A restrictive covenant

   Answer: c

   Explanation: Certain interests 'override' the register and can bind a purchaser or lender even though not registered - notably the rights of a person in actual occupation. The leading case Williams & Glyn's Bank v Boland established that an occupying spouse's beneficial interest could bind a lender, which is why lenders obtain consent forms from adult occupiers.

5. 5. MCOB: Advising, Selling and Disclosure

   In MCOB, a sale is treated as 'advised' whenever the firm:

   • a.Reads out the lender's standard variable rate
   • b.Simply hands the customer a printed list of every product available across the whole of the market for them to read
   • c.Gives the customer a personal recommendation on a particular regulated mortgage contract
   • d.Hands the customer a copy of the lender's brochure without comment

   Answer: c

   Explanation: A sale becomes advised as soon as the firm makes a personal recommendation to a specific customer to enter into (or vary) a particular regulated mortgage contract (MCOB 4.7A). Simply giving factual information or an unfiltered list of products is not advice and does not trigger the suitability rules.

6. 6. MCOB: Advising, Selling and Disclosure

   An adviser should confirm the customer's identity and gather documents partly to comply with:

   • a.The Equality Act's dress requirements
   • b.The Building Regulations
   • c.The Highway Code
   • d.Anti-money-laundering obligations under the Money Laundering Regulations

   Answer: d

   Explanation: Firms must carry out customer due diligence, including verifying identity, under the Money Laundering Regulations 2017. This sits alongside MCOB conduct duties and helps prevent mortgage fraud and money laundering through property transactions.

7. 7. Responsible Lending and Affordability

   Lending into retirement or over a long term should prompt the lender to check that repayments remain affordable when:

   • a.The customer's income is likely to fall, for example on retirement
   • b.House prices rise
   • c.The customer changes lender
   • d.The Bank Rate is cut

   Answer: a

   Explanation: MCOB 11.6.14 requires the lender to consider foreseeable reductions in income over the term, most obviously retirement, so that a mortgage stretching into later life is only granted where it will still be affordable once earned income ends.

8. 8. Mortgage Products and Repayment Methods

   In the early years of a capital-and-interest (repayment) mortgage, each monthly payment is made up of:

   • a.mostly interest, with only a small amount reducing the capital
   • b.an equal split of capital and interest that never changes for the whole term
   • c.mostly capital, with only a small amount of interest
   • d.interest only, with no capital repaid until the final year of the mortgage

   Answer: a

   Explanation: On a repayment mortgage interest is charged on the outstanding balance, which is highest at the start, so early payments are mostly interest and repay little capital; as the balance falls the capital-repayment element grows. The loan is still cleared by the end of the term.

9. 9. Mortgage Products and Repayment Methods

   The Right to Buy scheme enables:

   • a.any tenant at all to buy any property they wish at full market value
   • b.landlords to compel their tenants to purchase the rented property
   • c.eligible council or housing-association tenants to buy their home at a discount
   • d.first-time buyers generally to purchase a home with no deposit at all, as a standard part of the way the arrangement operates

   Answer: c

   Explanation: Right to Buy gives qualifying secure tenants the ability to purchase their rented home at a discount linked to how long they have been a tenant. Lenders treat the discount as the deposit/equity, and there are rules on repaying discount if the property is sold within a set period.

10. 10. Arrears, Post-Completion and Protection

    Increasing (index-linked) term assurance is designed to:

    • a.pay the beneficiaries a regular monthly income instead, according to the relevant contract and policy documentation
    • b.reduce the sum assured a little each and every year
    • c.keep the level of cover rising over time, for example in line with inflation
    • d.provide cover for only the first year of the mortgage

    Answer: c

    Explanation: Increasing term assurance raises the sum assured over time (often linked to an index such as RPI), helping cover keep pace with inflation or a growing liability. Premiums rise accordingly. It contrasts with level cover, which stays fixed, and decreasing cover, which falls.