CeMAP Module 2 cheat sheet

The FCA regulates first-charge residential mortgage activity under FSMA 2000; MCOB sets conduct rules for sales, disclosure, arrears and possessions.

A regulated mortgage contract is a first legal charge over UK land, the borrower is an individual, and at least 40% of the land is used as or with a dwelling by the borrower or a related person.

Firms need Part 4A permission for regulated mortgage activities; mortgage advisers are certified under the SM&CR and supervised for fitness and propriety.

Before advice, initial disclosure must state the firm's regulatory status, scope of service (whole market, restricted or single) and whether a fee is payable.

A mortgage illustration/ESIS must disclose the APRC, monthly instalments, fees, total repayable and early repayment charges where applicable.

FOS can review complaints; generally the customer has six months from the final response and six years from the act or three years from knowledge.

MLR 2017 requires customer due diligence: identify and verify the customer, establish source of funds and source of wealth, with enhanced checks for PEPs.

The Consumer Duty requires firms to deliver good outcomes in products, price and value, consumer understanding and consumer support.

Capital repayment: each payment covers interest and capital; with unchanged rate and payments the balance reaches zero at term end.

Interest-only: payments cover interest only; the lender requires a credible repayment strategy, such as investments, pension, ISA or sale of property.

Fixed rate: rate is fixed for a set period; early repayment charges often apply during the fix, then the loan reverts to the lender's SVR or a follow-on rate.

Tracker: rate equals a reference rate, commonly Bank Rate, plus or minus a margin; payments move automatically when the reference rate changes.

Discount: a set reduction from the lender's SVR for a period; the payable rate moves whenever the SVR changes.

Offset: linked savings reduce the interest-bearing balance; borrowers may access savings, but the interest benefit reduces accordingly.

Lifetime mortgage: equity release secured on the home, usually no required payments; rolled-up interest is repaid from the sale on death or move to care.

Shared ownership: borrower buys a share and pays rent on the rest; staircasing allows further shares to be purchased, often up to 100%.

MCOB 11.6 requires an affordability assessment before a regulated mortgage is entered into, covering income, committed expenditure, basic essential expenditure and credit commitments.

Lenders assess at a stressed rate, not just the initial pay rate, and consider likely rate rises, term and retirement age.

LTV = loan ÷ property value × 100; higher LTV increases lender risk and usually the interest rate.

Credit scoring uses electoral roll data, payment history, existing credit, recent searches and adverse credit; results can be accept, refer or decline.

A DIP/AIP is an indication only, subject to full application, valuation and underwriting; it is not a binding mortgage offer.

Income evidence: employed - payslips and P60; self-employed - SA302 tax calculations, tax year overviews and accounts, often for two to three years.

The mortgage valuation protects the lender's security; it is not a homebuyer or structural survey and may be physical, desktop or automated.

A mortgage offer sets the loan terms and conditions; completion occurs when legal charges are registered and funds are released.

Freehold is indefinite ownership of land and buildings; leasehold is a fixed-term right to occupy subject to the lease, ground rent and service charges.

Joint tenancy has no distinct shares and right of survivorship; tenancy in common has defined shares and no survivorship.

Registered land: HM Land Registry title shows proprietor, charges, notices and restrictions; unregistered land requires a good root of title.

A first legal charge gives the lender priority over later charges; subsequent charges rank according to registration or notice.

Short leases can be difficult to mortgage; lenders often require a remaining lease term well beyond the mortgage term, commonly 40–70 years minimum.

Valuation methods: comparative (similar sales), investment (capitalised rent), residual (development land) and profits (trading business).

Local authority search covers planning, building regulations, roads and contamination; environmental, flood and mining searches are area-specific.

An EPC is required on sale or letting; current domestic minimum energy efficiency standard for lettings is EPC E.

MCOB 13 requires firms to treat borrowers in arrears fairly, communicate clearly and consider forbearance before possession.

Forbearance options include payment holiday, reduced payments, term extension, switch to interest-only, arrears capitalisation and repayment plan.

Arrears capitalisation adds missed payments to the balance and recalculates payments, usually after an affordability assessment.

Repossession is a last resort; the lender must follow the pre-action protocol and obtain a court possession order.

The court may adjourn, suspend or dismiss a possession claim if the borrower can propose a realistic payment arrangement.

A suspended possession order allows the lender to enforce possession only if the borrower breaches the agreed payment terms.

Missed mortgage payments are reported to credit reference agencies and can affect the borrower's credit score for up to six years.

Support for Mortgage Interest is a government loan for eligible benefit claimants, secured by a charge on the home, not a grant.