LIBF CeMAP (Certificate in Mortgage Advice and Practice) — All Questions

When dealing with a borrower in arrears who has recently been bereaved and is struggling, the firm should:

• a.recognise the customer's vulnerability and adapt its approach to their needs✓
• b.begin repossession proceedings against the borrower immediately, provided the account is otherwise kept up to date
• c.apply its standard collections pressure without any change
• d.refuse to consider any form of payment arrangement

FCA guidance on vulnerable customers, reinforced by the Consumer Duty, expects firms to identify vulnerability (such as recent bereavement) and respond with appropriate care and flexibility. In arrears cases this means considering suitable forbearance and clear, supportive communication.

Under MCOB 13, a firm should not commence or continue repossession proceedings where the:

• a.customer has any level of arrears on the account at all, in line with the lender's normal administrative practice
• b.customer has arranged the required buildings insurance
• c.customer is keeping to a reasonable and sustainable repayment arrangement✓
• d.property has risen in value since it was purchased

MCOB 13 treats repossession as a last resort; if the customer is adhering to an agreed, realistic arrangement to clear the shortfall, the firm should not pursue possession. Enforcement should follow only when other reasonable attempts to resolve the arrears have failed.

A borrower with a £180,000 interest-only mortgage over 20 years wants the cheapest cover to repay the debt on death. The most suitable is generally:

• a.level term assurance for £180,000 over 20 years✓
• b.whole-of-life assurance for the sum of £180,000
• c.family income benefit paying a monthly income
• d.decreasing term assurance over the 20-year term

Because an interest-only balance stays at 180,000 throughout, level term assurance keeps the sum assured constant to match it, and it is cheaper than whole-of-life for a defined term. Decreasing term would leave a growing gap, as its payout falls while the debt does not.

Many critical illness policies include a 'survival period', meaning the insured must:

• a.survive right up to the end of the mortgage term
• b.have survived at least one full year before a claim, as it is set out in the mortgage offer document
• c.never make a claim on the policy during its term
• d.survive a short set period, for example 14 days, after diagnosis for the claim to be paid✓

A survival period requires the policyholder to live for a specified short time (commonly 10 to 14 days) after diagnosis or surgery before the lump sum is paid, distinguishing CIC from life cover. If death occurs first, any linked life cover, rather than the CIC element, would respond.

Standard buildings insurance typically covers damage caused by:

• a.a fall in the market value of the property
• b.insured perils such as fire, flood, storm and subsidence✓
• c.the borrower losing their job and their income
• d.the general wear and tear of the property over time, provided the account is otherwise kept up to date

Buildings policies cover the structure against specified perils, such as fire, flood, storm, escape of water and subsidence, subject to the policy terms and any excess. They do not cover gradual wear and tear, nor economic risks such as falling values or unemployment.

The key difference between MPPI and income protection is that MPPI:

• a.pays out a lump sum on the death of the borrower
• b.insures the building and its contents against damage, as it is set out in the mortgage offer document, in line with the lender's normal administrative practice
• c.lasts for the whole of the borrower's working life
• d.covers only the mortgage payment and pays for a limited period, whereas income protection replaces a wider income, often to retirement✓

MPPI is a short-term, mortgage-payment-focused product (typically paying up to 12 to 24 months) covering accident, sickness and unemployment, whereas income protection provides a broader replacement income for as long as incapacity lasts, up to the policy term or retirement. IP does not usually cover unemployment.

Where a life policy is formally 'assigned' to a lender as security for a mortgage, the effect is that the:

• a.policy is cancelled as soon as the assignment takes effect, unless the borrower and lender later agree otherwise
• b.premiums on the policy are paid by the lender from then on
• c.lender gains rights over the policy proceeds to the extent of the debt✓
• d.borrower can no longer be the life assured on the policy

Assignment transfers rights in the policy to the lender as collateral, so on a claim the proceeds are first applied to repay the mortgage debt, with any balance to the borrower or estate. This is less common now than simply writing cover in trust, but the concept still appears.

MCOB 13 requires that a firm dealing with a customer in arrears must not:

• a.provide the customer with the FCA's arrears information sheet, subject to the usual terms and conditions that apply
• b.discuss any of the available repayment options with them
• c.consider offering the customer any form of forbearance
• d.put pressure on the customer through excessive contact or press them into a hasty sale✓

MCOB 13 prohibits firms from applying undue pressure, for example through oppressive contact or by pressing a customer into a distress sale, and requires fair, proportionate engagement. The aim is to help the customer resolve the arrears, not to harass them.

When conducting a protection needs analysis for a new homeowner, the adviser should first:

• a.recommend the most expensive protection policy available, whatever the borrower's own individual circumstances happen to be
• b.assume that the client needs no protection at all
• c.establish the client's needs, existing cover and budget before recommending suitable protection✓
• d.sell the client critical illness cover and nothing else

A sound protection recommendation starts with fact-finding: identifying the liabilities (the mortgage), dependants, existing cover, employer benefits, and the client's budget and priorities. Only then can the adviser recommend suitable, affordable cover, consistent with MCOB and Consumer Duty suitability expectations.