This chapter applies to a firm in a category listed in column (1) of the table in MCOB 8.1.2 R in accordance with column (2) of that table.

This chapter applies if a firm:

1. (1)

   in the course of carrying on a regulated mortgage activity:

   1. (a)

      makes, or anticipates making, a personal recommendation about; or

   2. (b)

      gives, or anticipates giving, personalised information relating to;

   the customer:

   1. (c)

      entering into a regulated lifetime mortgage contract; or

   2. (d)

      varying the terms of a regulated lifetime mortgage contract entered into by the customer; or

2. (2)

   in addition to (1), gives advice or personalised information to the customer on home reversion schemes.

1. (1)

   MCOB 4.4 (Initial disclosure requirements) (as modified by MCOB 8) applies only in relation to varying the terms of a regulated lifetime mortgage contract entered into by the customer in any of the following ways:

   1. (a)

      adding or removing a party;

   2. (b)

      taking out a further advance; or

   3. (c)

      switching all or part of the regulated lifetime mortgage contract from one interest rate to another.1

2. (2)

   Otherwise, this chapter, MCOB 8, applies in relation to any form of variation of a regulated lifetime mortgage contract.

1. (1)

   MCOB 4.1 to MCOB 4.6 and MCOB 4.8 (with the modifications stated in MCOB 8.3.3 R and MCOB 8.3.4 R) apply to a firm where the regulated mortgage contract is a regulated lifetime mortgage contract.

2. (2)

   The table in MCOB 8.3.3 R shows how the relevant rules and guidance in MCOB 4 must be modified by replacing the cross-references in that chapter with the relevant cross-references to rules and guidance in MCOB 8.

3. (3)

   The table in MCOB 8.3.4 R replaces certain rules and guidance in MCOB 4 with rules and guidance from MCOB 8.

In applying MCOB 4.3 to regulated lifetime mortgage contracts, references to the 'whole market' must be read as references to the whole market for regulated lifetime mortgage contracts.

If a firm gives, or anticipates giving, advice or personalised information on home reversion schemes in addition to regulated lifetime mortgage contracts, the initial disclosure information in MCOB 4.4.1 R and MCOB 4.4.7 R must be provided in respect of the home reversion schemes, as well as the regulated lifetime mortgage contracts, using the text set out in MCOB 8 Annex 1R and MCOB 8 Annex 2R.

A firm must take reasonable steps to ensure that it does not make a personal recommendation to a customer to enter into a regulated lifetime mortgage contract, or to vary an existing regulated lifetime mortgage contract, unless the regulated lifetime mortgage contract is, or after the variation will be, suitable for that customer (see MCOB 4.3.4 R(2), MCOB 4.3.5 G and MCOB 4.3.6 G).

In MCOB 8.5, a reference to a recommendation to enter into a regulated lifetime mortgage contract is to be read as including a reference to a recommendation to vary an existing regulated lifetime mortgage contract if the context so requires.

For the purposes of MCOB 8.5.2 R:

1. (1)

   a regulated lifetime mortgage contract will be suitable if, having regard to the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware, the firm has reasonable grounds to conclude that:

   1. (a)

      the benefits to the customer outweigh any adverse effect on:

      1. (i)

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

      2. (ii)

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

   2. (b)

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

      1. (i)

         a home reversion scheme; or

      2. (ii)

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

      are less suitable;

   3. (c)

      where the regulated lifetime mortgage contract requires that payments are made to the mortgage lender (for example an interest-only mortgage), the customer can afford to enter into the regulated lifetime mortgage contract;

   4. (d)

      the regulated lifetime mortgage contract is appropriate to the needs, objectives and circumstances of the customer; and

   5. (e)

      the regulated lifetime mortgage contract is the most suitable of those that the firm has available to it within the scope of the service provided to the customer;

2. (2)

   no recommendation must be made if there is no regulated lifetime mortgage contract from within the scope of the service provided to the customer which is appropriate to his needs and circumstances; and

3. (3)

   if a firm is dealing with an existing customer in arrears and has concluded that there is no suitable regulated lifetime mortgage contract for the purposes of MCOB 8.5.2 R, the firm must nonetheless have regard to MCOB 13.3.2 E(1)(a), (e) and (f) (see also MCOB 13.3.4 G(1)(a) and (b)).

In determining whether MCOB 8.5.4 R(1)(a) applies, 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, Inland Revenue 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 in accordance with MCOB 8.5.5 R or MCOB 8.5.6 E(1); or

2. (2)

   rejects the conclusion of a firm under MCOB 8.5.4 R(1)(b) that alternative methods of raising the required funds are more suitable;

a firm can make a personal recommendation (in accordance with the remaining requirements of MCOB 8.5) where there isa regulated lifetime mortgage contract (or more than one regulated lifetime mortgage contract) 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 personal recommendation has been made.

In determining whether MCOB 8.5.4 R(1)(b)(i) applies, and in relation to MCOB 8.5.4 R(1)(d), a firm must consider:

1. (1)

   whether the customer's requirements meet the eligibility criteria for the regulated lifetime mortgage contract (for example, the amount that the customer wishes to borrow, or the loan-to-value ratio) or a home reversion scheme;

2. (2)

   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);

3. (3)

   the customer's health and life expectancy;

4. (4)

   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);

5. (5)

   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; and

6. (6)

   whether the customer has a preference or need for any other features of a regulated lifetime mortgage contract or a home reversion scheme.

In relation to MCOB 8.5.4 R(1)(c), a firm must explain to the customer that the assessment of whether he can afford to enter into a regulated lifetime mortgage contract is based on:

1. (1)

   current interest rates, which might rise in the future; and

2. (2)

   the customer's current circumstances, which might change in the future.

In relation to MCOB 8.5.4 R(1)(c) and (d), where a firm makes a personal recommendation to a customer to enter intoa regulated lifetime mortgage contract where a main purpose is to consolidate existing debts, it must also take account of the following, where relevant, in assessing whether the regulated lifetime mortgage contract 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 take out a regulated lifetime mortgage contract.

1. (1)

   If a customer has:

   1. (a)

      rejected all of the personal recommendations made by a firm and requested information instead on a regulated lifetime mortgage contract that the firm does not consider suitable (and therefore could not recommend to the customer in accordance with MCOB 8.5.2 R); and

   2. (b)

      been issued with a new initial disclosure document in accordance with MCOB 4.4.1 R or MCOB 4.4.7 R (as modified by MCOB 8);

   the firm may be able to provide information on that regulated lifetime mortgage contract in the light of the information on which the personal recommendations in (1) were made.

2. (2)

   If the firm needs to ask further questions regarding the needs and circumstances of the customer to be able to provide information on that regulated lifetime mortgage contract, the firm must obtain that information by asking scripted questions (in accordance with MCOB 4.8.1 R and MCOB 8.6).

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, that it has obtained for the purposes of MCOB 8.5; and

   2. (b)

      that explains why the firm has concluded that any personal recommendation given in accordance with MCOB 8.5.2 R satisfies the suitability requirements in MCOB 8.5.4 R(1). This explanation must include, where this is the case, the reasons why a personal recommendation has been on a basis other than that described in MCOB 8.5.17 E(1).

2. (2)

   The record in (1) must be retained for a minimum of three years from the date on which the personal recommendation was made.

In relation to MCOB 4.8.1 R the questions used to help a customer select a regulated lifetime mortgage contract must cover the following:

1. (1)

   the matters set out in MCOB 8.5.8 R;

2. (2)

   whether the customer has considered alternative methods of raising the required funds, and in particular;

   1. (a)

      a home reversion scheme; and

   2. (b)

      where relevant, grant assistance from his local authority (or other provider); and

3. (3)

   whether the customer has established whether either his entitlement to means-tested benefits or his tax position or both will be adversely affected.

This annex belongs to MCOB 4.4.1 R (as modified by MCOB 8 ) and MCOB 8.4.1 R.

This annex consists only of one or more forms. Forms are to be found through the following address:

Initial Disclosure Document - mcob8_annex1.pdf