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.

1. (1)

   This chapter applies to a firm4 in the course of carrying on an equity release activity:4

   4
   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 an equity release transaction4; or

      4
   2. (d)

      varying the terms of an equity release transaction4 entered into by the customer.4

      4
2. (2)

   In respect of arranging or advising on a home reversion plan for a customer who is acting in his capacity as an unauthorised reversion provider, only MCOB 8.1, MCOB 8.2 and MCOB 8.7 apply.4

   4

1. (1)

   Initial disclosure requirements apply4 only in relation to varying the terms of an equity release transaction4 entered into by the customer in any of the following ways:

   44
   1. (a)

      adding or removing a party;

   2. (b)

      taking out a further advance; or

   3. (c)

      switching all or part of the lifetime mortgage3 from one interest rate to another.1

      3
2. (2)

   Otherwise, this chapter applies in relation to any form of variation of an equity release transaction.4

   44

1. (1) 3
   1. (a) 3

      Subject to (c),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 home finance transaction is a lifetime mortgage.3

      3
   2. (b)

      MCOB 4.1 to MCOB 4.4 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 home finance transaction is a home reversion plan, except for those provisions that by their nature are only relevant to regulated mortgage contracts.3

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.

4. (4) 3

   The terms that by their nature are relevant only to regulated mortgage contracts must be replaced with the appropriate equivalent terms and expressions for home reversion plans.

In applying initial disclosure requirements to equity release transactions, the market for equity release transactions should be treated as one single market with two separate sectors. References3 to the 'whole market' must be read as references to the whole market for equity release transactions. This is unless the firm only gives personalised information or advice to customers on products in one market sector, in which case references to the 'whole market' must be read as references to the whole market for lifetime mortgages or home reversion plans as the case may be.

A firm must take reasonable steps to ensure that it does not make a personal recommendation to a customer to enter into an equity release transaction3, or to vary an existing equity release transaction, unless it3 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 3this section3, a reference to a recommendation to enter into an equity release transaction is to be read as including a reference to a recommendation to vary an existing equity release transaction3 if the context so requires.

1. (1)

   An equity release transaction3 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:

   3
   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)

         an equity release transaction from the other market sector; or3

         3
      2. (ii)

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

      are less suitable;

   3. (c)

      where the equity release transaction3requires that payments are made to the equity release provider3(for example an interest-only mortgage), the customer can afford to enter into the transaction;3

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   4. (d)

      the equity release transaction3is appropriate to the needs, objectives and circumstances of the customer; and

      3
   5. (e)

      the equity release transaction3is the most suitable of those that the firm has available to it within the scope of the service provided to the customer;

      3
2. (2)

   No3 recommendation must be made if there is no equity release transaction3from within the scope of the service provided to the customer which is appropriate to his needs and circumstances; and

   33
3. (3)

   If3 a firm is dealing with an existing customer in arrears and has concluded that there is no suitable lifetime mortgage2 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)).

   32

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, HM Revenue and Customs 1or 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) grants3; or

   3
2. (2)

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

   3

a firm can make a personal recommendation (in accordance with the remaining requirements of 3this chapter3) where there isan equity release transaction3 (or more than one equity release transaction3) 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 an equity release transaction from the other market sector is less suitable, and the appropriateness of the transaction to the customer's needs, objectives and circumstances3, a firm must consider:

1. (1)

   whether the customer's requirements meet the eligibility criteria for the equity release transaction3(for example, the amount that the customer wishes to borrow or to release,3 the loan-to-value ratio, the age of the customer, the value of the property, as appropriate);3

   333
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 an equity release transaction.3

   3

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 lifetime mortgage2 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 whether the equity release transaction is affordable and appropriate to the customer's needs, objectives and circumstances3, where a firm makes a personal recommendation to a customer to enter intoan equity release transaction3 where a main purpose is to consolidate existing debts, it must also take account of the following, where relevant, in assessing whether the equity release transaction3is 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.3

   3

1. (1)

   If a customer has:

   1. (a)

      rejected all of the personal recommendations made by a firm and requested information instead on an equity release transaction3 that the firm does not consider suitable (and therefore could not recommend to the customer); and

      33
   2. (b)

      been issued with a new initial disclosure document or combined initial disclosure document;3

      3

   the firm may be able to provide information on that equity release transaction3 in the light of the information on which the personal recommendations in (1) were made.

   3
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 equity release transaction3, the firm must obtain that information by asking scripted questions (in accordance with the rules on non-advised sales3).

   33

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.

The1 questions used to help a customer select an equity release transaction1 must cover the following:

1. (1)

   the matters regarding eligibility criteria, customer's preferences for his estate, customer's health and life expectancy, customer's future plans and needs, customer's preference or need for stability in the amount of payments, and whether the customer has a preference or need for any other features, 1set 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)

      an equity release transaction from the other market sector1; and

      1
   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.

1A firm must ensure that, on first making contact with a customer who is an individual and an unauthorised reversion provider, when it anticipates giving personalised information or advice on a home reversion plan, it must provide the customer with the following warnings in a durable medium:

1. (1)

   that a home reversion plan is a long-term investment; and

2. (2)

   that a home reversion plan is a complex legal arrangement, and that expert independent legal advice should be obtained before entering into any agreement.

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

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

Initial Disclosure Document MCOB 8 Annex 1