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

The Financial Services and Markets Act 2000, as amended by the Financial Services Act 2012

The Consumer Credit Act 1974 alone, together with the voluntary lending codes issued by the trade associations

If an authorised mortgage adviser gives negligent advice and later becomes insolvent, an eligible consumer's claim may be protected by the Financial Services Compensation Scheme (FSCS) up to:

There is no protection for advice claims

Under Article 61 of the Regulated Activities Order, a loan is a 'regulated mortgage contract' where it is secured by a mortgage on land in the UK, the borrower is an individual or trustee, and:

At least 40% of the land is used, or intended to be used, as a dwelling by the borrower or a related person

The property is used solely for commercial or agricultural purposes, with no dwelling situated on the land at all

The borrower is a limited company

Two co-owners hold a property as beneficial joint tenants. On the death of one owner, that owner's interest:

Passes automatically to the surviving co-owner by the right of survivorship

Passes under the deceased's will to a chosen beneficiary

Under the Mortgage Credit Directive, the pre-contract disclosure document a customer must receive, illustrating the mortgage's costs and features, is the:

European Standardised Information Sheet (ESIS)

Consumer Duty outcomes statement

Annual percentage rate table only

At the outset of a mortgage interview, the adviser should disclose:

The nature and scope of the service and how the adviser will be paid, including any fees

The customer's full credit score and personal financial details to selected third-party lenders

Nothing until the application is submitted

A lender may grant an interest-only mortgage under current rules where:

There is a credible, clearly understood strategy to repay the capital at the end of the term

The borrower is over 40 years old

No repayment plan is needed at all

The borrower simply hopes that house prices will rise enough to cover the outstanding capital by the end of the term

Under a capital-and-interest (repayment) mortgage, the borrower's monthly payments:

Cover both interest and a portion of the capital, so the balance is cleared by the end of the term

Vary directly with the stock market

Are invested in a separate savings plan

Cover interest only, leaving the capital outstanding at the end of the term

A 'discount' mortgage offers the borrower:

A set reduction off the lender's standard variable rate (SVR) for a period

A rate that tracks the Bank of England Bank Rate

As a condition of a mortgage, a lender will normally require the borrower to have:

Buildings insurance covering at least the reinstatement value of the property

Life insurance covering the lender's directors and senior managers for the duration of the loan

LIBF CeMAP (Certificate in Mortgage Advice and Practice) Practice Test

Frequently asked questions

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Sample practice questions

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1. UK Financial Services Regulation
The Financial Conduct Authority (FCA) derives its powers principally from:
- a.The Financial Services and Markets Act 2000, as amended by the Financial Services Act 2012
- b.The Data Protection Act 2018
- c.The Consumer Credit Act 1974 alone, together with the voluntary lending codes issued by the trade associations
- d.The Mortgage Credit Directive
Answer: a
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. UK Financial Services Regulation
If an authorised mortgage adviser gives negligent advice and later becomes insolvent, an eligible consumer's claim may be protected by the Financial Services Compensation Scheme (FSCS) up to:
- a.£50,000
- b.There is no protection for advice claims
- c.£170,000
- d.£85,000
Answer: d
Explanation: The FSCS protects eligible claims for home-finance advice and arranging up to £85,000 per person per firm (raised from £50,000 in April 2019). It is the compensation scheme of last resort when an authorised firm cannot meet claims made against it.
3. Mortgage Law and Property
Under Article 61 of the Regulated Activities Order, a loan is a 'regulated mortgage contract' where it is secured by a mortgage on land in the UK, the borrower is an individual or trustee, and:
- a.The property is used solely for commercial or agricultural purposes, with no dwelling situated on the land at all
- b.The borrower is a limited company
- c.At least 40% of the land is used, or intended to be used, as a dwelling by the borrower or a related person
- d.The loan exceeds £1 million
Answer: c
Explanation: A regulated mortgage contract requires that at least 40% of the mortgaged land is used, or intended to be used, as or in connection with a dwelling by the borrower or a related person (RAO 2001, Article 61). Lending to companies, and most pure buy-to-let, falls outside this definition.
4. Mortgage Law and Property
Two co-owners hold a property as beneficial joint tenants. On the death of one owner, that owner's interest:
- a.Passes automatically to the surviving co-owner by the right of survivorship
- b.Is sold by the lender
- c.Passes under the deceased's will to a chosen beneficiary
- d.Reverts to the freeholder
Answer: a
Explanation: Under a joint tenancy the right of survivorship applies: the deceased's interest passes automatically to the surviving joint tenant, outside the will. Under a tenancy in common, each owner instead has a distinct share that passes under their will or the intestacy rules.
5. MCOB: Advising, Selling and Disclosure
Under the Mortgage Credit Directive, the pre-contract disclosure document a customer must receive, illustrating the mortgage's costs and features, is the:
- a.Consumer Duty outcomes statement
- b.Annual percentage rate table only
- c.Land Registry title plan
- d.European Standardised Information Sheet (ESIS)
Answer: d
Explanation: Since the Mortgage Credit Directive (in force 21 March 2016), the ESIS replaced the old Key Facts Illustration (KFI) as the standard pre-application and pre-contract disclosure document (MCOB 5A), setting out the loan's key features, costs and the APRC.
6. MCOB: Advising, Selling and Disclosure
At the outset of a mortgage interview, the adviser should disclose:
- a.The customer's full credit score and personal financial details to selected third-party lenders
- b.The nature and scope of the service and how the adviser will be paid, including any fees
- c.Only the lender's name
- d.Nothing until the application is submitted
Answer: b
Explanation: MCOB disclosure rules require the firm to explain, early in the process, the type of service offered (advised or execution-only, whole-of-market or restricted) and the basis of its remuneration, including any fees the customer will pay, so the customer can make an informed choice.
7. Responsible Lending and Affordability
A lender may grant an interest-only mortgage under current rules where:
- a.The borrower is over 40 years old
- b.No repayment plan is needed at all
- c.The borrower simply hopes that house prices will rise enough to cover the outstanding capital by the end of the term
- d.There is a credible, clearly understood strategy to repay the capital at the end of the term
Answer: d
Explanation: Interest-only mortgages are permitted only where the borrower has a credible and clearly understood strategy for repaying the capital, such as an investment or savings vehicle. Reliance on assumed future house-price rises is not an acceptable repayment strategy.
8. Mortgage Products and Repayment Methods
Under a capital-and-interest (repayment) mortgage, the borrower's monthly payments:
- a.Vary directly with the stock market
- b.Are invested in a separate savings plan
- c.Cover both interest and a portion of the capital, so the balance is cleared by the end of the term
- d.Cover interest only, leaving the capital outstanding at the end of the term
Answer: c
Explanation: A repayment (capital-and-interest) mortgage's payments include both interest and capital, so provided all payments are made the loan is fully repaid by the end of the term. An interest-only mortgage instead leaves the capital to be repaid separately.
9. Mortgage Products and Repayment Methods
A 'discount' mortgage offers the borrower:
- a.A fixed rate for five years
- b.A set reduction off the lender's standard variable rate (SVR) for a period
- c.A rate that tracks the Bank of England Bank Rate
- d.An interest-free loan
Answer: b
Explanation: A discount mortgage charges the lender's standard variable rate (SVR) less a set discount for an introductory period. Because it depends on the SVR, which the lender controls, the actual rate can move if the SVR changes.
10. Arrears, Post-Completion and Protection
As a condition of a mortgage, a lender will normally require the borrower to have:
- a.Travel insurance
- b.Life insurance covering the lender's directors and senior managers for the duration of the loan
- c.Buildings insurance covering at least the reinstatement value of the property
- d.Pet insurance
Answer: c
Explanation: Lenders require buildings insurance so that the property, which is their security, can be rebuilt if it is damaged or destroyed; cover must be at least the reinstatement value. Contents insurance, by contrast, protects the borrower's belongings and is optional.