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

A lender using an income-multiple limit alongside affordability is applying it as:

• a.A minimum that must always be lent
• b.A replacement for verifying income
• c.An upper cap that the affordability assessment may reduce further✓
• d.A fixed, guaranteed amount that every single customer who applies will then automatically receive from the lender

An income multiple acts as a maximum ceiling on borrowing. The actual amount lent must still pass the MCOB 11.6 affordability test, which may permit less than the maximum multiple where the customer's expenditure or the stress test dictates.

A customer receiving state benefits that are expected to continue asks for these to be counted as income. The lender should:

• a.Consider whether the benefits are sustainable and evidenced before including them✓
• b.Count them without any checks
• c.Always refuse outright to count any form of state benefit as part of the customer's assessable income
• d.Double the value of the benefits

MCOB 11.6 requires income used in the assessment to be evidenced and reasonably expected to continue. Sustainable benefit income can be considered where verified, applying the same prudence used for other income sources, so affordability rests on reliable figures.

Which of the following best reflects a lender's obligation when a customer's declared expenditure looks implausibly low?

• a.Ignore expenditure altogether
• b.Apply realistic minimum expenditure assumptions rather than relying on unrealistically low self-declared figures✓
• c.Simply accept the implausibly low expenditure figures at face value in order to approve a larger amount of borrowing
• d.Ask the customer to reduce their income figure instead

MCOB 11.6 expects a realistic assessment of expenditure. Lenders commonly use statistical or modelled minimum figures where self-declared expenditure is implausibly low, so affordability is not overstated by unrealistic customer estimates.

The FCA's responsible-lending rules apply the affordability assessment to the customer as borrower, which means the lender is chiefly concerned with the customer's ability to:

• a.Sell the property quickly
• b.Increase the property's value
• c.Repay the mortgage from income and resources over its term✓
• d.Obtain a second mortgage

Responsible lending centres on the borrower's capacity to repay from sustainable income and resources throughout the term (MCOB 11.6), reflecting the MMR's shift away from lending decisions dominated by the security's value.

An adviser notes that a customer could afford a mortgage now but that a fixed-term maintenance obligation ends in three years, increasing disposable income. For affordability this future change is:

• a.A foreseeable improvement the lender may take into account with appropriate care✓
• b.Irrelevant to MCOB
• c.Ignored altogether simply because the change lies at some point in the future rather than in the present
• d.A reason to refuse the mortgage

MCOB 11.6.14 requires foreseeable changes in income and expenditure to be considered. A known, dated reduction in outgoings is a foreseeable change; the lender may take it into account prudently, just as it must consider foreseeable reductions in income.

Which of the following would be an example of irresponsible lending contrary to MCOB 11?

• a.Carefully verifying the customer's income and fully assessing their expenditure before agreeing to lend to them
• b.Reviewing an interest-only repayment strategy during the term
• c.Lending on an interest-only basis with no credible repayment strategy and no affordability check✓
• d.Applying an interest-rate stress test to a two-year fix

Granting interest-only lending without a credible repayment strategy and without assessing affordability directly contravenes MCOB 11.6.41 and the responsible-lending duty. The other options are examples of the compliant behaviour the rules require.

A lender's responsible-lending policy should be:

• a.Written, consistently applied and capable of demonstrating how affordability is assessed✓
• b.Different for every customer with no consistency
• c.Kept solely in the individual adviser's own memory rather than being written down anywhere at all
• d.Designed to maximise arrears

MCOB 11.6.20 requires a written responsible-lending policy that the lender applies consistently and can evidence to the FCA, ensuring affordability decisions are principled and demonstrable rather than arbitrary.

When a customer applies to remortgage to a new lender for the same amount to get a lower rate, and passes the standard tests, the affordability assessment protects the customer by:

• a.Removing the need for a valuation
• b.Confirming the new, cheaper mortgage remains affordable for them✓
• c.Guaranteeing the property will rise in value
• d.Fixing the rate for life

Even on a remortgage to a cheaper rate, MCOB 11.6 requires the new lender to assess affordability so the switch is sustainable. Where a like-for-like customer would otherwise fail, modified-affordability provisions may assist, but the aim throughout is affordable, sustainable lending.

The MMR and MCOB 11.6 require income verification chiefly to prevent:

• a.Loans being granted on overstated or unproven income✓
• b.Lenders offering fixed rates
• c.Customers repaying early
• d.Customers using mortgage brokers

Income verification exists to stop lending based on inflated or unproven income, a practice associated with pre-MMR self-certification. Requiring evidence of income underpins a reliable affordability assessment and responsible lending under MCOB 11.6.

A borrower wants an interest-only mortgage intending to switch to repayment 'at some point' but has no plan or evidence for how. Under MCOB the lender should:

• a.Not treat a vague future intention as a credible repayment strategy✓
• b.Grant the interest-only mortgage simply because the customer's stated intention appears to be a good one
• c.Grant it and review it only at the very end
• d.Assume the customer's salary will clear the capital

MCOB 11.6.41 requires a clearly understood, credible and evidenced repayment strategy. A vague, unplanned intention to switch to repayment 'at some point' is not credible or evidenced, so the lender should not rely on it to justify interest-only lending.

The main risk that responsible-lending rules seek to reduce for the customer is:

• a.Taking on a mortgage they cannot sustainably afford, risking arrears and repossession✓
• b.Receiving too much advice
• c.Choosing a fixed rate
• d.The customer paying off their mortgage far too quickly and losing the benefit of a low introductory rate

By requiring income verification, expenditure assessment and stress testing, MCOB 11.6 aims to prevent borrowers taking on unaffordable mortgages that could lead to arrears and, ultimately, repossession, protecting both consumers and market stability.

A lender assessing affordability for a customer whose income is partly in a foreign currency should:

• a.Convert it at the most favourable possible rate and rely on that
• b.Assume the exchange rate can only improve
• c.Take reasonable account of exchange-rate risk affecting the sustainability of that income✓
• d.Ignore all foreign-currency and exchange-rate issues entirely when working out the customer's income

Where income or the loan involves foreign currency, MCOB and the MCD require the lender to consider exchange-rate risk to affordability and provide relevant warnings. Reliable, sustainable income is central to a proper MCOB 11.6 assessment, so currency volatility must be weighed.

Under MCOB 11.6, if a mortgage is affordable at the current pay rate only because the borrower relies on substantial regular overtime, the lender should:

• a.Refuse to lend to anyone who works overtime
• b.Always count every hour of the customer's overtime in full, exactly as though it were guaranteed basic pay
• c.Assess how reliable and sustainable the overtime is before relying on it✓
• d.Ignore basic salary and use overtime only

Overtime is variable income, so MCOB 11.6 requires the lender to judge its reliability and sustainability, often counting only a prudent proportion, so that affordability is not built on income that may not continue.

A key difference between the pre-MMR and post-MMR approach to affordability is that, after the MMR:

• a.Customers are able to self-certify their own income far more freely than they ever previously could
• b.Lenders rely mainly on the property's value
• c.There is no stress testing of interest rates
• d.Lenders must verify income and assess affordability, taking responsibility for the decision✓

The MMR made lenders responsible for verifying income and assessing affordability, including stress testing, ending self-certification and the reliance on rising property values that characterised some pre-MMR lending (MCOB 11.6).

Bringing together income verification, expenditure assessment, the stress test and interest-only strategy checks, the overall aim of MCOB 11 responsible lending is to ensure that:

• a.Mortgages are only granted where the customer can afford them sustainably over the term✓
• b.Property values always rise
• c.Advisers earn the largest procuration fees
• d.Lenders should lend as much money as they possibly can to every single customer who comes through the door

MCOB 11's tools, income verification, expenditure assessment, the interest-rate stress test and interest-only repayment-strategy checks, all serve one aim: to ensure mortgages are granted only where they are genuinely and sustainably affordable for the customer throughout the term.