CEMAP 2 & 3 - Beacon Financial Training · CeMAP 3 - Mock Paper 2 - Section A - Case Study 2. Daniel required an 80% mortgage of £80,000 to purchase a new property, which was built

CEMAP 3 – MOCK PAPER 2

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CEMAP 3 – MOCK PAPER 2 (continued)

Beacon Financial Training Limited 2008-09 Page 1


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Result % Result % = ( Total / 60 ) x 100

NOW TRANSFER YOUR RESULT TO PERFORMANCE TRACKER 3


CeMAP 3 - Mock Paper 2 - Section A - Case Study 1 Alec and Clare have lived in a rented flat since they were married four years ago and have approached Western Bank to discuss the possibility of obtaining a mortgage. They are hoping to purchase a small leasehold flat that they have seen, having successfully negotiated a £2,000 reduction in the original asking price of £62,000. The flat is one of two above a high street shop, and has unexpired lease of 75 years. Each flat and the shop comprise equal floor areas. They are both in full-time employment, earning guaranteed basic salaries of £15,000 and £13,000 respectively. Clare also receives £2 000 per annum from a trust fund. They have asked the adviser for some information on equity ISA’s, as a friend has suggested that it might be a good idea to use one of these as the repayment vehicle for an interest-only mortgage. Alec is expecting a substantial salary increase when he completes his training in two years’ time, but until then, he and Clare wish to know the maximum monthly payment that they will be required to make. They also want the cheapest valuation option offered by Western Bank. The vendor has advised them that legally the freehold for this flat cannot be purchased. The bank’s lending criteria are 3 x the main income plus 1 x the secondary income, or 2.5 x joint incomes. Additional security is required if the loan-to-value ratio exceeds 90%. The lender has also informed them that it requires the loan amount to be protected by life assurance. 1 Which of the following statements is true in respect of the additional security that the bank would require if an application is approved, the property is valued at the agreed price, and Alec and Clare provide a £2,000 deposit?

A The provider must be encouraged to seek independent legal advice. B It may be possible to add the premium to the advance C The name of the provider will be added to the mortgage deed. D The policy must be assigned to the bank.

2 What is the maximum that Alec and Clare could expect to borrow from Western Bank, based on their incomes?

A £68,000 B £70,000 C £75,000 D £84,000 3 How much Stamp Duty Land Tax would be saved in late April 2006 as a result of

the lower agreed purchase price?

A Nil B £20 C £620 D £1,240


4 With regard to the freehold of the flat, which factor would prevent its purchase under the current legislation?

A The number of flats in the block B The floor area of each flat C The remaining term of the lease D The purchase price of the property 5 If Alec and Clare proceed with their preferred valuation scheme, what detail will

this confirm?

A Any structural defects in the property B The correct market price for the property. C If the electrical system meets current standards. D The amount for which the property should be insured.

6 Which of the following mortgage products would be MOST suitable for Alec and

Clare?

A A Bank of England base rate tracker. B A standard variable rate, currently 5.2%. C A discounted rate of 1.0% below the standard variable rate for a period of five

years. D A variable rate, currently 5.2%, but capped at 5.4% for two years.

7 The main benefit to Alec and Clare of the product selected in answer to the previous question is:

A the interest rate charged will automatically rise or fall in line with base rate. B they will know the maximum interest rate they will be charged during a given

period. C they will pay less than the standard variable rate throughout a given period. D no interest penalties will be charged if they decide to make any capital

reductions. 8 With regard to the investment vehicle in which they are interested, and the lender’s requirement for protection of the loan amount, of what should Alec and Clare be made aware of?

A They should consider cover with a targeted, guaranteed maturity value. B Their chosen repayment vehicle automatically includes life cover. C Combining their chosen repayment vehicle with decreasing term assurance will

guarantee full repayment on death. D Their protection product should cover the loan amount independently of their

repayment vehicle.


9 Which one of the following would NOT be a benefit of the type of repayment vehicle being considered by Alec and Clare?

A The maturity date is fixed to coincide with the end of the mortgage term B The mortgage loan may be able to be repaid early. C There is a wide choice of funds in which premiums can be invested D The proceeds are payable free of income and capital gains taxes

10 What specific information does the Mortgage Code of Business Rules require the bank to give Alec and Clare in respect of the repayment method they are discussing with the adviser?

A An explanation of whether it can be continued if they move house B A description of the types of interest rates available. C An explanation of the effect of failing to make suitable arrangements to repay the

mortgage. D An illustration of the potential repayments at the end of any fixed or capped

interest rate period.


CeMAP 3 - Mock Paper 2 - Section A - Case Study 2 Daniel required an 80% mortgage of £80,000 to purchase a new property, which was built by a well-known firm of national house builders that is an NHBC member. Following advice received from the lender, and a quotation dated 10 May 2002 that included an APR figure, he exchanged contracts on 1 June 2002 and completed on 15 June 2002. The house is a semi-detached property, and the building firm issued Daniel with the appropriate guarantee certificate valid from 15 June 2002 As part of the loan Daniel was required to pay a risk transfer fee premium of £800, which purchased an insurance policy with Valley Mutual. In addition, he was advised by his lender on 20 May 2002 that a condition of the loan was that the property must be satisfactorily insured. Daniel is not keen on the idea of index linking, which is a feature of his buildings insurance policy. At the next renewal, he intends to ask for a reduction in the rate of increase applied to his cover. 11 What response might Daniel’s insurer give to his request for a reduction in the

rate of increase applied to his buildings cover?

A Offer to combine his buildings and contents insurance. B Ask to be indemnified against any future loss in the event of under-insurance. C Refer the matter to his lender for consideration. D Suggest an increase in the policy excess equivalent to the shortfall.

12 The problem that Daniel is concerned about under his buildings insurance policy is likely to arise from:

A increases in a construction-based index. B increases in the retail prices index. C fixed 10% increases. D fixed 5% increases

13 The condition advised to Daniel on 20 May 2002:

A could not have been acted on before 15 June 2002. B cannot be included in the mortgage deed. C is a requirement laid down in the Mortgage Code. D is a legal requirement on the part of his lender.


14 In connection with Daniel’s buildings insurance:

A cover need not have begun before 15 June 2002. B he should have arranged cover to commence on 1 June 2002. C the initial level of cover must be less than £100,000. D the initial level of cover must be £100,000.

15 Why was it permitted to exclude the cost of buildings insurance from the figures

issued to Daniel on 10 May?

A He had not made his final choice of insurer. B He always has the option of obtaining his own buildings insurance. C His reinstatement valuation was not yet available. D His intention was to have a different insurer for household contents.

16 Under the certificate issued with Daniel’s house, protection against minor defects

will expire in:

A 2003 B 2004 C 2007 D 2012 17 In the event of repossession, subrogation rights:

A will not arise. B will only arise if there are arrears on the mortgage capital. C enables Valley Mutual to be sued. D may be acquired by Valley Mutual.

18 The £800 premium:

A provides protection for the lender. B must be paid annually. C would have decreased if the £80,000 figure was higher. D is automatically refunded at the end of the mortgage term.

19 2 years later Daniel noticed a one off £25.00 debit on his annual mortgage

statement. What was the MOST likely reason for this?

A A charge made for using the overpayments facility on his flexible mortgage B He changed his buildings insurer. C A charge made for using the holiday facility on his flexible mortgage D A charge to all borrowers cover the lenders FSA costs.


20 Subsequently Daniel damaged a carpet and made a claim against his contents

insurance for £1,000. He has contents insurance for £10,000. The loss adjuster estimated the insurance value for the contents should have been £15,000. What is Daniel likely to receive assuming ‘averaging’ is applied?

A £666.66 B £1,000 C £10,000 D £15,000.


CeMAP 3 - Mock Paper 2 - Section B - Case Study 3 Colin, aged 30, is employed as a medical researcher, earning £28,000 p.a. and with a retirement age of 65. He is buying his first property, and has offered £145,000 for a 5-year old house with an NHBC guarantee. Due to an inheritance, he is able to put down a deposit of £65,000, and requires a mortgage for the balance. He also has the maximum possible holdings in equity ISA’s since their introduction and has heard that it is possible to link ISA’s to mortgage repayment. He would like an explanation of how this works. His employer offers a death-in-service lump sum of three times Colin’s salary plus full sick pay for three months. Otherwise, Colin has no other employee benefits. Colin is considering starting a personal pension plan, and wonders if this would be an appropriate mortgage repayment vehicle in his circumstances. As Colin currently has no dependants or other financial obligations, he would like the option to repay his loan early without penalty. He is concerned as to how his payments may be met if he is medically unable to work, and would like details of the options available, but has stated an interest in long-term cover. Colin is prepared to take an investment risk but is unsure whether to link his investments directly to his mortgage or have the option to use them for other purposes. With regard to his chosen property, Colin sees no need to commission an independent survey, but would like confirmation on what is covered by the lender’s required report. Colin has seen an advertisement for a base rate tracker mortgage, which interests him, and would like clarification as to the benefits and drawbacks of such mortgages. The lender has confirmed that Colin’s application will be subject to a CCN search. 21 Given Colin’s circumstances, which one of the following would be a potential drawback, if he uses a personal pension plan to repay his mortgage?

A The pension fund required would exceed £400,000. B He could not repay his loan before his 65th birthday. C His ultimate pension benefits would be significantly reduced. D He would definitely require additional life assurance cover.

22 The advantage for Colin of using ISA investments instead of a personal pension plan to repay his mortgage, would be the:

A accessibility of the funds. B greater tax advantages attached. C automatic inclusion of life cover. D greater potential for growth.


23 When comparing a capital repayment mortgage to an ISA mortgage, the capital repayment mortgage would give Colin:

A greater tax advantages. B built-in protection benefits C greater potential for early repayment. D automatic capital reduction

24 The mortgage product that MOST closely meets Colin’s stated criteria:

A includes built-in protection. B allows repeated underpayments. C always includes a genuine discount in the early years. D allows him to select the interest rate charged.

25 To meet Colin’s stated objectives, a base rate tracker option should:

A be avoided in all circumstances. B be combined with a flexible mortgage. C only be used in conjunction with ongoing ISA investment. D only be used if interest rates are expected to fall.

26 In order to provide Colin with the MAXIMUM potential amount of protection if medically unable to work for several years, the product required would:

A pay out after a specified period for a maximum of 104 weeks. B pay out after 12 weeks for a maximum period of 35 years. C be specifically linked to a list of specified major illnesses. D repay the loan in full in the event of his premature death.

27 If cost were an issue, the product recommended in question 6 would:

A continue to be the most appropriate. B link to a reduced list of specified illnesses. C pay out after a reduced initial period D have a significantly reduced payment period.

28 The CCN search is designed to:

A confirm Colin’s current address and period lived there. B identify if Colin has any poor payment history. C reveal any major defects under the existing guarantee. D confirm Colin’s salary and reveal any additional income.


29 The lender’s required valuation report will confirm to Colin:

A obvious essential repairs required. B the property’s structural soundness. C all significant defects and decorative state. D likely required repairs due before expiry of the guarantee.

30 If the lender’s valuation report indicates acceptance, this will confirm that Colin’s chosen property:

A is structurally sound. B has no obvious decorative needs. C is insurable at standard rates. D value will cover the loan required.


CeMAP 3 - Mock Paper 2 - Section B - Case Study 4 Paul and Kelly are customers of Marsh Bank, and they are seeking mortgage advice. Paul is a self-employed graphic designer. Some years ago, however, he worked for his father, who became insolvent and Paul is unsure how this might affect his proposed mortgage application. Paul’s business has been quite successful, and last year turned in a gross profit of £38,000. The net profit was £28,000. Kelly is an experienced systems analyst, has been employed for the last 8 years and earns £24 000 p.a. They are looking to purchase a four-year-old detached house for £136,000, and have a deposit of £27,200, together with separate funds to cover legal and other costs. Marsh Bank charges mortgage indemnity on loans over 75% LTV at a rate of 7.95%, and offers a maximum loan of 3.25 x main income plus 1 x second income. They have been informed that a credit search will be necessary. For the past five years, Paul and Kelly have had a building society mortgage of £68,000, which is interest-only and for which they have a unitised with-profits endowment policy as the repayment vehicle They are considering a 36-month 6.75% capped rate mortgage that the bank offers, compared with its standard variable rate of 6.34%. 31 Paul is unsure what information the bank will require in order to assess his

application. Which of the following will NOT be required?

A Bank reference and/or statements. B Memorandum and Articles of Association. C Profit and loss account. D Existing mortgage lender’s reference.

32 Paul’s family history indicates that, with regard to their current mortgage

application:

A it should be processed on normal terms. B only Kelly’s salary can be taken into account. C it is likely to be automatically declined. D the banks normal maximum criteria will be reassessed

33 The credit search will reveal:

A if Kelly has any undeclared county court judgements. B their total regular monthly expenditure. C Paul’s profits for the previous three years. D the extent of Paul’s father’s indebtedness.


34 Paul and Kelly need to know the maximum amount they can borrow and ask the mortgage adviser to calculate it. Based on the income criteria, it is:

A £147,500. B £123,500. C £115,000. D £84,000.

35 The purpose of the MIG premium is to protect:

A Paul and Kelly against long-term financial difficulty. B Paul and Kelly against a sharp fall in property prices. C the bank against any shortfall in the buildings and contents insurance. D the bank should it need to sell the property at a reduced price.

36 Which of the following is INCORRECT with regard to the existing repayment vehicle?

A Policy premiums are subject to review after specified periods. B unit values will rise or fall in line with the underlying fund chosen C Premiums buy units in the with profits fund

D Market value adjusters may apply on encashment before maturity 37 Under the Mortgage Conduct of Business Rules, which one of the following is not

correct. The adviser must always provide:

A a description of the types of interest rate available B an explanation of whether their selected mortgage terms can be continued if they

move house C details of the exact amount of any procuration fee D details of any insurances required as part of the mortgage

38 Under Paul and Kelly’s preferred mortgage product, the interest rate will:

A not rise above the stated level for the first three years. B not change for the first three years. C only change when the standard variable rate increases. D only change if the standard variable rate changes in the first three years.

39 When compared to the standard variable rate, the interest payable under Paul

and Kelly’s preferred mortgage during the initial period will:

A never fall below a minimum specified amount. B always have the same percentage reduction.

C represent a greater saving as interest rates increase. D guarantee continued savings for the full period.


40 What will be the amount of the MIG that Paul and Kelly will have to pay? A £699.60 B £683.70 C £540.60 D £516.12


CeMAP 3 - Mock Paper 2 - Section C - Case Study 5 Martin and Heather took out a 25-year repayment mortgage with the Woodland Building Society in 1995. As the mortgage advance was 95% of the valuation figure, this was supported by a mortgage indemnity policy issued by Greenhill Insurance Company. The MIG was set up to cover £10,000 of the loan, for which a premium of £350 was debited to the mortgage account. After completion, Martin and Heather also took out a secured personal loan with Wold Finance to purchase a car. Martin and Heather were unable to manage their finances and accrued arrears on their mortgage after taking out the personal loan. It is now December 2002 Last January, Martin and Heather came to the society to discuss the situation. During the discussions, it was established that their income was sufficient to cover their mortgage payments, but not the arrears and loan payments. The personal loan had only three months to go before it was fully paid off. Martin and Heather made an arrangement with the society to maintain their mortgage payments, which was subsequently broken. By May 2002, the mortgage arrears had increased to eight months, but they had by this time fully repaid the car loan. In June, the society decided that the only course of action was to commence legal proceedings. In July, the Court granted the society the right to enforce a legal remedy after a 28-day period. In August, the society was able to exercise its rights. In September, estate agents acting for the society marketed the property for sale. The property was sold in October for £70,000. However, the amount outstanding on the mortgage at this time was £85,000. In the same month, Greenhill Insurance Company settled a claim in respect of this sale. Martin and Heather are unhappy with the way in which the sale of their property was handled and the price realised. In November, they threatened legal action and alleged that the duty of care owed them had not been fulfilled. 41 What would have been the most appropriate assistance that the society could

have offered Martin and Heather in January?

A Surrender their mortgage indemnity policy. B Make interest only payments for an agreed term of three months. C Add the arrears to their payments over the remaining term of the mortgage. D Extend the term of the mortgage.


42 What instruction would the society have given to its solicitor in early June?

A Issue a warrant for possession. B Issue a final demand letter to Martin and Heather. C Appoint a firm of bailiffs. D Appoint a receiver.

43 What legal remedy was most likely granted in July? A A possession order B Foreclosure C A direction for the debt to be repaid D Appointment of a receiver 44 The outcome achieved by the society in July was dependant on it:

A agreeing to sell the house through a court-approved estate agent. B persuading the court to vary the terms of the mortgage deed. C proving that it had done everything possible to bring the account to order. D submitting an affidavit outlining the situation.

45 What immediate action would the society have needed to take in August?

A Change the locks and make the property secure. B Carry out essential repairs to make the property marketable. C Professionally clean the property in preparation for sale. D Dispose of any contents found in the property.

46 In September, Martin and Heather would have been able to exercise the right to:

A gain re-admittance. B have a second valuation carried out on the property. C decline unacceptable offers on the property. D settle the debt in full and take back the property.

47 The payment made by Greenhill Insurance Company in October:

A created a right of subrogation. B extended the equity of redemption C discharged Martin and Heathers outstanding liabilities D must have been agreed in advance with Martin and Heather


48 In October, Greenhill Insurance Company acquired the right to:

A sue Martin and Heather. B sue the estate agent for negligence C pay £350 of the claim to a separate party. D impose a second charge on the property.

49 If Martin and Heather’s property had been sold for £90,000 but they could not be

traced, £5,000 would have been:

A paid into court B paid to Greenhill Insurance Company C held in the CIVIL suspense fund D held by the society

50 What action previously taken by the society would disprove the complaint made in

November by Martin and Heather?

A Advising the court of the intended sale price. B Advertising for last and final offers. C Marketing the property through two competing estate agents. D Offering them the opportunity to settle the debt immediately prior to resale.


CeMAP 3 - Mock Paper 2 - Section C - Case Study 6 Kate and Richard arranged a mortgage when they bought a property together in 1990. They took out a 95% mortgage on an interest-only basis with the Orchard Building Society, supported by a joint-life low-cost endowment. Kate and Richard have now split up and Richard has moved out Kate’s new partner, Sam, will be moving in but does not intend to become a party to the mortgage. Richard wishes to be removed from the mortgage and asks what steps need to be taken. When the mortgage was taken out, the lender insisted upon a mortgage indemnity guarantee policy and a guarantee, which was provided by Kate’s father. The mortgage account has, been conducted satisfactorily through out. 51 A key concern to the society when dealing with Richard’s request will be to:

A confirm the reasons for his request. B check that the MIG policy is still valid. C investigate Sam’s current financial status. D ensure that the property remains in good condition

52 Why is the track record of both borrowers important to the lenders decision when

considering Richard’s request?

A If the account is in arrears, the lenders decision is dependent on Sam’s contribution to the repayments.

B The lender can establish who has been paying the loan and whether Kate understands the implications.

C If there has been arrears on the account the lender will not permit any change to the mortgage.

D The lender can only consider the request if full written details of the payment record is passed to Richard.

53 With regard to Kate, the society will wish to confirm whether:

A Richard has paid a capital sum in order to be released from the mortgage. B She has any separate life cover in her own name C There is any litigation between her and Richard. D her current income is adequate to continue mortgage payments.


54 What would need to happen if Sam has already moved into the property?

A Sam should complete a 'consent to mortgage' form B Sam must be offered a formal tenancy agreement. C Sam must be added to the mortgage deed. D Sam’s status should be checked with a credit reference agency.

55 How could the society’s position be affected if no action is taken with regard to

Sam?

A After a set period of time, Sam would be able to insist on being added to the mortgage.

B Sam would be assumed to have accepted the mortgage terms and could be sued in the event of default.

C There would be no effect provided that the lender does not acknowledge the occupancy.

D It might be more difficult to obtain a possession order. 56 If Richard’s request is agreed to, what effect might this have on the cover provided by the MIG policy?

A The insurer must release Richard from his obligations. B It may cease altogether. C A new policy must be issued in Kate and Sam’s names. D No effect, because cover is fixed at the outset.

57 Which of the following is correct in relation to the society re-valuing the property

as a result of Richard s request to be removed from the mortgage?

A A re-valuation would take place only if the original surveyor is no longer approved by the society

B A full structural survey would be required because the last valuation was over 10 years ago

C There is no need to re-value the property because any shortfall on possession and sale are both guaranteed to be met

D A re-valuation is necessary because the current loan to value ratio needs to be confirmed

58 If Kate’s father does not agree to the change of terms:

A Sam would become liable for the mortgage debt. B Richard would remain liable for the mortgage debt. C He would be released from his obligations. D Kate would need to effect a further policy



59 In relation to possible surrender of the endowment policy, Kate and Richard should bear in mind that:

A it must be surrendered on divorce B policies of this type never have a surrender value. C a tax charge will automatically apply. D they may get back less than they paid in.

60 If the lender agrees to Richard’s request, this will be accomplished by:

A completion of a letter to Richard and Kate, a copy of which must be kept with the deeds.

B completion of an application by Kate a copy of which will be kept with the lenders records

C the issue of a deed D the issue of a consent to mortgage form

Documents

CEMAP 2 & 3 - Beacon Financial Training · CeMAP 3 - Mock Paper 2 - Section A - Case Study 2. Daniel required an 80% mortgage of £80,000 to purchase a new property, which was built