I85PREP
⌘ K
CeMAP Module 2 study materials
CeMAP Module 2 study resources

CeMAP Module 2 practice questions

One question at a time. Build your CeMAP Module 2 understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Mortgage regulation, legislation and supervision

Which body is responsible for the conduct regulation of mortgage business in the UK?

  1. The Financial Conduct Authority Correct answer.
  2. The Prudential Regulation Authority
  3. The Bank of England
  4. The Financial Ombudsman Service

Explanation

The FCA is the conduct regulator for retail mortgage business, covering activities such as advising, arranging, lending and administering regulated mortgage contracts. The PRA handles prudential supervision of certain firms, while the FOS resolves disputes.

Question 2Mortgage regulation, legislation and supervision

Which Act provides the main statutory framework for the regulation of mortgages in the UK?

  1. The Building Societies Act 1986
  2. The Mortgage Credit Directive 2014
  3. The Consumer Credit Act 1974
  4. The Financial Services and Markets Act 2000 Correct answer.

Explanation

The Financial Services and Markets Act 2000 creates the regulatory framework, the FCA and the regulated activities regime under which mortgages are supervised. The Mortgage Credit Directive was implemented through UK legislation and FCA rules rather than being an Act itself.

Question 3Mortgage regulation, legislation and supervision

Which FCA Handbook sourcebook sets out the conduct rules for mortgage lending and administration?

  1. BCOBS
  2. SYSC
  3. COBS
  4. MCOB Correct answer.

Explanation

MCOB stands for Mortgages and Home Finance: Conduct of Business and contains the detailed conduct rules for regulated mortgage business. COBS covers investment business and BCOBS covers banking conduct.

Question 4Mortgage regulation, legislation and supervision

What is the FCA's strategic objective?

  1. Ensuring that relevant markets function well Correct answer.
  2. Promoting effective competition in the interests of consumers
  3. Securing an appropriate degree of protection for consumers
  4. Protecting and enhancing the integrity of the UK financial system

Explanation

The FCA's strategic objective is to ensure that relevant markets function well. Consumer protection, integrity and competition are its operational objectives.

Question 5Mortgage regulation, legislation and supervision

How is the Financial Ombudsman Service primarily funded?

  1. Through fines collected by the FCA
  2. Through levies on FCA-regulated firms and case fees Correct answer.
  3. Through subscriptions paid by consumers
  4. Through a grant from HM Treasury

Explanation

The FOS is funded by the firms it covers through annual levies and case fees. Consumers do not pay to use the service and it does not receive Treasury funding.

Question 6Mortgage regulation, legislation and supervision

What is the maximum Financial Services Compensation Scheme award for a valid mortgage advice claim against a failed firm?

  1. Unlimited
  2. £50,000
  3. £150,000
  4. £85,000 Correct answer.

Explanation

The FSCS protects eligible claimants up to £85,000 per person per firm for mortgage advice and arranging claims. The limit applies per eligible person per firm, not per product.

Question 7Mortgage regulation, legislation and supervision

Within what period must a firm normally send a final response to a mortgage complaint?

  1. Two weeks
  2. Four weeks
  3. Eight weeks Correct answer.
  4. Twelve weeks

Explanation

Under the FCA complaints rules, a firm must normally send a final response within eight weeks of receiving the complaint. If it cannot, it must explain the delay and the customer's right to go to the FOS.

Question 8Mortgage regulation, legislation and supervision

Under the Senior Managers and Certification Regime, what is a Senior Manager?

  1. An appointed representative of the firm
  2. An individual approved by the regulator to perform a senior management function Correct answer.
  3. Any employee who has worked for the firm for five years
  4. A customer-facing adviser automatically

Explanation

A Senior Manager is an individual approved by the FCA or PRA to perform a designated senior management function. The regime allocates clear responsibility for key areas of the firm's business.

Question 9Mortgage regulation, legislation and supervision

Which of the following is a regulated mortgage contract?

  1. An unsecured personal loan taken out to buy a house
  2. A loan to a limited company secured on a residential property
  3. A loan to an individual secured by a first charge over land where at least 40% is used as a dwelling Correct answer.
  4. A loan to an individual secured by a first charge over land where only 30% is used as a dwelling

Explanation

A regulated mortgage contract requires a first charge over land in the UK, a borrower who is an individual, and at least 40% of the land used as a dwelling. The 30% property fails the dwelling test, while company borrowers and unsecured loans fall outside the definition.

Question 10Mortgage regulation, legislation and supervision

How are consumer buy-to-let mortgages treated under the UK mortgage rules?

  1. They are regulated with a lighter-touch regime under MCOB Correct answer.
  2. They are regulated by the PRA rather than the FCA
  3. They are regulated in exactly the same way as owner-occupied mortgages
  4. They are completely unregulated

Explanation

The Mortgage Credit Directive introduced consumer buy-to-let mortgages, which are subject to a lighter-touch regime in MCOB. They are not treated identically to owner-occupied regulated mortgage contracts.

Question 11Mortgage regulation, legislation and supervision

Since 21 March 2016, second charge mortgages to consumers have been regulated as:

  1. Unregulated credit agreements
  2. Exempt products outside FCA scope
  3. Consumer credit agreements under the Consumer Credit Act only
  4. Regulated mortgage contracts under FSMA Correct answer.

Explanation

The Mortgage Credit Directive brought second charge mortgages to consumers within the regulated mortgage contract regime under FSMA from 21 March 2016. They are no longer regulated solely as consumer credit agreements.

Question 12Mortgage regulation, legislation and supervision

Which document must a lender provide to a consumer before a mortgage offer to give standardised information about the loan?

  1. A mortgage offer letter
  2. An initial disclosure document
  3. A European Standardised Information Sheet Correct answer.
  4. A key facts illustration

Explanation

The European Standardised Information Sheet, or ESIS, provides standardised information on the mortgage so the customer can compare products. It must be provided at the required stage before the customer is bound.

Question 13Mortgage regulation, legislation and supervision

Under MCOB, before entering into a regulated mortgage contract the lender must:

  1. Accept self-certification of income without checks
  2. Carry out a creditworthiness assessment of the borrower's ability to repay Correct answer.
  3. Require a guarantor in every case
  4. Only verify the size of the borrower's deposit

Explanation

The lender must assess the borrower's creditworthiness and ability to repay the mortgage before entering into the contract. Self-certification and deposit-only checks do not satisfy this responsible lending requirement.

Question 14Mortgage regulation, legislation and supervision

Which statement about remuneration in mortgage advice is correct?

  1. All mortgage advice must be paid for by a fixed fee set by the FCA
  2. Advisers can agree undisclosed commission with lenders
  3. Commission must always be paid by the lender and need not be disclosed
  4. A firm must disclose its remuneration to the customer, and it must not conflict with the duty to act in the customer's best interests Correct answer.

Explanation

Firms must disclose how they are remunerated and ensure that remuneration arrangements do not create a conflict with the duty to act in the customer's best interests. Undisclosed commission is not permitted.

Question 15Mortgage regulation, legislation and supervision

Who is responsible to the FCA for the regulated mortgage activities carried out by an appointed representative?

  1. The Financial Ombudsman Service
  2. The principal firm Correct answer.
  3. The lender used by the customer
  4. The appointed representative alone

Explanation

A principal firm is responsible for the regulated activities of its appointed representatives. The appointed representative operates under the principal's permission and supervision.

Question 16Mortgage regulation, legislation and supervision

After a firm issues a final response to a complaint, how long does the customer generally have to refer it to the Financial Ombudsman Service?

  1. Six months Correct answer.
  2. Twelve months
  3. Three months
  4. One month

Explanation

The customer normally has six months from the date of the firm's final response to refer the complaint to the FOS. The final response letter must explain this time limit.

Question 17Mortgage regulation, legislation and supervision

Under the Mortgage Credit Directive, a borrower normally has how long to exercise a right to cancel a regulated mortgage contract?

  1. 14 calendar days Correct answer.
  2. 30 calendar days
  3. 7 calendar days
  4. There is no right to cancel

Explanation

The borrower normally has 14 calendar days to cancel, running from the conclusion of the contract or receipt of the ESIS, whichever is later. The right must be explained in the disclosure.

Question 18Mortgage regulation, legislation and supervision

Under the Money Laundering Regulations 2017, a mortgage firm must carry out customer due diligence:

  1. When establishing a business relationship or carrying out certain occasional transactions Correct answer.
  2. Never, because mortgages are regulated by the FCA
  3. Only when a customer pays in cash
  4. Only for customers resident outside the UK

Explanation

Customer due diligence is required when establishing a business relationship and for certain occasional transactions, among other triggers. Mortgage firms are within the regulated sector and must comply with the money laundering rules.

Question 19Mortgage regulation, legislation and supervision

The FCA's Consumer Duty came into force for open products on:

  1. 1 April 2014
  2. 1 January 2022
  3. 31 July 2023 Correct answer.
  4. 31 July 2024

Explanation

The Consumer Duty applies to open products from 31 July 2023, with closed products following from 31 July 2024. It requires firms to act to deliver good outcomes for retail customers.

Question 20Mortgage regulation, legislation and supervision

A firm that wants to advise on regulated mortgage contracts must:

  1. Join the Financial Ombudsman Service only
  2. Obtain permission from the FCA or operate as an appointed representative Correct answer.
  3. Register with HMRC
  4. Notify the PRA only

Explanation

A firm must have the appropriate FCA permission for the regulated activity, or operate as an appointed representative of a principal that has it. Registration with HMRC or FOS membership alone is not sufficient.

Question 21Mortgage regulation, legislation and supervision

What is the Prudential Regulation Authority's main role in relation to mortgage lending?

  1. Handling individual mortgage complaints
  2. Conduct supervision of mortgage brokers
  3. Prudential regulation of banks and insurers that carry out mortgage lending Correct answer.
  4. Setting standard variable rates

Explanation

The PRA is the prudential regulator for banks, building societies and insurers, including those that lend on mortgages. Conduct supervision and complaint handling sit with the FCA and FOS respectively.

Question 22Mortgage regulation, legislation and supervision

A mortgage advertisement that is a financial promotion must be:

  1. Published only in printed form
  2. Fair, clear and not misleading, and comply with FCA financial promotion rules Correct answer.
  3. Approved by HM Treasury before publication
  4. Filed with the Financial Ombudsman Service

Explanation

Financial promotions must be fair, clear and not misleading and must comply with the FCA's financial promotion rules. Firms are responsible for ensuring their promotions meet these standards.

Question 23Mortgage regulation, legislation and supervision

Under FCA complaints rules, how long must a firm keep records of complaints?

  1. Ten years
  2. Two years
  3. Three years Correct answer.
  4. One year

Explanation

Firms must retain records of complaints for at least three years. This supports supervision and allows complaints and outcomes to be reviewed.

Question 24Mortgage regulation, legislation and supervision

Which legislation primarily governs unfair terms in consumer mortgage contracts?

  1. The Financial Services and Markets Act 2000
  2. The Sale of Goods Act 1979
  3. The Consumer Credit Act 1974
  4. The Consumer Rights Act 2015 Correct answer.

Explanation

The Consumer Rights Act 2015 contains the main unfair terms regime for consumer contracts, including mortgage contracts. It requires terms to be fair and transparent.

Question 25Mortgage regulation, legislation and supervision

Which of the following is a regulated activity when carried out in relation to a regulated mortgage contract?

  1. Advertising a mortgage product
  2. Entering into a regulated mortgage contract as lender Correct answer.
  3. Providing software used by a mortgage broker
  4. Carrying out a property valuation

Explanation

Entering into a regulated mortgage contract as lender is a specified regulated activity under the Regulated Activities Order. Advising on and arranging regulated mortgages are also regulated activities, but software supply, advertising alone and valuations are not.

Question 26Mortgage regulation, legislation and supervision

Which body is the conduct regulator for mortgage firms in the United Kingdom?

  1. The Financial Ombudsman Service
  2. The Financial Conduct Authority Correct answer.
  3. The Prudential Regulation Authority
  4. The Payment Systems Regulator

Explanation

The FCA is the conduct regulator for mortgage lending, advising and arranging, and it makes the rules in MCOB. The PRA handles prudential regulation of banks and insurers, while the ombudsman and payments regulator have different functions.

Question 27Mortgage regulation, legislation and supervision

Under the Financial Services and Markets Act 2000, the general prohibition means that a person may not carry on a regulated activity in the United Kingdom unless they are:

  1. registered with Companies House
  2. approved by the Financial Ombudsman Service
  3. a member of a trade body
  4. authorised or exempt Correct answer.

Explanation

Section 19 of FSMA 2000 makes it a criminal offence to carry on a regulated activity without authorisation or exemption. Mortgage lending, advising and arranging are specified regulated activities, so a firm needs Part 4A permission from the FCA.

Question 28Mortgage regulation, legislation and supervision

Which scheme handles complaints about regulated mortgage firms that the firm has been unable to resolve internally?

  1. The Financial Services Compensation Scheme
  2. The Pensions Ombudsman
  3. The Financial Ombudsman Service Correct answer.
  4. The Mortgage Ombudsman Board

Explanation

The Financial Ombudsman Service is the statutory dispute-resolution scheme for complaints about regulated financial services, including regulated mortgage contracts. It can make awards and directions that bind the firm.

Question 29Mortgage regulation, legislation and supervision

A mortgage firm resolves a complaint to the customer's satisfaction by the close of the third business day after receiving it. What must the firm do?

  1. Send a summary resolution communication Correct answer.
  2. Refer the matter automatically to the Financial Ombudsman Service
  3. Send a full final response letter with a six-month deadline
  4. Take no further action, as the complaint is already resolved

Explanation

Where a complaint is resolved within three business days, the firm may issue a summary resolution communication instead of a final response. It must tell the customer that the complaint is resolved and explain the right to refer the matter to the ombudsman within the applicable time limit.

Question 30Mortgage regulation, legislation and supervision

Which of the following is one of the FCA's Threshold Conditions that a mortgage firm must satisfy?

  1. A published complaints record
  2. A minimum market share
  3. Appropriate resources Correct answer.
  4. Membership of a trade association

Explanation

The Threshold Conditions set the minimum standards a firm must meet, and continue to meet, to be authorised and to remain authorised. They include appropriate resources, suitability, effective supervision, a sustainable business model and an appropriate location of offices.

Question 31Mortgage regulation, legislation and supervision

Under the Senior Managers and Certification Regime, which mortgage firm employees must be certified annually as fit and proper?

  1. Only those staff who handle client money or client assets
  2. Employees whose role could cause significant harm to customers Correct answer.
  3. Only the executive directors and the company secretary
  4. Every employee of the firm, whatever their role or seniority

Explanation

The certification regime covers employees, other than senior managers, whose role could cause significant harm to the firm, its customers or market integrity. Mortgage advisers and other customer-facing staff are typically certification employees and must be assessed as fit and proper at least annually.

Question 32Mortgage regulation, legislation and supervision

A mortgage firm wishes to appoint an appointed representative. What must the firm do before the representative begins carrying on business?

  1. Notify the FCA and confirm the representative is fit and proper Correct answer.
  2. Obtain the customer's written consent to the arrangement
  3. Register the arrangement with the Financial Ombudsman Service
  4. Apply to the FCA for a separate authorisation for the representative

Explanation

An appointed representative carries on regulated business under its principal's permission, so the principal must notify the FCA and satisfy itself that the representative is fit and proper. The principal remains responsible for the regulated activities the representative carries out.

Question 33Mortgage regulation, legislation and supervision

A mortgage adviser suspects that a client's deposit is the proceeds of crime. What is the adviser's legal obligation?

  1. Submit a suspicious activity report to the National Crime Agency Correct answer.
  2. Quietly decline to submit the application without telling anyone
  3. Report the matter to the Financial Conduct Authority immediately
  4. Tell the client about the suspicion and ask for an explanation

Explanation

Under the money laundering legislation, a firm must make a suspicious activity report to the National Crime Agency and should seek consent to continue where appropriate. Tipping off the client about the report is a criminal offence.

Question 34Mortgage regulation, legislation and supervision

Under data protection law, within what period must a mortgage firm normally respond to a customer's subject access request?

  1. Forty business days
  2. Ten business days
  3. Three months
  4. One month Correct answer.

Explanation

A controller must respond to a subject access request without undue delay and in any event within one month of receipt. The period can be extended by up to two further months where the request is complex.

Question 35Mortgage regulation, legislation and supervision

In general, a complaint may be referred to the Financial Ombudsman Service only if it is brought within:

  1. two years of the customer first becoming a client
  2. twelve months of the firm issuing its final response
  3. six years of the event, or three years from discovery Correct answer.
  4. three years of the event, with no other limit

Explanation

The ombudsman's time limits are generally six years from the event complained about, or three years from when the complainant knew or ought reasonably to have known about the problem. A separate six-month limit runs from the firm's final response.

Question 36Mortgage regulation, legislation and supervision

What is the name of the FCA's risk-based framework for supervising larger regulated firms?

  1. ARROW Correct answer.
  2. Solvency II
  3. MiFID II
  4. Basel III

Explanation

ARROW, the Advanced Risk Responsive Operating FrameWork, is the FCA's risk-based approach for assessing larger firms and setting supervisory priorities. Smaller firms are typically supervised through a different, more proportionate model.

Question 37Mortgage regulation, legislation and supervision

Which of the following is one of the cross-cutting rules of the FCA's Consumer Duty?

  1. Providing advice to every mortgage applicant
  2. Guaranteeing the lowest available interest rate
  3. Acting in good faith towards retail customers Correct answer.
  4. Eliminating all customer complaints

Explanation

The Consumer Duty has three cross-cutting rules: act in good faith, avoid foreseeable harm, and enable and support customers to pursue their financial objectives. These sit alongside the duty to deliver good outcomes across products, price and value, consumer understanding and consumer support.

Question 38Mortgage regulation, legislation and supervision

To which body can a mortgage firm appeal against a decision by the FCA to cancel its Part 4A permission?

  1. The Prudential Regulation Authority
  2. The Financial Ombudsman Service
  3. The High Court of Justice
  4. The Upper Tribunal (Tax and Chancery Chamber) Correct answer.

Explanation

A firm may refer a decision notice to the Upper Tribunal, which considers the matter afresh and may uphold, vary or set aside the FCA's decision. The tribunal is independent of the regulator.

Question 39Mortgage regulation, legislation and supervision

Under the Regulated Activities Order, which of the following is itself a regulated activity in relation to a regulated mortgage contract?

  1. Agreeing to carry on a regulated activity Correct answer.
  2. Preparing a valuation report for the lender
  3. Providing a mortgage illustration to a customer
  4. Advertising a mortgage in a newspaper

Explanation

The Regulated Activities Order specifies agreeing to carry on a specified kind of activity as a regulated activity in its own right. This prevents a person from avoiding authorisation by making an agreement to carry on the activity before actually doing it.

Question 40Mortgage regulation, legislation and supervision

A lender is arranging a regulated mortgage contract denominated in a currency other than sterling. Under the Mortgage Credit Directive, the customer must be warned about:

  1. exchange rate risk affecting the amount repayable Correct answer.
  2. the complete loss of the statutory right to cancel the contract
  3. the lender's ability to vary the interest rate at any time
  4. the tax treatment of interest paid on foreign currency loans

Explanation

Where a mortgage is denominated in a foreign currency, the Mortgage Credit Directive requires the lender to warn the customer that exchange rate movements may increase the amount repayable. The warning must be given in a clear and comprehensible form.

Question 41Mortgage products, schemes and repayment methods

Which repayment method gradually reduces the capital balance through regular monthly payments?

  1. Capital repayment Correct answer.
  2. Offset savings
  3. Interest-only
  4. Endowment-linked

Explanation

A capital repayment mortgage is calculated so that each monthly payment covers the interest due and repays part of the capital, so the balance falls over the term. By the end of the term the loan is fully repaid, provided all payments are made.

Question 42Mortgage products, schemes and repayment methods

On a pure interest-only mortgage, what happens to the original capital balance over the term if no separate repayment vehicle is arranged?

  1. It falls steadily in line with inflation
  2. It is converted automatically to a repayment mortgage
  3. It is written off at the end of the term
  4. It stays largely unchanged until repaid at the end Correct answer.

Explanation

Monthly payments cover only the interest, so the amount borrowed remains outstanding. The borrower must repay the capital from another source, such as savings, investments or the sale of the property, at the end of the term.

Question 43Mortgage products, schemes and repayment methods

What does a fixed-rate mortgage guarantee during the fixed period?

  1. The arrangement fee will be refunded at the end of the fix
  2. The borrower can leave at any time without charge
  3. The lender's standard variable rate will not change
  4. The rate and payments stay the same for the fixed period Correct answer.

Explanation

A fixed rate is set for a defined period, so the interest rate and normally the monthly payment remain unchanged during that period. After the fixed period the loan usually moves to the lender's standard variable rate or another deal.

Question 44Mortgage products, schemes and repayment methods

How is the interest rate on a tracker mortgage normally set?

  1. At the Bank of England base rate minus a fixed discount only
  2. At a rate fixed for the whole mortgage term
  3. At the Bank of England base rate plus a set margin Correct answer.
  4. At a rate chosen solely by the lender's discretion

Explanation

A tracker follows a specified reference rate, usually the Bank of England base rate, plus or minus an agreed margin. The rate moves automatically when the reference rate changes, so payments can rise or fall.

Question 45Mortgage products, schemes and repayment methods

How does a discounted-rate mortgage set its interest rate?

  1. A rate that can never rise above a stated ceiling
  2. A set reduction from the lender's SVR for a period Correct answer.
  3. A fixed rate that becomes a tracker after two years
  4. A rate linked to base rate for the entire term

Explanation

A discount is expressed as a reduction from the lender's standard variable rate for a defined period. The actual rate still moves whenever the SVR changes, so payments are not fixed.

Question 46Mortgage products, schemes and repayment methods

What is the main feature of a capped-rate mortgage?

  1. The rate falls with base rate but never rises
  2. Payments are capped at a percentage of income
  3. The rate is fixed for the whole term after the cap ends
  4. The rate can vary but cannot exceed a stated maximum Correct answer.

Explanation

A capped rate can move up and down, but it cannot rise above the ceiling set for the capped period. This gives some protection against rising rates while allowing payments to fall if rates decrease.

Question 47Mortgage products, schemes and repayment methods

How does an offset mortgage reduce the interest charged?

  1. It fixes the rate for the life of the loan
  2. It uses savings to reduce the interest-bearing balance Correct answer.
  3. It converts part of the loan to an equity loan
  4. It allows the borrower to defer all payments for five years

Explanation

Linked savings are set against the mortgage balance, and interest is calculated on the net amount. The borrower gives up interest on the savings but pays less mortgage interest.

Question 48Mortgage products, schemes and repayment methods

Which feature is most characteristic of a flexible mortgage?

  1. The ability to overpay, underpay or take payment holidays Correct answer.
  2. A requirement to take out a linked endowment policy
  3. A fixed deposit that cannot be accessed
  4. A guaranteed rate below base rate for ten years

Explanation

Flexible mortgages build in options such as overpaying, underpaying or taking payment holidays within agreed limits. These features are usually subject to the lender's conditions and to the borrower having sufficient payment history.

Question 49Mortgage products, schemes and repayment methods

How is a buy-to-let mortgage normally assessed?

  1. On the borrower's credit card limit
  2. On the borrower's salary alone
  3. On the number of dependants in the household
  4. On expected rental income and property value Correct answer.

Explanation

Lenders typically assess buy-to-let loans using the expected rent and the property's value, often requiring rent to cover a set percentage of the mortgage payment. The borrower's personal income may be considered, but it is not usually the main test.

Question 50Mortgage products, schemes and repayment methods

Under a shared ownership scheme, the buyer normally...

  1. receives a government equity loan for the full price
  2. buys a share and pays rent on the remaining share Correct answer.
  3. owns the whole property but pays rent to the freeholder
  4. rents the whole property with no option to buy a share

Explanation

Shared ownership allows the buyer to purchase a percentage of the property, usually with a mortgage and deposit, and pay rent to a housing association on the part not owned. The buyer may later buy further shares through staircasing.