Karen is a sole trader whose business is doing well, and she has decided to sell her flat and purchase a house.$$She has accepted a provisional offer of $102,000$ for her flat and is considering making an offer on a property with an asking price of $130,000.$ The property has been neglected and is in need of internal redecoration, although it appears to be structurally sound.$$Karen$\text{'}$s current mortgage is on an interest$-$only basis with an outstanding balance of $62,000.$ She is concerned that the value of her repayment vehicle has fallen over the last three years. She is worried about the possibility of a shortfall and would like to be certain that her new mortgage will be fully repaid by the end of the term. Karen would also like to be sure that her interest rate will also fall in line with general rates, rather than be at the discretion of the lender.$$Her mortgage adviser has identified a number of products offered by Midtown Bank, that he feels should be considered. Karen provided him with a detailed set of accounts confirming that her net profits for the past three years are $31,500,34,200$ and $37,200$ respectively. Karen's net income is $2,300$ per month and she estimates that her basic essential expenditure will be $850$ per month, and her basic quality$-$of$-$life expenditure will amount to $600$ per month. She also has a car loan that she repays at $150$ per month, with $18$ months left to run.$$The maximum loan that Karen will need in order to purchase the property is $110,000$ as she needs to retain some of her equity to clear a bank overdraft. Karen has also told the adviser that she would like to arrange suitable low$-$cost life assurance that would protect her mortgage.$$Midtown Bank's standard variable rate is currently $5\mathrm{.}25\%$ and the Bank of England base rate is currently $1\mathrm{.}5\%.$Additional security is required if the loan$-$to$-$value ratio exceeds $80\%.$ The adviser is entitled to receive a fee from the bank for each mortgage introduced. This is calculated at $0\mathrm{.}4\%$ of the agreed advance.$$Midtown Bank's affordability criteria require mortgage payments to be no more than $85\%$ of free disposable income, taking into account committed expenditure, basic essential expenditure and basic quality$-$of$-$life expenditure.

$1.$ Based on the lender's affordability criteria, what will Karen's maximum permissible monthly mortgage payment be$?$

a$)595.$

b$)$ B$.700.$

c$)$ C$.723.$

d$)$ D$.850.$

$2.$ in which of the following documents would the lender expect to find information about Karen's profits?

a$)$ Balance sheet.

b$)$ Bank statements.

c$)$ Cash flow statement.

d$)$ Profit and loss account.

$3.$ Before Karen completes her mortgage application, her mortgage adviser must provide her with a:

a$)$ buildings insurance quotation.

b$)$ cooling$-$off notice.

c$)$ European Standardised Information Sheet $($ES$/$S$).$

d$)$ suitability report.

$4.$ What is the most likely reason for the reduction in the value of Karen's mortgage repayment vehicle?

a$)$ Dividend payments received by the fund manager are no longer tax free.

b$)$ No reversionary bonuses have been added.

c$)$ The basic sum assured has been reduced.

d$)$ The unit bid price has fallen.

$5.$ Which of the following mortgage products offered by Midtown Bank would most closely match Karen's needs?

a$.$ Fixed rate of $3\mathrm{.}5\%$ for five years.

Interest calculated daily.

Early repayment charge applies for the first five years.

b$.$ Standard variable rate.

Interest calculated daily.

c$.$ Tracker rate at $2\mathrm{.}0\%$ above Bank of England base rate for six years.

Interest calculated daily.

No early repayment charge applies.

d$.$ Variable rate capped at $4\mathrm{.}0\%$ for three years.

Interest calculated annually.

Early repayment charge applies for the first three years.

$6.$ Which of the following protection products would satisfy Karen's specific protection requirement?

a$)$ Critical illness insurance.

b$)$ Level term assurance.

c$)$ Mortgage payment protection insurance.

d$)$ Mortgage protection assurance.

$7.$ Karen is considering her options for a buildings insurance policy.

Which of the following statements is correct?

a$)$ buildings insurance policy is optional.

b$)$ A buildings insurance policy must be in place throughout the lifetime of the mortgage.

c$)$ The lender can insist that buildings insurance cover is arranged through them.

d$)$ The lender can take assignment of the buildings insurance policy.

$8.$ If Karen's application is successful, what recommendation is the valuer most likely to make in respect of the work on the house that she thinks is required?

a$)$ A nominal retention and a written undertaking from Karen to carry out the work within a specified period after completion of the mortgage.

b$)$ A retention, to be released once the work has been satisfactorily completed within a specified period after completion of the mortgage.

c$)$ A written undertaking from Karen to satisfactorily complete the work within a specified period after completion of