MCOB 5.4 2Mortgage illustrations:2 general
Clear, fair and not misleading
A firm must be able to show that it has taken reasonable steps to ensure that any illustration it issues is clear, fair and not misleading.
Accuracy
An illustration on a particular regulated mortgage contract issued by, or on behalf of, a mortgage lender, must be an accurate reflection of the costs of the regulated mortgage contract.
A mortgage intermediary must take reasonable steps to ensure that an illustration which it issues, or which is issued on its behalf, other than that provided by a mortgage lender:
- (1)
is accurate within the following tolerances:
- (a)
no more than one percent or £1, whichever is the greater, below the actual figures charged by the mortgage lender for the following:
- (i)
the total amount payable in Section 5 of the illustration;
- (ii)
the amount payable for every £1 borrowed in Section 5 of the illustration;
- (iii)
the amounts that the customer must pay by regular instalment in Section 6 of the illustration (or in Section 7 of the illustration for an interest rate with a floor or a ceiling); and
- (iv)
the amount by which the regular instalment (or the total amount payable for loans without a term or a regular repayment plan) would increase following a one percentage point increase in interest rates in Section 7;1
- (i)
- (b)
the APR in Section 5 of the illustration cannot be understated by more than 0.1%; and]
- (a)
- (2)
except in the case of conveyancing fees and insurance premiums (where estimates may be used), is accurate in respect of other figures quoted in the illustration including fees payable to the mortgage lender or mortgage intermediary in Section 8 of the illustration and cash examples of early repayment charges, calculated in accordance with the rules in MCOB 5.6.84 R to MCOB 5.6.88 R, in Section 10.1
Given that the APR is presented as a percentage, and must be rounded to one decimal place in accordance with MCOB 10 (Annual Percentage Rate), firms should note that the tolerance allowed for the APR in MCOB 5.4.3 R(1)(b) means that, for example, where the actual APR is 5.0% the quoted APR must be no lower than 4.9%, or where the actual APR is 16.0%, the quoted APR must be no lower than 15.9%.
There are no restrictions on figures which are quoted as higher than those actually charged by the mortgage lender although this should not be purposely done in order to make one regulated mortgage contract look more expensive than another.
It is the responsibility of a mortgage intermediary to ensure compliance with MCOB 5.4.3 R. However, where a firm can show that it was reasonable for it to rely on information provided to it by another person, other than the mortgage lender, that an illustration was within the tolerances described in MCOB 5.4.3 R, he may be able to rely on MCOB 2.5.2 R, if this turns out not to be the case.
An offer document may not always exactly match the illustration provided before application even when the loan requirements have not changed. For example, where a fixed rate has a defined end date, the total amount payable may be different because the number of payments at the fixed rate has reduced assuming a later date at which the regulated mortgage contract will start.
Illustrations where customer ineligible
A firm must not issue an illustration to a customer for a regulated mortgage contract for which the customer is clearly ineligible on the basis of the information that the firm has obtained from the customer or the mortgage lender's lending criteria.
The purpose of MCOB 5.4.8 R is not to require a firm to ascertain whether a customer is eligible for a particular regulated mortgage contract before providing an illustration. Instead, the purpose is to ensure that the firm takes into account the information it has obtained from the customer before providing an illustration to the customer.
Explaining the importance of an illustration
In providing an illustration to a customer, a firm must explain to the customer the importance of reading the illustration and understanding it.
A firm may satisfy MCOB 5.4.10 R by drawing the customer's attention orally to the importance of reading and understanding the illustration, for example in a face-to-face meeting, or by referring to its importance in a covering letter or electronic communication or other written information that accompanies the illustration.
Form of an illustration
Any illustration provided to a customer by a firm must be in a durable medium.
Restriction on provision of information
A firm must not provide a customer with information that is specific to the amount that the customer wants to borrow on a particular regulated mortgage contract except in the following circumstances:
- (1)
when it is in the form of an illustration;
- (2)
when it is provided on screen, for example a computer screen;
- (3)
when supplementary information which is not contained within an illustration is provided after or at the same time as an illustration; or
- (4)
when it is provided orally, for example by telephone.
Where MCOB 5.4.13 R(2) applies:
- (1)
if the customer initiates the accessing of quotation information on screen (for example, by using the internet or interactive television), the following warning must be displayed prominently on each page on screen:'This information does not contain all of the details you need to choose a mortgage. Make sure that you read the separate key facts illustration before you make a decision.'; and
- (2)
a firm must not provide a customised print function where the information on the screen would not be in the form of an illustration if the information were printed in hard copy.
Where MCOB 5.4.13 R(3) applies, supplementary information must only be provided when it does not significantly duplicate information provided in the illustration.
MCOB 5.4.13 R places no restrictions on the provision of information that is not specific to the amount the customer wants to borrow, for example, marketing literature including generic mortgage repayment tables or graphs illustrating the benefits of making a regular overpayment on a flexible mortgage. Such literature may, however, constitute a financial promotion2 and be subject to the provisions of MCOB 3 (Financial promotion).
2Where MCOB 5.4.13 R(2) and MCOB 5.4.13 R(4) apply, firms should encourage the customer to obtain a copy of an illustration in a durable medium. This could be done, for example, if the information was contained on the firm's website, by a prompt which asked the customer whether he wished to print off an illustration.
- (1)
Unless (2) applies, where MCOB 5.4.13 R(2) or MCOB 5.4.13 R(4) apply, a firm must provide the means for the customer to obtain an illustration as soon as practicable, through a delivery channel acceptable to the customer.
- (2)
A firm does not need to provide an illustration if the customer refuses to disclose key information (for example, in a telephone conversation, his name or a communication address) or where the provision of an illustration is not appropriate, for example, because on the basis of discussions undertaken the customer is ineligible given the mortgage lender's lending criteria, or is not interested in pursuing the enquiry.
Record keeping
A firm must make an adequate record of each illustration that it issues to a customer in accordance with MCOB 5.5.1 R where the customer applies for that particular regulated mortgage contract.
The record required by MCOB 5.4.19 R must be retained for a year from the date of the application made by the customer.
MCOB 5.4.19 R does not require a firm to keep records of illustrations that are issued to a customer where the customer does not apply to enter into that particular regulated mortgage contract.
The record maintained in accordance with MCOB 5.4.19 R should contain or refer to matters such as:
- (1)
the date on which the illustration was provided to the customer;
- (2)
the date of the application made by the customer; and
- (3)
details of the medium through which the illustration was provided.
Tied products
Where the illustration provided to the customer does not contain an accurate quotation or a reasonable estimate of the payments the customer will need to make in connection with any tied product that the customer must take out with the regulated mortgage contract, and the customer applies for that regulated mortgage contract:
- (1)
the firm must provide the customer with an accurate quotation as soon as possible after he has applied, and in good time before the offer document is provided;
- (2)
the customer has a right to withdraw his application for the regulated mortgage contract for a period of seven days from receipt of the quotation referred to in (1);
- (3)
the quotation for the tied product must be accompanied by a notice explaining that the customer can withdraw his application and receive a full refund of any fees paid in connection with the application for that regulated mortgage contract (excluding any fees paid in respect of the regulated activity of arranging or advising on a regulated mortgage contract by a mortgage lender or a mortgage intermediary) for a period of seven days from receipt of the quotation or acceptance of the mortgage lender's offer if sooner; and
- (4)
the firm must refund any fees paid by the customer (excluding any fees paid in respect of any advice provided by a mortgage lender or a mortgage intermediary) if the customer decides to exercise his right to withdraw his application in accordance with (2).
The rules on the content of an illustration at MCOB 5.6 (Content of illustrations) mean that if the regulated mortgage contract requires the customer to take out a tied product, the illustration must include an accurate quotation or a reasonable estimate of the payments the customer would need to make for the tied product (see MCOB 5.6.52 R(2) on a repayment vehicle that is a tied product and MCOB 5.6.74 R on insurance that is a tied product). If it is not possible to include this cost information in the illustration, MCOB 5.4.23 R requires that the customer be provided with an accurate quotation of the payments associated with the tied product as soon as possible. If the quotation is provided after the customer has applied for the regulated mortgage contract the customer has the right to a refund of fees if he withdraws his application.