MCOB 5.4 22Information on regulated mortgage contracts: general3
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Accuracy
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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 is accurate4
4It 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 accurate, it 4 may be able to rely on MCOB 2.5.2 R, if this turns out not to be the case.
4Illustrations 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.
3Provision of information3
3When providing information on regulated mortgage contracts, firms should bear in mind that the information must be given in accordance with MCOB 2.5A.1 R (The customer’s best interests).
43MCOB 53 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 3A 4(Financial promotions and communications with customers).4
24Messages to be given when providing information on regulated mortgage contracts
- (1)
3Whenever a firm provides a customer with information specific to the amount that the customer wants to borrow on a particular regulated mortgage contract following an assessment of the customer's needs and circumstances in order to comply with MCOB 4.7A.2 R, it must give, clearly and prominently, the following information:
- (a)
the same information on the firm’s product range as is required by MCOB 4.4A.1R (1), MCOB 4.4A.2 R and MCOB 4.4A.4R (1); and
- (b)
that the customer has the right to request an illustration for any regulated mortgage contract which the firm is able to offer the customer.
- (a)
- (2)
A firm need not give the information in (1) if it has previously given that information in compliance with this rule within the last ten business days.
Message to be given when customer requests an execution-only sale
- (1)
3Whenever, as part of an execution-only sale (or potential execution-only sale), a customer provides a firm with the information in MCOB 4.8A.14R (1), (2) or (3) the firm must inform the customer, clearly and prominently, that the customer has the right to request an illustration for any regulated mortgage contract which the firm is able to offer the customer.
- (2)
Whenever, as part of an execution-only sale (or potential execution-only sale), a high net worth mortgage customer or customer who would be entering into a regulated mortgage contract solely for a business purpose is provided with information specific to the amount that the customer wants to borrow on a particular regulated mortgage contract, the firm must inform the customer, clearly and prominently, that the customer has the right to request an illustration for any regulated mortgage contract which the firm is able to offer the customer.
- (3)
A firm need not give the information in (1) and (2) if it has previously given that information in compliance with this rule within the last ten business days.
Guidance relevant to messages given to customer
- (1)
3In order to demonstrate compliance with MCOB 5.4.18AR (1), a firm may wish to consider, for example, doing one or more of the following: give the messages to the customer in a durable medium; build the requirements into the firm's training of staff, as evidenced by its training and compliance manuals; insert appropriate prompts into paper-based or automated sales systems; have procedures in place to monitor compliance by its staff with that rule. What is required in each case will depend on all the circumstances.
- (2)
The reference in the template illustration at MCOB 5 Annex 1 R to the possibility of obtaining other illustrations is not sufficient to comply with the obligations in MCOB 5.4.18AR (1)(b) and MCOB 5.4.18B R. A firm may, however, satisfy those obligations in a number of ways; for example, by drawing the customer's attention to the right to request an illustration orally in a face-to-face meeting, or by referring to it in a letter or electronic communication or other written information.
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) where the tied product is a repayment strategy and MCOB 5.6.74 R where the tied product is insurance).3 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.
3Retirement interest-only mortgages
5When a firm issues an illustration for a retirement interest-only mortgage that will be used to release capital, the firm must inform the customer that taking out the mortgage may affect the customer’s tax position and entitlement to benefits, and that the customer should consider taking advice on these issues before applying.
5If the terms of the retirement interest-only mortgage include any restrictions as to who may live in the property, these restrictions must be disclosed to the customer before an application is made.
5The information referred to in MCOB 5.4.25R and MCOB 5.4.26R may be given to the customer either in the illustration or in a separate document provided at the same time as the illustration.