When studying for any of the mortgage advice examinations, there are certain basic materials that are essential if students are to prepare effectively. In addition to the handbook for each qualification which contains, amongst other things, the syllabus and examination regulations, each student must have a study manual and, I strongly suggest, all available past examination question papers or at least specimen papers. The three institutes publish their own study manuals. Past or specimen question papers with answers are also available from each institute.
Having access to question papers has a number of obvious advantages. These include the opportunity to gain first-hand knowledge and experience of the format, and to a certain extent the content, of questions that will be encountered in the examination and the ability to highlight areas of strength and weakness so that revision time can be used effectively.
Quite often one area of weakness, or at least concern, that emerges is a lack of confidence in answering questions that require calculations. 'I was never any good with sums and never will be' can become a self-fulfilling prophecy when it comes to the mortgage advice exams. But this need not be the case. After all, there is only a limited time available to answer each question and so it is simply not possible to require candidates to undertake long and complex calculations. Take the CeMAP examinations for example. Each paper is two hours in length. Papers one and two each have 100 questions which gives an average time of just over a minute per question. Paper three contains 74 questions which gives just over one and a half minutes per question. In each case there is insufficient time for students to answer questions involving lengthy calculations.
The type of questions requiring a calculation are likely to revolve around issues such as averaging in the case of under-insurance, the amount of a loan that will be subject to a mortgage indemnity guarantee, the amount of the premium applying to a mortgage indemnity guarantee, the borrowing capacity of applicants and the cost of mortgage repayments. The first three of these have been covered previously in this column but it is probably worth revisiting some of the points.
The principle of averaging is used by insurance companies where there is a case of under-insurance. This can be illustrated by the following question:
John's house has a market value of £150,000 and a rebuilding cost of £110,000. The property is insured for £82,500 and there is an excess of £250 payable on each claim. The roof of John's property is badly damaged by fire and John submits a claim of £8,000 to his insurer to cover the cost of repair. How much will John's insurer pay in settlement of his claim?
The market value is not relevant to answering this question. John's property is insured for just 75% of the re-building cost which is the full amount for which it should be insured i.e. £82,500 ¸ £110,000 x 100 = 75%.
Therefore, John's insurer will apply this percentage to the claim submitted – provided, of course, that the claim is acceptable to them. £8,000 x 75% = £6,000, less the excess of £250 gives an answer of £5,750.
Questions involving the borrowing capacity of applicants are straightforward enough provided that the income multiples and any other criteria provided in the question are applied. In dealing with all sources of income including overtime, commission and bonuses, candidates should refer to the detail of the question set and the case study scenario, if appropriate. In addition, MAQ candidates will find the lender's criteria set out in a table at the end of the question paper. There may be a temptation for experienced mortgage advisers to simply apply the practices and policies of their own organisation to such questions. Needless to say, this temptation should be avoided.
Sometimes a question is set where basic salary and overtime are given but no information is provided as to how to deal with the overtime payments in ascertaining the applicant's borrowing capacity. Whilst this may at first appear to be a problem, closer inspection reveals that the income provided by the basic salary is sufficient for the loan required.