CeMAP MRT2 Debt Consolidation question: After consolidating debts

CeMAP MRT2Debt Consolidation

Noor’s home is worth £200,000. After consolidating debts her mortgage will be £186,000. If prices then fall by 10%, what is her position?

A Equity of £6,000
B Negative equity of £6,000
C Negative equity of £18,600
D Equity of £14,000

Show the answer and explanation

Answer: B. Negative equity of £6,000

New value: £200,000 × 90% = £180,000. Mortgage £186,000 − £180,000 = £6,000 of negative equity. £14,000 is her equity before the fall, and £18,600 is 10% of the loan, not the gap. Thin equity after consolidation limits future remortgage and moving options, a risk of moving unsecured debt to secured status under Walbrook (formerly LIBF) MRT2 AC3.3; MCOB 11.6.5R(1) also bars lenders from relying on expected price rises.

Common mistake

Applying the 10% fall to the loan rather than to the property value.

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Original practice material mapped to the published CeMAP MRT2 learning outcomes. Independent, not endorsed by Walbrook (formerly LIBF). Verify figures and rules against current guidance before relying on them.