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

A central principle of the Mortgage Market Review (in force April 2014) is that:

• a.Borrowers may self-certify their income without evidence, provided they can show a clean credit history over recent years
• b.Affordability is the borrower's sole responsibility
• c.The lender must assess and take responsibility for whether the mortgage is affordable, verifying income✓
• d.Interest-only mortgages are banned outright

The MMR placed responsibility for assessing affordability firmly on the lender, requiring income to be verified and effectively ending self-certification. Interest-only lending was not banned but is only permitted where there is a credible repayment strategy.

When assessing affordability under MCOB 11, a lender must consider whether the borrower could still afford the mortgage if:

• a.The borrower moved abroad
• b.Interest rates were to rise over the early years of the mortgage✓
• c.House prices were to double
• d.The borrower were to win the lottery or receive a large and unexpected inheritance during the term

MCOB 11 responsible-lending rules require an interest-rate stress test: the lender must assess whether repayments would remain affordable if interest rates rose during the early years, rather than assuming rates stay low. Net income and committed expenditure must also be assessed.

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✓

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.

One effect of the Mortgage Credit Directive (2016) was to:

• a.Require all mortgages to be interest-only
• b.Bring second-charge mortgages fully within MCOB and create a regime for consumer buy-to-let✓
• c.Abolish the FCA
• d.Remove all conduct regulation from first-charge residential mortgages that are sold to individual consumers

The MCD brought second-charge mortgages (previously regulated under the Consumer Credit Act) fully within MCOB, introduced the ESIS and APRC, and created a registration regime for consumer buy-to-let lending to 'accidental' landlords who are acting as consumers.

The APRC (Annual Percentage Rate of Charge) shown on an ESIS represents:

• a.The rate of stamp duty
• b.The valuation fee
• c.The lender's own profit margin only, before any fees or charges are added to the loan
• d.The total cost of the mortgage to the borrower expressed as a yearly percentage✓

The APRC expresses the total cost of the mortgage (interest plus mandatory charges) as a single annual percentage rate, helping borrowers compare deals on a like-for-like basis. The MCD also requires a second APRC illustrating the effect of higher rates.