CeMAP 3 Mock Paper 1 — all 60 questions and answers

First-time buyers

1. Ben wants to use his Lifetime ISA towards the purchase. Which statement is correct?

1. AHe can only use the LISA if the mortgage is interest-only
2. BHe can withdraw the full £18,000 penalty-free because the account has been open at least 12 months, he is a first-time buyer and the property costs no more than £450,000
3. CHe must pay a 25% withdrawal charge because LISA funds can only be used at age 60
4. DHe will lose the 25% government bonus on withdrawal, because LISA bonuses are clawed back automatically whenever the purchase price of the property exceeds £250,000, as this one does

First-time buyers

2. Amy's parents are gifting £15,000. What will the lender most likely require in relation to this gift?

1. AThe parents to be added to the mortgage as guarantors
2. BA formal loan agreement setting out repayment terms, because lenders must treat every family deposit contribution as a soft loan until proven otherwise under affordability rules
3. CA signed letter confirming the money is a non-repayable gift and that the parents will hold no interest in the property, plus evidence of the source of funds
4. DNothing — gifts under £20,000 are ignored by lenders

First-time buyers

3. Given that Amy and Ben's stated priority is certainty over their monthly payments while money is tight, the most suitable product recommendation is likely to be:

1. AA standard variable rate mortgage, because it has no early repayment charges
2. BA discounted variable rate, because the initial pay rate is usually lowest
3. CA fixed-rate mortgage for an initial period matching how long they need payment certainty
4. DA tracker mortgage, because payments fall automatically whenever Bank Rate falls, giving them certainty of always paying the lowest rate available on the market

First-time buyers

4. As first-time buyers in England paying £310,000, how much Stamp Duty Land Tax will Amy and Ben pay?

1. A£3,100
2. B£500
3. C£0
4. D£5,500

First-time buyers

5. Under MCOB responsible lending rules, when assessing whether the mortgage is affordable the lender must:

1. AVerify income, take account of committed and basic essential expenditure, and consider the effect of likely future interest rate rises
2. BRely on the couple's own declaration of income, since MCOB permits self-certification wherever the loan-to-value is below 80% and both applicants are in employment
3. CAssume future pay rises will offset any future rate rises
4. DAssess only the initial fixed payment, since that is what they will actually pay

First-time buyers

6. Amy and Ben want to own the property equally, with each other's share passing automatically to the survivor if one dies. They should hold the property as:

1. ASole ownership with a declaration of trust
2. BTenants in common in unequal shares
3. CJoint tenants
4. DTenants in common in equal shares

First-time buyers

7. Before Amy and Ben submit their application, the adviser must provide a mortgage illustration (ESIS). Its purpose is to:

1. AReplace the need for a formal mortgage offer, because once an ESIS has been issued the lender is legally committed to advancing the funds on the illustrated terms
2. BGuarantee the interest rate for six months
3. CConfirm the property's valuation
4. DSet out the key features, costs, APRC and any early repayment charges in a standardised format so the deal can be compared with others

First-time buyers

8. Taking the mortgage over 35 years rather than 25 will mean:

1. ALower monthly payments but substantially more interest paid over the life of the loan, and the term may run close to expected retirement
2. BHigher monthly payments but the loan ends sooner
3. CNo difference to total cost provided the rate stays the same
4. DLower monthly payments and lower total interest overall, because spreading the same rate across more years reduces the interest charged in each individual year

First-time buyers

9. Because their deposit is modest, the couple's loan sits at 90% LTV. Which statement about high-LTV lending is correct?

1. AThe FCA sets the interest rates lenders may charge above 80% LTV
2. BA higher LTV always requires a guarantor
3. CLenders are prohibited by FCA loan-to-value rules from lending above 85% to first-time buyers, so the couple must raise a larger deposit before they can apply
4. DThe interest rate is typically higher than at lower LTV bands because the lender's risk of loss on default is greater

First-time buyers

10. The adviser recommends a specific product. Under MCOB rules on advised sales, the recommendation must be:

1. AThe cheapest product available anywhere in the market
2. BSuitable for Amy and Ben, based on their needs, circumstances and stated preferences, with the reasons capable of being demonstrated afterwards
3. CRestricted to products from one lender
4. DApproved in advance by the FCA

Home movers & porting

11. The Sharmas 'port' their mortgage. What does porting actually involve?

1. APhysically transferring the same loan account across to the new property with no reassessment, because the lender has already underwritten the borrowers at the original application
2. BMoving the mortgage to a different lender without penalty
3. CThe buyer of their old house taking over their existing mortgage
4. DRepaying the existing loan on sale and taking out a new loan on the new property on the same product terms, subject to a full new application and underwriting

Home movers & porting

12. The new purchase needs more borrowing than the £192,000 being ported. The additional borrowing will normally be:

1. AOnly available as an unsecured personal loan
2. BA separate tranche at the lender's current product rates, which may differ from the ported rate
3. CFree of any early repayment charges forever
4. DAutomatically added at the same fixed rate as the ported portion, because lenders must keep all of a borrower's secured lending on a single product rate

Home movers & porting

13. If the Sharmas chose NOT to port and instead repaid the £192,000 mortgage on sale, the early repayment charge would be:

1. ANothing, because they are selling the property
2. B£3,840
3. C£5,760
4. D£1,920

Home movers & porting

14. Ignoring fees and moving costs, if the Sharmas sell for £285,000, redeem £192,000 and put the entire remaining equity of £93,000 down on the £360,000 purchase, their new loan-to-value is closest to:

1. A74%
2. B53%
3. C65%
4. D80%

Home movers & porting

15. At exchange of contracts, which of the following is TRUE?

1. AEither party can still withdraw freely without penalty right up to completion, because the contract only becomes binding once the purchase money actually changes hands
2. BThe mortgage funds are released to the seller's solicitor
3. COwnership and keys transfer to the buyer
4. DBoth parties become legally bound to complete, the buyer normally pays a deposit (typically 10%), and withdrawing risks forfeiting it

Home movers & porting

16. Their buyer pulls out a week before exchange and the Sharmas are desperate not to lose their onward purchase. A regulated bridging loan could be considered. The key characteristics the adviser must stress are:

1. AOnly available to limited companies
2. BHigh cost, short term, secured on property, and a clear exit strategy (the delayed sale) is essential before recommending it
3. CLow cost and well suited as a long-term replacement mortgage, because bridging rates are normally below mainstream fixed rates over any comparable period
4. DUnsecured, so the house is not at risk

Home movers & porting

17. The lender requires a valuation on the new property. The basic mortgage valuation exists primarily to:

1. ASet the price the Sharmas must pay
2. BGive the Sharmas a detailed report on the property's condition and defects
3. CConfirm to the lender that the property provides adequate security for the loan
4. DReplace the need for local authority searches

Home movers & porting

18. Once the lender issues the formal mortgage offer, MCOB gives the Sharmas a reflection period. This means:

1. AThey must wait a full 30 days before completing, because the Mortgage Credit Directive forbids acceptance of a binding offer inside that cooling-off window
2. BThe rate can be changed by the lender within the period
3. CThe lender may withdraw the offer at any time during the period
4. DThey have at least 7 days to consider the offer, during which the lender is bound by it but the Sharmas may accept sooner if they wish

Home movers & porting

19. The Sharmas ask why their solicitor is carrying out local authority and other searches before exchange. The best explanation is that searches:

1. AValue the property for the lender
2. BAre optional extras that only cash buyers really need, since mortgage lenders conduct their own searches as part of the valuation and never rely on the solicitor's
3. CRegister the Sharmas' ownership at the Land Registry
4. DReveal matters affecting the property — such as planning issues, road schemes or land charges — that would not be visible from inspection

Home movers & porting

20. The Sharmas' sale and purchase are set to complete on the same day. The adviser should explain that the biggest practical risk of a same-day chain completion is:

1. AThe removal company becomes contractually liable for the chain
2. BThe lender will not release funds on a Friday
3. CStamp duty doubles when transactions complete on the same day
4. DA delay anywhere in the chain delays everyone, because each purchase depends on funds arriving from the sale below it

Buy-to-let

21. Karim is buying the flat purely as an investment. Leila is letting out her own former home because she is moving abroad. How are the two mortgages treated in regulatory terms?

1. AKarim's is an unregulated investment buy-to-let, but Leila's is likely a consumer buy-to-let subject to FCA-supervised protections
2. BBoth are entirely outside any regulatory regime
3. CBoth are regulated mortgage contracts subject to MCOB in full, because any loan secured on residential property automatically falls within FCA mortgage regulation
4. DLeila's is unregulated because she will not live in the property

Buy-to-let

22. For Karim's £180,000 interest-only BTL loan, the lender applies an interest coverage ratio of 125% at a stressed rate of 5.5%. The minimum monthly rent required is closest to:

1. A£1,196
2. B£825
3. C£1,031
4. D£900

Buy-to-let

23. Because Karim already owns his own home, the SDLT on his £240,000 investment purchase in England will include:

1. AA discount because the property will be let
2. BFirst-time buyer relief on the first £300,000
3. CNo SDLT at all, because a property bought to generate rental income is treated as a business asset and is exempt from the residential rates
4. DThe higher rates for additional dwellings — a surcharge added on top of the standard rates on the whole price

Buy-to-let

24. Karim asks about the 'tax changes on mortgage interest'. For an individual higher-rate taxpayer letting residential property, mortgage interest is now:

1. ADeductible only if the mortgage is on a repayment basis
2. BNot deductible from rental profits; instead a tax credit worth 20% (basic rate) of the interest reduces the tax bill
3. CFully deductible against rental income at his marginal 40% rate, provided the loan was taken out wholly to purchase the property that is being let
4. DIgnored entirely for tax purposes

Buy-to-let

25. On buying through a limited company instead, the adviser's most balanced summary is:

1. AIt is always better because corporation tax is lower than income tax
2. BA company deducts interest as a business expense and pays corporation tax, but rates are often higher, choice narrower, extracting profits is taxed, and personal guarantees are usually required — so it suits some investors, not all
3. CIt avoids the SDLT surcharge
4. DIt is never appropriate for a first-time landlord

Buy-to-let

26. Karim's BTL affordability will be assessed primarily on:

1. AHis credit score alone, because buy-to-let lending is unregulated and lenders are therefore barred from carrying out any assessment of his personal income
2. BHis £62,000 salary alone
3. CThe expected rental income of the property, stress-tested, with his personal income as a secondary consideration for some lenders
4. DThe rental income of other landlords in the area

Buy-to-let

27. If Karim eventually builds up to four or more mortgaged buy-to-let properties, lenders will treat him as a 'portfolio landlord', which means:

1. AHe can no longer obtain buy-to-let mortgages
2. BHe must incorporate as a limited company, because PRA rules prohibit individuals from holding four or more mortgaged buy-to-let properties in their personal names
3. CUnderwriting becomes more rigorous — lenders must assess the whole portfolio, often requiring business plans, cash flow and full property schedules
4. DHe is exempt from interest coverage tests

Buy-to-let

28. Karim will let the flat on an assured tenancy and take a deposit from the tenant. He must:

1. ATake no more than one week's rent as deposit
2. BHold the deposit in his personal current account for the life of the tenancy, provided he returns it to the tenant with interest when the tenancy ends
3. CProtect the deposit in a government-approved scheme within 30 days and give the tenant the prescribed information
4. DRegister the tenancy with the FCA

Buy-to-let

29. Which of the following correctly states ongoing legal obligations Karim takes on as a residential landlord?

1. AAn annual gas safety check by a Gas Safe engineer, electrical safety standards, smoke alarms, and meeting the minimum energy efficiency standard for lettings
2. BPaying the tenant's council tax in all cases
3. COnly obligations he chooses to write into the tenancy agreement
4. DInsuring the tenant's personal possessions

Buy-to-let

30. Karim's BTL mortgage is interest-only. In this context, the most accurate observation is:

1. AInterest-only is prohibited for buy-to-let
2. BInterest-only is common and generally acceptable for BTL because the property itself is the intended repayment vehicle, but Karim must understand the capital remains outstanding and property values can fall
3. CInterest-only BTL requires an endowment policy by law
4. DThe loan capital reduces automatically from rental profits

Later life lending

31. The essential difference between the lifetime mortgage and the RIO mortgage Margaret is considering is:

1. AA lifetime mortgage means she sells her home to the lender now in exchange for a discounted lump sum, while keeping a guaranteed lifetime right to carry on living in the property rent-free
2. BA RIO requires monthly interest payments from her income, while a lifetime mortgage typically rolls interest up; both are usually repaid on death or entry into long-term care
3. COnly the lifetime mortgage lets her stay in the home
4. DA RIO must be repaid within ten years

Later life lending

32. Margaret's daughter fears she could 'end up owing more than the house is worth'. For a lifetime mortgage from an Equity Release Council member, the correct reassurance is:

1. AThe government underwrites any shortfall
2. BInterest stops accruing by law once the rolled-up debt reaches 50% of the property's value, protecting at least half of the equity for her estate in all circumstances
3. CHer daughter would inherit the debt personally
4. DThe no-negative-equity guarantee means the debt can never exceed the eventual sale proceeds of the home, however long she lives

Later life lending

33. If Margaret borrowed £80,000 on a roll-up lifetime mortgage at a fixed 7.2% a year, after roughly how long would the debt reach about £160,000 if nothing is repaid?

1. A16 years
2. B5 years
3. C10 years
4. D22 years

Later life lending

34. For a joint RIO application (though Margaret is sole here, the adviser explains the rule), lenders must assess affordability on:

1. AThe higher earner's income only
2. BThe combined income of both borrowers taken together, since a joint mortgage is a joint liability and it is the whole household budget that services it
3. CEach borrower individually, so the survivor could still afford the interest payments alone if the other died
4. DProjected rental value of the property

Later life lending

35. To advise Margaret on the lifetime mortgage option, the adviser must:

1. ABe a qualified solicitor
2. BSimply have passed CeMAP, as for any mortgage
3. CHold no qualification, as equity release is unregulated
4. DHold a specialist equity release qualification and the firm must have the relevant FCA permission — standard mortgage permissions and CeMAP alone are not enough

Later life lending

36. Margaret receives Pension Credit. Releasing a lump sum of equity could:

1. AReduce or end her means-tested benefits, because capital held in savings counts in the means test — this must be explored before any recommendation
2. BAutomatically increase her Pension Credit
3. COnly affect her benefits if and when she actually spends the money, because unspent capital sitting in a savings account is disregarded by the means test
4. DHave no possible effect on benefits

Later life lending

37. Given the compounding cost of roll-up borrowing, which structure would reduce the total interest Margaret pays if her needs are gradual rather than immediate?

1. AA shorter mortgage term
2. BSwitching the loan to her daughter's name
3. CTaking the maximum lump sum on day one, because fixing the whole amount at the outset locks in today's interest rate and so minimises the total interest charged over the life of the loan
4. DA drawdown lifetime mortgage — taking an initial amount now and further tranches only when needed, so interest accrues only on money actually drawn

Later life lending

38. Before completing equity release, Margaret will be required to:

1. AObtain her daughter's written consent, because Equity Release Council standards require every adult child with an expectation of inheriting to approve the plan
2. BPass a medical examination
3. CReceive independent legal advice, with her solicitor confirming she understands the obligations and is acting free of pressure
4. DRepay her state pension advances

Later life lending

39. Before recommending any borrowing solution, good advice practice (and suitability rules) require the adviser FIRST to explore:

1. AWhether Margaret would prefer to rent
2. BOnly products from the adviser's existing panel
3. CAlternatives such as downsizing, family assistance, using savings, or the lender extending the existing term — and document why any rejected option was less suitable
4. DWhich product pays the highest procuration fee

Later life lending

40. Margaret worries about what happens if she later needs to move into a care home. Under a standard lifetime mortgage:

1. AThe debt is written off
2. BHer daughter must move into the property
3. CThe loan becomes repayable, normally through the sale of the property, once she dies or moves permanently into long-term care
4. DThe care home takes over the mortgage payments

Arrears & forbearance

41. Under MCOB 13, Dan's lender is required to:

1. ATreat him fairly, make reasonable efforts to agree a way of dealing with the arrears, and regard repossession as a last resort
2. BPass the debt to a collection agency within 30 days
3. CCommence possession proceedings once two payments have been missed, since MCOB sets a two-payment threshold at which recovery action becomes mandatory for lenders
4. DFreeze the mortgage permanently

Arrears & forbearance

42. Dan can afford £700 a month for the next year against a £900 contractual payment. Which set of forbearance options should the lender consider discussing?

1. AA temporary concession to reduced payments, extending the term, a temporary switch to interest-only, or capitalising the arrears once payments stabilise
2. BOnly full repayment of arrears within three months
3. CConverting the loan to a buy-to-let so Dan can rent the house out
4. DCancelling the mortgage contract

Arrears & forbearance

43. Dan hasn't opened his lender's letters. The single most important piece of advice for him right now is:

1. AWait until the lender telephones him, since MCOB places the whole duty of making contact on the firm and a borrower who approaches the lender first weakens his negotiating position
2. BMove out of the property to show good faith
3. CContact the lender immediately and engage — early communication widens the options available and demonstrates willingness to resolve the arrears
4. DStop paying entirely until a court decides the matter

Arrears & forbearance

44. Within 15 business days of falling into arrears, MCOB requires the lender to send Dan prescribed information including:

1. ADetails of the property's current market value
2. BA possession summons
3. CA list of the missed payments, the total arrears and outstanding debt, any charges incurred, and the Money and Pensions Service information sheet on arrears
4. DA new mortgage offer

Arrears & forbearance

45. Dan asks about state help with his mortgage. Support for Mortgage Interest (SMI) is best described as:

1. AA non-repayable government grant that meets his full £900 monthly payment, capital included, for as long as he claims a qualifying benefit and remains living in the property
2. BA repayable loan from the DWP, secured by a charge on the property, covering interest (at a standard rate) on the mortgage — not the capital repayments
3. CA benefit that pays arrears off directly
4. DAvailable only to pensioners

Arrears & forbearance

46. If Dan needed time to take debt advice without enforcement pressure, the statutory 'Breathing Space' scheme in England and Wales offers:

1. APermanent cancellation of his unsecured debts, since the scheme was designed to write off consumer credit balances for anyone who takes regulated debt advice
2. BA 60-day moratorium, entered via a debt adviser, pausing most enforcement action and certain interest and charges on qualifying debts
3. CProtection only for debts under £1,000
4. DA 5-year freeze on all mortgage payments

Arrears & forbearance

47. If the case ever reached court, the Pre-Action Protocol for possession claims means the court will expect the lender to show:

1. AThat it tried to discuss and agree alternatives to possession, and that litigation is genuinely a last resort
2. BThat the borrower has been in arrears at least five years
3. CThat it obtained the FCA's written consent to sue
4. DNothing — possession is automatic after three missed payments

Arrears & forbearance

48. Dan has £70,000 of equity. If repossession ultimately happened, which statement is TRUE?

1. AThe lender keeps all sale proceeds regardless of the debt
2. BThe lender must obtain the best price reasonably obtainable, repay the debt and costs from the proceeds, and return any surplus to Dan
3. CDan's equity is forfeited as a penalty
4. DThe house transfers to the local authority

Arrears & forbearance

49. How will these events affect Dan's credit file?

1. AThe lender is prohibited from reporting mortgage arrears
2. BThe missed payments and any arrears markers remain visible for six years, affecting his access to credit and the pricing he is offered
3. CNothing adverse is recorded provided he clears the arrears within a year, because credit reference agencies only report defaults still unpaid at the end of that period
4. DOnly court judgments ever appear on a credit file

Arrears & forbearance

50. If Dan believes the lender has treated him unfairly over the arrears and the firm's final response doesn't resolve it, he can:

1. ARefer the complaint free of charge to the Financial Ombudsman Service within six months of the final response
2. BDo nothing, as arrears cases are excluded from complaints schemes
3. CSue only through the High Court
4. DAppeal to the FCA, which adjudicates individual complaints against the firms it regulates and can order compensation to be paid directly to consumers

Income & protection

51. To evidence Chloe's self-employed income, a lender will most typically ask for:

1. ATwo to three years of finalised accounts or SA302 tax calculations with matching tax year overviews, often averaged — or the latest year if it is lower
2. BA letter from a client promising future work
3. CHer last three months' bank statements only
4. DHer projected earnings for next year certified by herself

Income & protection

52. For affordability purposes, the figure that counts as Chloe's income as a sole trader is her:

1. AThe amount she happens to draw into her personal account each month
2. BBusiness turnover
3. CNet profit from self-employment, as declared to HMRC
4. DGross invoiced sales plus expenses

Income & protection

53. The most cost-effective life cover to ensure the £210,000 repayment mortgage is repaid if either dies during the term is:

1. AA whole-of-life policy for £210,000 each
2. BA joint-life first-death decreasing term assurance with the sum assured tracking the reducing mortgage balance
3. CA level term assurance for £420,000, keeping each partner's share of the loan covered in full for the whole term regardless of the reducing balance
4. DAn endowment policy

Income & protection

54. Beyond the mortgage, the adviser notes the children would need ongoing family support if a parent died. The product designed to pay a regular amount from claim until the end of the term is:

1. ADecreasing term assurance
2. BCritical illness cover
3. CFamily income benefit
4. DAn annuity

Income & protection

55. The key difference between critical illness cover (CIC) and income protection (IP) is:

1. AThey are identical products sold under different names
2. BCIC pays a one-off lump sum on diagnosis of a specified serious illness; IP pays a replacement income during incapacity, potentially until recovery, retirement or the end of the term
3. CIP pays a lump sum; CIC pays an income
4. DCIC pays out on any illness however minor; IP pays only for cancer

Income & protection

56. In recommending income protection deferred periods, the adviser should note that:

1. ABoth should choose the longest deferred period to maximise cover
2. BDeferred periods only apply to the self-employed
3. CThe deferred period is the time the insurer takes to underwrite the policy
4. DChloe, with no sick pay at all, may need the shortest affordable deferred period, while Tom's six months' full sick pay means a 26-week deferred period could cut his premium without leaving a gap

Income & protection

57. The adviser suggests the life policies be written in an appropriate trust. The main advantages are that the proceeds:

1. AAre paid to the intended beneficiaries quickly without waiting for probate, and fall outside the deceased's estate for inheritance tax purposes
2. BBecome tax-deductible against income tax
3. CCan be spent only on the mortgage
4. DAre invested by the trustees on the stock market

Income & protection

58. Chloe asks about cheaper 'mortgage payment protection insurance' (MPPI/ASU) she has seen online. Compared with full income protection, MPPI typically:

1. AIs compulsory with every mortgage
2. BPays until retirement age like IP
3. CPays only for a limited period (commonly 12–24 months per claim), covers accident, sickness and unemployment, and pays an amount linked to the mortgage payment rather than her earnings
4. DCovers loss of profits from her business

Income & protection

59. When Chloe completes the protection application, she must disclose her medical and lifestyle details. Under the Consumer Insurance (Disclosure and Representations) Act 2012 her duty is to:

1. ATake reasonable care not to make a misrepresentation when answering the insurer's questions — deliberate or careless misstatements can reduce or void a claim
2. BVolunteer every material fact about her health and lifestyle whether asked or not, since the duty of utmost good faith still governs consumer insurance proposals
3. CDisclose nothing unless the insurer requests a medical
4. DGuarantee she will remain in good health for the term

Income & protection

60. Considering the whole case, which risk in Chloe and Tom's situation is currently the LEAST protected and arguably the adviser's priority to address?

1. ATom's death, since his employer provides death-in-service benefits
2. BInterest rates rising at the end of a fixed period
3. CHouse price falls reducing their equity, which the adviser should insure against first because mortgage indemnity policies protect borrowers against negative equity
4. DLoss of Chloe's income through illness — she is the higher and rising earner, has no sick pay, and no policy of any kind covers her incapacity