Topic 10 Flashcards
Assessing the applicant's financial status (52 cards)
Who is responsible for assessing mortgage affordability under MCOB rules?
The lender or home finance provider is responsible, in line with MCOB 11.
What written requirement must a lender have in place regarding affordability?
A written policy outlining the factors used to assess the borrower’s ability to repay.
Is self-certification of income still allowed in mortgage applications?
No, self-certification is no longer permitted.
What is the responsibility of an intermediary under MCOB 11A?
To submit accurate customer information to the lender for affordability assessment.
Who is ultimately responsible for the accuracy of a mortgage application?
The applicant is ultimately responsible, even if the adviser completes the form.
What types of identification are usually required to verify a mortgage applicant’s identity?
Generally, at least two forms of ID are required, and sometimes previous addresses.
Why might a ‘consent to mortgage’ form be required for dependants aged 17 or over?
To avoid creating an overriding interest under s70 of the Land Registration Act 1925.
How do lenders typically assess non-guaranteed income like bonuses and commissions?
By taking a conservative approach, often using an average over a set number of years (e.g., 3 years).
What is the purpose of the declaration section in a mortgage application?
To confirm the accuracy of the information and authorise the lender to make necessary checks.
What are the consequences of providing fraudulent information on a mortgage application?
Fraud is taken seriously and can result in prosecution and prison, even for first-time offenders.
What traditional method did lenders use to assess borrowing capacity?
Lenders traditionally used income multiples, such as 3–4 times the main earner’s income plus a portion of the second earner’s income, or 3 times joint income.
What does the FCA say about using income multiples?
The FCA states that while income multiples can be a guide, a full affordability assessment must be carried out.
When might a lender adopt a flexible approach to borrowing capacity?
When the applicant is on a professional career path and expected to have rising income soon.
What types of income are considered when assessing borrowing capacity?
Income from employment, self-employment, directorships, maintenance, pensions, and secure trust income.
What forms of employment income may be considered besides basic salary?
Car allowance, location allowance, mortgage subsidy, shift allowance, overtime, commission, and other sales-related income.
What evidence must lenders obtain to verify employment income?
Payslips showing basic and additional income, self-assessment tax calculations, and employer references (original, on letterhead, recent, unambiguous).
How do lenders assess self-employed income?
Lenders typically assess net profit, requiring evidence of at least two to three years’ earnings.
What financial documents are used to corroborate self-employed income?
Full business accounts, HMRC tax calculations, and/or an accountant’s certificate.
What is the purpose of a profit and loss account?
It records income and expenditure over a trading year and shows gross and net profit.
What is shown on a balance sheet, and why is it important?
It shows assets, liabilities, and the capital account on one day, helping assess the financial strength of the business.
How are directors of public companies treated for mortgage application purposes?
They are treated as employees.
When is a company director treated as self-employed for mortgage purposes?
When they own more than 20–25% of the company shares.
What key documentation might a director receive if classed as an employee?
Payslips and a P60.
What is the main tax difference between a sole trader and a company director?
A sole trader pays income tax on net profit, while a company pays corporation tax after salaries are paid.
