MCOB 8.5A Advised sales

If a firm gives advice to a particular customer to enter into an equity release transaction, or to vary an existing equity release transaction, it must take reasonable steps to ensure that the equity release transaction is, or after the variation will be, suitable for that customer.

In MCOB 8.5A, a reference to advice to enter into an equity release transaction is to be read as including advice to vary an existing equity release transaction.

For the purposes of MCOB 8.5A.2 R:

1. (1)

   an equity release transaction will not be suitable for a customer unless the equity release transaction is appropriate to the needs and circumstances of the customer;

2. (2)

   a firm must base its determination of whether an equity release transaction is appropriate to a customer's needs and circumstances on the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware;

3. (3)

   no advice must be given to a customer to enter into an equity release transaction if there is no equity release transaction which is suitable from the product range offered by the firm;

4. (4)

   if a mortgage lender is dealing with an existing customer with a payment shortfall and has concluded that there is no equity release transaction which satisfies the requirements of MCOB 8.5A.2 R, the firm must nonetheless have regard to MCOB 13.3.

When a firm assesses whether the equity release transaction is appropriate to the needs and circumstances of the customer for the purposes of MCOB 8.5A.5 R, the factors it must consider include the following:

1. (1)

   whether the benefits to the customer outweigh any adverse effect on:

   1. (a)

      the customer's entitlement (if any) to means-tested benefits; and

   2. (b)

      the customer's tax position (for example the loss of an Age Allowance);

2. (2)

   alternative methods of raising the required funds such as, in particular:

   1. (a)

      (where relevant) a local authority (or other) grant; or

   2. (b)

      taking a further advance under an existing regulated mortgage contract (including a lifetime mortgage), or a new regulated mortgage contract (including a lifetime mortgage) to replace an existing one, or an additional release under an existing home reversion plan;

3. (3)

   whether the customer's requirements appear to be within the equity release provider's known eligibility criteria for the equity release transaction;

4. (4)

   the customer's preferences for his estate (for example, whether the customer wishes to be certain of leaving a bequest to his family or others);

5. (5)

   the customer's health and life expectancy;

6. (6)

   the customer's future plans and needs (for example, whether the customer is likely to need to raise further funds or is likely to move house);

7. (7)

   whether the customer has a preference or need for stability in the amount of payments (where payments are required) especially having regard to the impact on the customer of significant interest rate changes in the future;

8. (8)

   whether the customer has a preference or need for any other features of an equity release transaction; and

9. (9)

   for lifetime mortgages only, whether it is more appropriate for the customer to pay any fees or charges in relation to the lifetime mortgage up front, rather than adding them to the sum advanced (see also MCOB 4.6A).

In considering the factor at MCOB 8.5A.6R (1), where a firm has insufficient knowledge of means-tested benefits and tax allowances to reach a conclusion, the firm must refer a customer to an appropriate source or sources such as the Pension Service, HM Revenue and Customs or Citizens Advice Bureau (or other similar agency) to establish the required information.

If for any reason a customer:

1. (1)

   declines to seek further information on means-tested benefits, tax allowances or the scope for local authority (or other) grants; or

2. (2)

   rejects the conclusion of a firm that alternative methods of raising the required funds are more suitable;

a firm can advise the customer (in accordance with the remaining requirements of this chapter) to enter into an equity release transaction where there is an equity release transaction (or more than one equity release transaction) that is appropriate to the needs and circumstances of the customer, but must confirm to the customer, in a durable medium, the basis on which the advice has been given.

In relation to MCOB 8.5A.5R (1), when a firm advises a customer in relation to entering into an equity release transaction where the main purpose for doing so is the consolidation of existing debts by the customer, it must also take account of the following in assessing whether the equity release transaction is suitable for the customer:

1. (1)

   the costs associated with increasing the period over which a debt is to be repaid;

2. (2)

   whether it is appropriate for the customer to secure a previously unsecured loan; and

3. (3)

   where the customer is known to have payment difficulties, whether it would be more appropriate for the customer to negotiate an arrangement with his creditors than to enter into an equity release transaction.

Where the customer is looking to increase the borrowing secured on the property which is the subject of an existing regulated mortgage contract, a firm must inform the customer (either orally or in writing) that it may be possible, and more appropriate, for the customer to take a further advance with the existing lender rather than entering into an equity release transaction with another provider.

When advising a customer on the suitability of an equity release transaction, a firm must explain to the customer that the assessment of whether the equity release transaction is appropriate to his needs and circumstances is based on the customer's current circumstances, which may change in the future.

1. (1)

   A firm must make and retain a record:

   1. (a)

      of the customer information, including that relating to the customer's needs and circumstances and the customer's apparent satisfaction of the equity release provider's known eligibility criteria, that it has obtained for the purposes of MCOB 8.5A;

   2. (b)

      that explains why the firm has concluded that any advice given to a customer complies with MCOB 8.5A.2 R and satisfies the suitability requirement in MCOB 8.5A.5R (1);

   3. (c)

      of any advice which the customer has rejected, including the reasons why they were rejected and details of the equity release transaction which the customer has proceeded with as an execution-only sale; and

   4. (d)

      where applicable, of the customer's positive choice in MCOB 4.6A.2 R (Rolling up of fees or charges into loan).

2. (2)

   The records in (1) must be retained for a minimum of three years from the date on which the advice was given or, in the case of (1)(d), the making of the choice.