Assessing The Applicant's Financial Status Quiz

Comprehensive CEMAP quiz covering mortgage affordability assessments, income verification, and financial analysis. Test your knowledge of MCOB requirements, self-employed income calculations, balance sheet analysis, and regulatory compliance for mortgage applications.

CEMAP Topics Covered: MCOB 11 affordability requirements, income verification methods, self-employed assessment, balance sheet analysis, credit checks, expenditure assessment, regulatory compliance, and mortgage application documentation.

This quiz is specifically designed for CEMAP students preparing for their exams and mortgage advisers maintaining their professional knowledge.

Assessing The Applicant's Financial Status Quiz

1. What must lenders establish under MCOB 11?

A. A written policy for assessing borrower repayment ability
B. Guidelines for property valuation
C. Rules for interest rate adjustments
D. Criteria for mortgage insurance

2. Which income type requires averaging over 3 years for affordability checks?

A. Guaranteed overtime
B. Basic salary
C. Sales-related bonuses
D. Pension income

3. What is required to validate maintenance payments in mortgage applications?

A. Bank statements showing 6 months of deposits
B. A court order with a remaining term
C. A letter from the payer's employer
D. Proof of child's birth certificate

4. Which document is not acceptable for verifying self-employed income?

A. HMRC tax calculations
B. Accountant's certificate
C. Last 3 monthly payslips
D. Full business accounts

5. What triggers the need for a previous employer's details?

A. Applicant's income below £30,000
B. Current employment duration less than 3 years
C. Self-employed status
D. Applicant aged under 25

6. How are company directors owning 25% of shares typically treated?

A. As salaried employees
B. As self-employed applicants
C. As dividend recievers
D. As employees if they have an employment contract

7. Which item reduces gross profit in a self-employed business?

A. Raw material costs
B. Personal drawings
C. Mortgage payments
D. Corporation tax

8. What does a balance sheet show?

A. Annual revenue trends
B. Assets/liabilities on a specific date
C. Monthly expenditure breakdown
D. Credit score history

9. Why do lenders ask about dependents aged 17+ in England/Wales?

A. To calculate household expenses
B. To avoid overriding interests under Land Registration Act
C. To verify immigration status
D. To assess life insurance needs

10. Which factor is not part of the "three Ps" of mortgage assessment?

A. Person
B. Property
C. Purpose
D. Payment

11. What replaces self-certification mortgages under current rules?

A. Full affordability assessments
B. Higher income multiples
C. Guarantor requirements
D. Shorter loan terms

12. How is net profit calculated for a sole trader?

A. Turnover - raw material costs
B. Gross profit – routine business expenses
C. Total income – personal drawings
D. Revenue + capital injections

13. What is a key difference between sole traders and company directors?

A. Directors pay corporation tax on profits
B. Sole traders must file VAT returns
C. Directors cannot receive payslips
D. Sole traders are always UK residents

14. Which income is most likely to be excluded from affordability checks?

A. Dividend payments
B. Regular shift allowance
C. One-time inheritance
D. Quarterly bonuses with a several year history

15. What must a self-employed applicant provide if turnover exceeds VAT thresholds?

A. Short tax return only
B. Detailed expense categories in tax returns
C. Consent from business partners
D. Proof of equipment leases

16. Why do lenders review personal drawings vs net profit?

A. To assess lifestyle inflation
B. To ensure the applicant isn't overdrawing from the business
C. To calculate tax liabilities
D. To verify business registration

17. Which scenario would raise lender concerns in self-employed accounts?

A. Consistent net profit over 3 years
B. Drawings exceeding net profit for 3 consecutive years
C. A new bank loan in the balance sheet
D. High turnover but low raw material costs

18. What is required for non-resident mortgage applicants?

A. Strong English language ability
B. Specific lending conditions attached
C. Proof of UK citizenship connection
D. Guarantor from the UK

19. Which document confirms taxable profit for self-employed applicants?

A. Bank statements
B. HMRC tax calculations
C. Employer reference letter
D. Balance sheet

20. What is the primary purpose of a mortgage application declaration?

A. To authorize credit checks and confirm information accuracy
B. To waive the applicant's right to legal recourse
C. To lock in interest rates
D. To approve property insurance

21. Which income requires an employer's reference if documents are unavailable?

A. Basic salary
B. Commission
C. Pension income
D. Pension drawdown

22. What is a "consent to mortgage" form used for?

A. To allow dependents over 17 to co-sign
B. To prevent overriding interests in England/Wales
C. To verify marital status
D. To allow for legal charge registration

23. Which factor do lenders ignore in income multiples?

A. Joint applicant incomes
B. Projected future earnings
C. Gross annual income
D. Current debt obligations

24. What must an accountant's certificate confirm?

A. Business turnover for 1 year
B. Personal debt of the applicant
C. Income for past 2–3 years
D. Property valuation accuracy

25. Which item appears on a profit/loss account but not a balance sheet?

A. Annual net profit
B. Outstanding loans
C. Business premises value
D. Bank overdrafts

26. Why might lenders be flexible with a professional's borrowing capacity?

A. Lower risk of unemployment
B. Expected income growth
C. Higher credit score
D. Shorter loan terms

27. Which applicant detail helps lenders assess family unit stability?

A. Nationality
B. Number/Ages of dependents
C. Number of previous addresses
D. Marital status history

28. What is the consequence of fraudulent mortgage applications?

A. Higher interest rates
B. Mandatory financial counseling
C. Potential prison sentences
D. Automatic loan denial

29. Which regulation prohibits self-certification mortgages?

A. Proceeds of Crime Act 2002
B. MCOB rules
C. Land Registration Act 1925
D. Consumer Credit Act 1974

30. What is verified by a P60 document?

A. Self-employed net profit
B. Annual salary and tax paid
C. Monthly commission earnings
D. Business turnover

31. Which factor is not part of expenditure assessment?

A. Utility bills
B. Grocery expenses
C. Existing loan repayments
D. Projected inheritance

32. What is the minimum period most lenders review for self-employed income?

A. 1 year
B. 2–3 years
C. 5 years
D. 6 months

33. Which item is a liability on a balance sheet?

A. Company vehicles
B. Outstanding invoices to suppliers
C. Office equipment
D. Cash reserves

34. What is the purpose of corroborating income?

A. To reduce interest rates
B. To comply with MCOB reliability requirements
C. To expedite application processing
D. To waive credit checks

35. Which applicant would need a previous address listed?

A. Moved within the last 3 years
B. Self-employed for 5 years
C. Non-resident status
D. Fixed-term contract employee

36. What does a short tax return include for sole traders?

A. Detailed expense categories
B. Total turnover and net profit
C. Balance sheet summary
D. Capital account changes

37. Which income type is most stable for lenders?

A. Commission
B. Basic salary
C. Quarterly bonuses
D. Overtime

38. What does the capital account in a business include?

A. Monthly utility bills
B. Surplus profits from prior years
C. Raw material inventory
D. Employee salaries

39. Which document proves identity under anti-money laundering rules?

A. Utility bill
B. Employer reference
C. Credit card statement
D. Two forms of ID

40. What is the lender's priority in assessing expenditure?

A. Discretionary spending habits
B. Total debt-to-income ratio
C. Current rent payments
D. Childcare costs

41. Which applicant would trigger non-resident lending conditions?

A. UK citizen working abroad
B. Self-employed in the UK
C. Recent immigrant with residency
D. Retired with UK pension

42. What is the primary risk if personal drawings exceed net profit?

A. Higher tax liability
B. Business insolvency risk
C. Lower credit score
D. Reduced loan-to-value ratio

43. Which item is not part of a mortgage application form?

A. Dependents' ages
B. Employer's address
C. Preferred property location
D. Repayment method

44. What does MCOB 11A require intermediaries to submit?

A. Accurate customer information for affordability checks
B. Property valuation reports
C. Credit score recommendations
D. Insurance policy options

45. What does a profit/loss account exclude?

A. Gross turnover
B. Business expenses
C. Personal tax liabilities
D. Net profit