Subject to MCOB 7.1.2A R, this4 chapter applies to a firm in a category listed in column (1) of the table in MCOB 7.1.2 R in accordance with column (2) of that table.

4 MCOB 7.6.7 R to MCOB 7.6.17 R do not apply to a firm that is an MCD mortgage lender or MCD mortgage credit intermediary.

This chapter applies if a firm:

1. (1)

   enters into a home finance transaction2 with a customer; or

   2
2. (2)

   administers a home finance transaction2which was entered into with a customer; or

   2
3. (3)

   arranges or advises on or makes a further advance or other variation to the terms of a home finance transaction2entered into with a customer.

   2

This chapter applies in relation to further advances and other variations (as specified in MCOB 7.6.7 R - MCOB 7.7.4 R in relation to a regulated mortgage contract2) regardless of whether they are variations to an existing home finance transaction2or are such that they involve the customer entering into a new home finance transaction2.

This chapter also applies in relation to regulated mortgage contracts in circumstances where the original mortgage lender has passed on ownership of the loan to a third party through securitisation. In such a case, the rules in MCOB 7.5 - MCOB 7.7.4 R will apply to the firm which administers the regulated mortgage contract.

In MCOB 7.6.7 R (Further advances), MCOB 7.6.18 R (Rate switches) and MCOB 7.6.22 R (Addition or removal of a party to the contract), if a customer submits an informal application as his first contact with a firm, the illustration required to be provided to a customer in accordance with those rules must be provided and the transaction must not proceed until the customer has made a formal application confirming that it should proceed.

In relation to a lifetime mortgage2, this chapter is modified by MCOB 9 (Equity release2: product disclosure).1

A firm must provide all of the information required by this chapter in a durable medium.

The information required by this chapter, MCOB 7, may be provided in more than one document, provided the use of several documents does not materially diminish the significance of any information the firm is required to give the customer, or the ease with which this can be understood.

(Subject to MCOB 7.7.5 R) a firm that enters into a regulated mortgage contract with a customer must provide the customer with the following information before the customer makes the first payment under that regulated mortgage contract:1

1. (1)

   the amount of the first payment required;

2. (2)

   the amount of the subsequent payment(s) if different from the first payment;

3. (3)

   the method by which the payment will be collected (for example, by direct debit) and the date of collection of the first and subsequent payment;

4. (4)

   confirmation of whether, in connection with the regulated mortgage contract, insurance or investments (such as a repayment strategy3, term assurance, buildings and contents insurance or payment protection insurance) have been purchased through the firm;

   3
5. (5)

   the first premium (and subsequent premium where different) for any insurance or investments purchased through the firm in connection with the regulated mortgage contract;

6. (6)

   confirmation of whether the insurance or investment premiums in (5) are to be collected with the mortgage payment or separately (where the latter applies, the firm must give details or state that these will be confirmed separately);

7. (7)

   confirmation of whether the regulated mortgage contract is a repayment mortgage or interest-only mortgage, or a combination of both;

8. (8)

   if all or part of the regulated mortgage contract is an interest-only mortgage, a reminder to the customer to check that a repayment strategy3 is in place, if the repayment strategy3 is not provided by the firm;

   33
9. (9)

   what to do if the customer falls into a payment shortfall3, explaining the benefit of making early contact with the firm, providing the address and telephone number of a contact point for the firm, and drawing the customer's attention to the arrears charges set out in the tariff of charges;

   3
10. (10)

    confirmation of any linked borrowing and linked deposits; and

11. (11)

    whether the regulated mortgage contract permits the customer to make any overpayments or underpayments of the amounts due.

The information in MCOB 7.4.1 R must be provided to the customer in a single communication, except (4), (5) and (6) which may be provided separately.

1. (1)

   A firm must make and retain an adequate record of the information that it provides to each customer at the start of the regulated mortgage contract in accordance with this section.

2. (2)

   The record required by (1) must be maintained for a year from the date that the information is provided to the customer.

Subject to MCOB 7.5.2 R, a firm must provide the customer with a statement at least once a year (or, in relation to the first statement, within the first 13 months)2:

1. (1)

   covering the regulated mortgage contract and any tied product purchased through the firm; and

2. (2)

   giving information about the existence of any linked borrowing or linked deposits, or any other products purchased through the firm where the payments for those products are combined with the payments on the regulated mortgage contract.

Where a tied product is operated separately from the regulated mortgage contract, for example where the premiums on a tied insurance product are not combined with payments on the regulated mortgage contract, the statement required by MCOB 7.5.1 R in relation to the tied product may be provided in a separate communication.

The statement required by MCOB 7.5.1 R must contain the following:

1. (1)

   except in the case of mortgage credit cards, information on the type of regulated mortgage contract, including:

   1. (a)

      a clear statement of whether the regulated mortgage contract is an interest-only mortgage, or repayment mortgage, or a combination of both; and

   2. (b)

      a prominent reminder, where all of the regulated mortgage contract is an interest-only mortgage, that:

      1. (i)

         the customer's payments to the firm do not include any costs of the repayment strategy5 (if that is the case); and

         5
      2. (ii)

         the customer should have in place arrangements to pay off the capital, and should check the performance of any investments they might have in place for this purpose;

      6

   3. (c)

      a prominent reminder, where only part of the regulated mortgage contract is an interest-only mortgage, that:

      1. (i)

         the customer's payments to the firm do not include any costs of the repayment strategy5 (if that is the case); and

         5
      2. (ii)

         the customer should have in place arrangements to pay off the amount of the loan that is on an interest-only basis, and should check the performance of any investments they might have in place for this purpose;

      6

2. (2)

   details of the following transactions and information on the regulated mortgage contract during the period since the last statement (or, where the statement is the first statement, since the customer entered into the regulated mortgage contract):

   1. (a)

      the date and amount of each payment made;

   2. (b)

      the amount of each payment that was due during the statement period;

   3. (c)

      the rate(s) of interest applicable to the regulated mortgage contract during the statement period and, if applicable, the date(s) on which the rate(s) of interest changed;

   4. (d)

      the amount of interest charged under the regulated mortgage contract during the statement period; and

   5. (e)

      any other amounts charged under the regulated mortgage contract during the statement period, including fees and any amounts due in relation to tied products;

3. (3)

   a reminder that the customer should contact the firm if they are unable to make their regular payments under the regulated mortgage contract; and

4. (4)

   information at the date the statement is issued on:

   1. (a)

      the amount owed by the customer under the regulated mortgage contract;

   2. (b)

      the actual remaining term of the regulated mortgage contract (but if the term of the regulated mortgage contract is open-ended this should be clearly stated);

   3. (c)

      the date at which any early repayment charges on the regulated mortgage contract cease to apply;

   4. (d)

      where applicable, the early repayment charge that applies, expressed as a monetary amount (see MCOB 5.6.84 R);

   5. (e)

      the cost of redeeming the regulated mortgage contract (this must be shown as the sum of MCOB 7.5.3 R(4)(a) and MCOB 7.5.3 R(4)(d) plus any linked borrowing that cannot be retained (including the outstanding balances) plus any other charges that can be quantified at the date the statement is issued); if additional charges are payable that cannot be quantified at the point that the statement is issued (for example if the customer is in arrears5) a warning must be included to that effect; and1

      5
   6. (f)

      where applicable, the date on which the requirement for the customer to purchase any tied products from the firm comes an end.

1. (1)

   4MCOB 7.5.3 R (1)(b) does not apply where as a result of the customer having payment difficulties:

   1. (a)

      the regulated mortgage contract has changed to an interest-only mortgage; and

   2. (b)

      interest is being deferred and capitalised by the firm.

2. (2)

   Paragraph (1) applies only where the customer continues to have payment difficulties.

7 MCOB 7.5.3R(1)(b) and MCOB 7.5.3R(1)(c) do not apply where the regulated mortgage contract is a retirement interest-only mortgage.

Where a firm provides a customer with a statement containing the information set out in MCOB 7.5.3 R(2) more frequently than once a year, the information set out in MCOB 7.5.3 R(1), MCOB 7.5.3 R(3) and MCOB 7.5.3 R(4) may be provided in a separate communication, but must be provided at least once a year.

If the tariff of charges has changed since the last annual statement was sent to the customer (or, where the annual statement is the first statement, since the customer entered into the regulated mortgage contract) and a firm has not already sent a revised tariff of charges to the customer, it must include one with the annual statement.

A firm must give the customer reasonable notice, in advance, of:

1. (1)

   any changes to the payments that the customer is required to make resulting from interest rate changes; and

2. (2)

   any material change by the firm (other than changes which come within MCOB 7.6.2 R) to the terms and conditions of the regulated mortgage contract, where that change is permitted without the customer's prior consent.

A firm must notify a customer, as soon as the details are known, of who will be responsible for setting interest rates and charges on the regulated mortgage contract if any interest in the regulated mortgage contract is to be sold, assigned, or transferred, and the firm will no longer be responsible for this.

For the purposes of MCOB 7.6.2 R the firm may be treated as continuing to be responsible for setting interest rates and charges if, under the terms of the sale, assignment or transfer, it is expected that the rates and charges will continue to be set by reference to, and be no higher than, those set by the firm for other contracts of the same kind.

Where the customer has, in accordance with the terms of the regulated mortgage contract, taken up an additional tranche of borrowing on a mortgage that is released in tranches and this did not require any further approval of the mortgage lender, a firm must provide confirmation as soon as possible of:

1. (1)

   the new amount owed by the customer under the regulated mortgage contract;

2. (2)

   the amount of each payment that is due; and

3. (3)

   the interest rate charged.

Before a customer submits an application to a firm for a further advance on an existing regulated mortgage contract or for a further advance that is a new regulated mortgage contract, if the further advance requires the approval of the mortgage lender, the firm must provide the customer with either8

1. (1)

   an illustration that complies with the requirements of MCOB 5 (Pre-application disclosure) and MCOB 7.6.9R to MCOB 7.6.17R; or8

2. (2)

   an ESIS that complies with MCOB 5A (MCD pre-application disclosure) and MCOB 7B.1.4R (MCD: further advances);8

unless:8

1. (3)

   such an illustration or ESIS has already been provided; or8

2. (4)

   the regulated mortgage contract is for a business purpose and the firm has chosen to comply with the tailored provisions for regulated mortgage contracts for a business purpose; or8

3. (5)

   the regulated mortgage contract is with a high net worth mortgage customer and the firm has chosen to comply with the tailored provisions for loans to high net worth mortgage customers;8

(see MCOB 7.7 (Business loans and loans to high net worth mortgage customers: tailored provisions)).8

An8illustration provided in accordance with MCOB 7.6.7R(1)8 must:

1. (1)

   be based on the amount of the further advance only;

2. (2)

   use the term 'additional borrowing' in place of the term 'mortgage' where appropriate throughout the titles and text of the illustration;

3. (3)

   include an additional section headed: 'Total borrowing' and numbered '7a' after Section 7, including the following text:

   1. (a)

      "This section gives you information about how your mortgage will be affected by taking out this additional borrowing. Talk to [your mortgage lender] [insert name of mortgage lender] if you are not sure of the details of your current mortgage."; and

   2. (b)

      a clear statement explaining the total amount that the customer will owe if he takes out the additional borrowing and what the customer's new payments will be.

4. (4)

   include a clear statement, where all or part of the regulated mortgage contract is an interest-only mortgage and the amount paid in each instalment does not include the cost of a repayment strategy5, to indicate that these payments do not include the cost of any savings plan or other investment.

   5

Where not all of the mortgage interest rates described in accordance with MCOB 5.6.25 R(2)(a) apply for the term of the loan part to which they apply, the firm must disclose the amount that will be paid in each instalment when complying with MCOB 7.6.9 R(3)(b), including the following information:

1. (1)

   when a change in payment will occur;

2. (2)

   the reason for the change in payment; and

3. (3)

   confirmation that the payment illustrated assumes rates will not change.

1. (1)

   The illustration provided in accordance with MCOB 7.6.7R(1) may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so in order to reflect the fact that the illustration is being provided for a further advance.8

2. (2)

   The ESIS provided under MCOB 7.6.7R(2) may diverge from the requirements of MCOB 5A where it is necessary to do so to reflect that the ESIS is being provided for a further advance.8

1. (1)

   (In the case of a business illustration), MCOB 5.6.16 R is replaced with the following: "Section 1: 'About this illustration' Under the section heading 'About this illustration', the following text must be included:'We are required by the Financial Conduct Authority (FCA) - the independent watchdog that regulates financial services - to provide you with this illustration.' "

2. (2)

   (In the case of any other illustration8 ), MCOB 5.6.16 R is replaced with the following; "Section 1: 'About this illustration' Under the section heading 'About this illustration, the following text must be included: 'We are required by the Financial Conduct Authority (FCA) - the independent watchdog that regulates financial services - to provide you with this illustration. All firms selling mortgages are required to give illustrations like this one, that contain similar information presented in the same way.' "

1. (1)

   Where the further advance for which the customer has applied is in the form of an annual insurance premium secured by a first legal charge, a firm:

   1. (a)

      may, instead of providing an illustration or ESIS8 in accordance with MCOB 7.6.7 R, provide confirmation of the matters required by MCOB 7.6.5 R; and

   2. (b)

      where (a) applies use the following text:"Your annual insurance premium has been/will be added to your mortgage account [unless you pay it by dd/mm/yy]. If you choose to pay it in full on or before dd/mm/yy there will be no extra cost. If you do not, interest will be charged on the amount outstanding at [insert details of the applicable interest rate e.g. 'the same rate as your mortgage' or 'the standard variable rate which is currently x%']."

2. (2)

   If the insurance premium described in (1) is not an annual premium, (1)(a) and (b) apply but a firm must amend the text in (1)(b) to reflect the length of the contract.

Before a customer submits an application to a firm to change all or part of a regulated mortgage contract from one interest rate to another (for example, a transfer from a variable rate regulated mortgage contract to a fixed rate regulated mortgage contract, or from one fixed rate regulated mortgage contract to another fixed rate regulated mortgage contract), the firm must provide the customer with either:7

1. (1)

   an illustration for the whole loan that complies with the requirements of MCOB 5 (Pre-application disclosure); or7

2. (2)

   an ESIS for the whole loan that complies with the requirements of MCOB 5A (MCD Pre-application disclosure),7

unless such an illustration or ESIS has already been provided.7

1. (1)

   The illustration provided in accordance with MCOB 7.6.18 R may diverge from the requirements of MCOB 5 where it is necessary to do so to reflect the fact that the illustration is being provided for a rate switch.7

2. (2)

   The ESIS provided under MCOB 7.6.18R (2) may diverge from the requirements of MCOB 5A where it is necessary to do so to reflect that the ESIS is being provided for a rate switch.7

9Where a firm proposes to vary the term of a regulated mortgage contract so that it becomes a retirement interest-only mortgage:

1. (1)

   MCOB 7.6.18R to MCOB 7.6.21G apply as though references to a rate switch were references to such a contract variation; and

2. (2)

   MCOB 5.4 applies as though a reference to entering into a home finance transaction included such a contract variation.

Before a customer submits an application to add or remove a party to a regulated mortgage contract, a firm must provide any customer who will remain or become a party to the contract with either:7

1. (1)

   an illustration for the whole loan that complies with the requirements of MCOB 5 (Pre-application disclosure); or7

2. (2)

   an ESIS for the whole loan which complies with the requirements of MCOB 5A (MCD Pre-application disclosure).7

1. (1)

   The illustration provided in accordance with MCOB 7.6.22 R may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so to reflect the fact that the illustration is being provided in respect of the addition or removal of a party to the contract.7

2. (2)

   The ESIS provided under MCOB 7.6.22R (2) may diverge from the requirements of MCOB 5A (MCD Pre-application disclosure) where it is necessary to do so to reflect that the ESIS is being provided for the addition or removal of a party to the contract.7

If a customer requests, or agrees to, a change to a regulated mortgage contract (other than a change as described in MCOB 7.6.7 R to MCOB 7.6.26 G44) that changes the amount of each payment due, a firm must provide the customer with the following information, in a single communication (subject to MCOB 7.6.28AR (3))4, before the change takes effect:

1. (1)

   the amount outstanding on the regulated mortgage contract at the date the change is requested;

2. (2)

   the payment due and the frequency of payments; where it is known that the payment will change (for example at the end of a fixed rate period), the new payment and the date of the change must also be shown;

3. (3)

   the rate of interest applying to the regulated mortgage contract; where it is known that the rate of interest will change, the new rate and the date of the change must also be shown;

4. (4)

   the type of interest rate (for example fixed, or discounted); where it is known that the type of interest rate will change the new type and the date of the change must also be shown;

5. (5)

   where the regulated mortgage contract will change to an interest-only mortgage, a prominent reminder that the customer should have in place arrangements to repay the capital, using the following text:'You will still owe [insert amount borrowed or, where part of the regulated mortgage contract is an interest-only mortgage, insert the amount borrowed under the interest-only mortgage] at the end of the mortgage term. You will need to make separate arrangements to repay this. When comparing the new payments on this mortgage with your previous payments, remember to add any money you may need to pay into a separate savings plan to build up a lump sum to repay the amount you have borrowed.'; and1

6. (6)

   details of any charges that apply for changing the regulated mortgage contract.

1. (1)

   4MCOB 7.6.28 R (5) does not apply where the regulated mortgage contract is changing to an interest-only mortgage and interest is being deferred and capitalised by the firm as a result of the customer having payment difficulties.

2. (2)

   Where (1) applies, the firm must instead provide a prominent reminder to the customer of the amount outstanding together with an explanation of the implications of deferred payments being capitalised, before the change in the regulated mortgage contract takes effect.

3. (3)

   The reminder in (2) may be provided in a separate communication.

Where MCOB 7.6.28 R applies, a firm may issue either:7

1. (1)

   an illustration in accordance with MCOB 5 (Pre-application disclosure) in place of the information set out in MCOB 7.6.28 R; or7

2. (2)

   an ESIS in accordance with MCOB 5A (MCD Pre-application disclosure),7

in place of the information set out in MCOB 7.6.28 R.7

1. (1)

   7The illustration provided under MCOB 7.6.31R (1) may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so to reflect the circumstances in which it is being provided.

2. (2)

   The ESIS provided under MCOB 7.6.31R (2) may diverge from the requirements of MCOB 5A (MCD Pre-application disclosure) where it is necessary to do so to reflect the circumstances in which it is being provided.

Where MCOB 7.6.28 R applies and the customer simultaneously requests a rate switch or the addition or removal of a party to the contract, a firm will not be required to provide the information in accordance with MCOB 7.6.28 R where it is provided as part of:7

1. (1)

   an illustration issued in accordance with MCOB 7.6.18R (1) or MCOB 7.6.22R (1); or7

2. (2)

   an ESIS issued under MCOB 7.6.18R (2) or MCOB 7.6.22R (2).7

7Where a firm is required to provide a customer with an ESIS under MCOB 7.6.18R (2) or MCOB 7.6.22R (2), or a firm chooses to provide a customer with an ESIS under MCOB 7.6.31R (2), the firm need not include the additional APRC required under MCOB 10A.1.6 R, Section 4 of MCOB 5A Annex 1 and MCOB 5A Annex 2, 6.2R to 6.8R.

7Where a firm provides a customer with an ESIS under MCOB 7.6.18R (2), MCOB 7.6.22R (2) or MCOB 7.6.31R (2), that includes an additional APRC, the firm must either:

1. (1)

   base that additional APRC on the APRC previously provided to the customer under MCOB 5A (MCD Pre-application disclosure); or

2. (2)

   calculate that additional APRC in accordance with MCOB 10A.1.6 R, Section 4 of MCOB 5A Annex 1 and MCOB 5A Annex 2, 6.2R to 6.12R.

1. (1)

   Where, in relation to a regulated mortgage contract for a business purpose or a high net worth mortgage customer3 who is not a consumer under an MCD regulated mortgage contract4, a customer either:

   1. (a)

      seeks an immediate increase in the borrowing provided under the regulated mortgage contract; or

   2. (b)

      overdraws on the borrowing under the regulated mortgage contract;

   the further advance rules in MCOB 7.6.7 R to MCOB 7.6.17 R do not apply.

2. (2)

   Where (1) applies, the firm must within five business days (for a loan for a business purpose) or in good time before the customer is bound by the regulated mortgage contract (for a high net worth mortgage customer)3 provide the customer with either:

   1. (a)

      a business illustration or high net worth illustration (as applicable)3 for the new total borrowing; or

   2. (b)

      the following information, in a single communication:

      1. (i)

         the new amount outstanding on the regulated mortgage contract;

      2. (ii)

         details of any changes in the repayment arrangements or interest rate charged as a result of the change;

      3. (iii)

         where there is a new early repayment charge or a change to the existing early repayment charge, the maximum amount payable as an early repayment charge in respect of the regulated mortgage contract; and

      4. (iv)

         details of any charges that apply for changing the regulated mortgage contract.

Where a customer applies for a further advance that is a regulated mortgage contract for a business purpose or a high net worth mortgage customer3 who is not a consumer under an MCD regulated mortgage contract4 and MCOB 7.7.1 R does not apply:

1. (1)

   the business illustration or high net worth illustration3must be based upon the total borrowing; and

2. (2)

   MCOB 7.6.9 R to MCOB 7.6.10 G and MCOB 7.6.12 G do not apply.

Where MCOB 7.6.28 R(5) applies, a firm may omit the final sentence of the required text where it is aware, in the context of an interest-only mortgage, that the customer's intention is not to use a savings plan as a repayment strategy3.

1 MCOB 7.4 (Disclosure at the start of the contract) does not apply in relation to a regulated mortgage contract that is for a business purpose or a high net worth mortgage customer3.

A firm that enters into a home purchase plan with a customer must ensure that before making the first payment the customer is provided with a prominent reminder that the customer should check that his right to occupy the property has been properly safeguarded.

A firm must provide the customer with a statement at least once a year (or, in relation to the first statement, within the first 13 months of the plan term) covering the home purchase plan and including information about:

1. (1)

   payments due and made during the period since the last statement (or, where the statement is the first statement, since the customer entered into the home purchase plan), including:

   1. (a)

      whether the payment is a rental payment or a purchase payment;

   2. (b)

      the applicable rental rate(s);

   3. (c)

      where relevant, the customer's beneficial interest in the property;

2. (2)

   the remaining acquisition amount;

3. (3)

   the actual remaining term;

4. (4)

   the ability of the customer to terminate it early and sell the property, together with any charges that would apply.

A firm must include a tariff of charges with the annual statement if it has changed since the previous version provided.

1Where the terms of a regulated sale and rent back agreement include a provision conferring upon the SRB agreement seller a right to receive any sum, or exercise any option, in relation to the transaction after it has been concluded, the SRB agreement provider must take reasonable steps to inform the SRB agreement seller in good time of any steps which the SRB agreement seller must take if he wishes to receive the sum or exercise the option.