1 Graham is self-employed and has been asked to provide various pieces of information in support of his application for a mortgage. In which of the following documents would a figure for his personal drawings be found?
a) Balance sheet.
b) Business taxation computation.
c) Cashflow statement.
d) Profit and loss account.
2 Sam, a mortgage adviser, is seeking to establish if his customer is able to manage his finances effectively. The most likely initial requirement would be for Sam to:
a) approach an organisation such as Experian.
b) do a search for county court judgements.
c) review a number of bank statements.
d) write to the customer’s accountant.
3 Polly, a mortgage adviser, has recommended a product to Sean that carries early repayment charges. In order to confirm that this product matches his immediate needs, as well as those for the longer term, as a priority she should:
a) assume Sean will not repay the mortgage early.
b) check Sean’s understanding and acceptance of
the implications.
c) emphasise the longer-term advantages.
d) refer Sean to the key facts illustration.
4 Alan and Brenda are applying for their first mortgage. They know nothing about mortgages but want to take as little risk as possible. Which of the following mortgages would be most suitable?
a) ISA.
b) Low-cost endowment.
c) Repayment.
d) Unit-linked endowment.
5 Kevin is 43 years of age and is arranging a 25- year repayment mortgage. He expects to retire at age 60. What specific matter needs to be considered by Kevin’s mortgage adviser?
a) The extent to which the monthly payment will be
reduced if the term is extended.
b) What level of income Kevin is likely to have in
retirement.
c) Whether to arrange mortgage protection
insurance for the full mortgage term.
d) Whether income protection insurance cover can
continue until the end of the mortgage term.
6 Harry provides an advised sales service to his customers. Which of the following would indicate that he is following the principles of ethical advice?
a) Presenting a range of products that might be
suitable, allowing the customer to choose the most
appropriate one without feeling pressured.
b) Recommending the lowest-cost product.
c) Recommending the product that best meets the
needs of the customer and the adviser.
d) Using plain, customer-friendly language when
explaining recommendations.
7 Which of the following would be least useful to a lender seeking to verify a mortgage applicant’s income?
a) A P60.
b) A self-assessment tax calculation.
c) Employer’s reference.
d) Recent bank statements.
8 A mortgage adviser has identified what she feels is the most suitable mortgage and has produced an illustration. What must she do before her clients make an application?
a) Ask them to read the illustration and ask for clarification where necessary.
b) Explain that the illustration is an approximate guide to the costs of the contract, which may end up higher than shown.
c) Tell them the main information contained in the
illustration.
d) There are no formal requirements.
9 Which of the following actions during a house sale transaction could lead to the perpetrator being in breach of contract law?
a) Both gazumping and gazundering.
b) Gazumping only.
c) Gazundering only.
d) Neither gazumping nor gazundering.
10 A guarantee will be rendered invalid in which of the following circumstances?
a) If the guarantor can prove that he is not able to
meet a substantial liability.
b) When undue influence or misrepresentation can
be proven.
c) Where a borrower can show that a proposed new
guarantor would be more suitable.
d) Where the term of a mortgage loan is to be
extended.
Answers
1 a) The balance sheet will include the capital balance which will include a figure for personal drawings in the trading year.
2 c) The first place to check on the ability of a customer to manage
their financial affairs is to review bank statements over, say, the last 3
months.
3 b) When assessing suitability, Polly would need to be sure that the
product was appropriate to Sean’s needs and circumstances now, and
that he is satisfied that it will continue to be suitable, particularly in view
of the potential penalties.
4 c) As long as the appropriate payments are made, taking a
repayment mortgage ensures that the mortgage is paid off by the end of
the agreed term. This offers the lowest risk possible.
5 b) If the mortgage runs beyond retirement, there must be confidence
that the customer can continue to afford the payments.
6 d) An ethical approach is best served by ensuring the client fully
understands his purchase. To this end plain and customer friendly
language is essential.
7 a) P60s are least useful to a lender because they are issued at the
end of each financial year and, as such, are predominantly a historic
record, as they cover the previous twelve month period on a collective
basis.
8 a) It is essential that the customer makes an informed decision
before going ahead with the mortgage. The content of the illustration is
an essential part of this process.
9 d) Neither gazumping nor gazundering is an illegal practice.
10 b) Undue influence placed on a individual to act as a guarantor,or tricking them into it by misrepresentation, can be grounds for the guarantee to be invalid.
