The CII’s R07 Exam: An Enjoyable Exam to Study for?
Read on to gain some insight as to what the CII R07 exam is like. Buy-to-let income is discussed as well as the impact of lender inflexibility on the more senior borrowers. This article will be of particular interest to CII R07 exam candidates.
One of the team sat R07 towards the end of 2014 – the CII Advanced Mortgage Advice paper. In her words it was ‘one of the most enjoyable exams I’ve ever studied for’. It got us thinking why that would be. We came to the, some might say obvious, conclusion that it was because it was of personal interest. Most of us have a mortgage, some of us might have two; what is probably true for most of us is that a frightening percentage of our hard-earned cash is spent paying them off each month. Also, with the Mortgage Market Review in 2014, it opened our eyes here to what exactly this has meant for many customers.
The first thing that bounced off one of the pages was that lenders will not take into account buy-to-let rental income when assessing affordability for a second mortgage. When you consider what this figure could be a year (£10,000 a year for a modest property in the sticks and probably double that for the same property in London), particularly for those who have a lot of equity and smaller (or no) mortgage payments than the rental income, it seems that it’s a rule that would benefit from some flexibility. A borrower finding themselves in these circumstances would have to prove affordability from other income sources, and for some this could prove to be difficult.
NB – a tip for anyone doing the exam – buy-to-let mortgages are not covered under the FCA definition of what a regulated mortgage contract is – except if the borrower is going to rent the property to a relative. It would then become a regulated contract and the lender would process the application as a second mortgage and not a buy-to-let mortgage. It’s a point hidden quite well in the manual but was tested in the recently sat exam.
Lenders’ Inflexible Treatment of ‘Older’ Borrowers
Secondly is how the new rules are affecting the ‘older’ customer when it comes to their wanting to borrow more funds. Newspapers have cited examples of ‘older customers in their 50s’ who are finding it hard to release equity from their properties, because of the inflexibility of lenders’ age limits. Many have lowered their age limits to 70 or even 65 and if customers are offered a shorter term to keep within limits, often the repayments are too high. The R07 manual actually states that the FCA is very open-minded about lending into retirement, and their only concern is affordability, regardless of age. Perhaps in due course the high street lenders will stop being so cautious and start looking at individual circumstances rather than what a computer decides is the right answer.
All in all the R07 exam is well written, makes for an interesting and informative read, and the exam does reflect pretty well the exam guide issued by the CII.
I am pleased to let you know that our CF6 and R07 resources are available.
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