MOGI 2.3 Pre-sale disclosure (MCOB 5)

This section of the Guide sets out the pre-sale information rules in chapter 5 of MCOB (MCOB 5). These rules set out our product information requirements for standard mortgages. They require all firms to give a consumer product information in a set format, called a key facts illustration (KFI), at specific stages of the mortgage sales process. The term "illustration" has a special meaning in the rules - see Appendix A.

You must give consumers personalised product information, in the form of a KFI, at an early stage in the buying process. It enables consumers to compare different products easily and so helps them to shop around. It also ensures they receive the information they need to help them decide whether to apply for a particular mortgage.

The rules about the content of the KFI are in MCOB 5.6. You only need to read these in detail if you are creating your own KFI. You should, however, ensure that you are familiar with the content of the KFI even if a lender or a mortgage sourcing system produces the KFI for you. You should reassure yourself that it accurately reflects the terms and conditions of the product you are recommending or providing information about in a way that is clear, fair and not misleading.

You must also explain to a consumer the importance of reading and understanding the KFI (MCOB 5.4.10 R). Typically in a face-to-face meeting you will use the KFI to explain the features of a mortgage, prompting a consumer to ask questions.

You must provide a consumer with a KFI in certain circumstances (MCOB 5.5.1 R):

1. (1)

   when you recommend a particular mortgage to a consumer;

2. (2)

   when you provide written information that is specific to the amount the consumer wants to borrow on a particular mortgage;

3. (3)

   without unnecessary delay, if a consumer requests written information that is specific to the amount they wish to borrow on a particular mortgage; or

4. (4)

   before the consumer applies for a particular mortgage.

A consumer must always have the opportunity to consider the terms and conditions of a mortgage in the form of a KFI before committing themselves to an application (MCOB 5.5.4 R). You cannot take fees from a consumer or submit a formal application for a mortgage to a lender before you give the consumer a KFI for that particular mortgage. If you provide a KFI and there are any material changes to the mortgage before the consumer makes an application, you must give him a new KFI (MCOB 5.5.8 R) before submitting the application.

If you obtain a KFI for a consumer from a lender, that firm is responsible for its accuracy. Otherwise you are responsible. A tolerance of 1% or £1 (whichever is the greater) applies to some figures on the KFI where you do not get them directly from the lender (MCOB 5.4.3 R). You can rely on a third party, such as a mortgage sourcing system provider, to provide you with KFIs that meet this tolerance, and still comply with the rules on accuracy. However, this is only as long as you can show that it was reasonable for you to rely on information provided to you by the sourcing system provider (MCOB 2.5).

Written quotation information that you give to a consumer must be in the form of a KFI. However you can:

1. (1)

   provide general product information that is not specific to the amount the consumer wishes to borrow;

2. (2)

   provide verbal quotes, for example on the telephone. Where you do this, you should encourage the consumer to receive a KFI; and

3. (3)

   use a screen to show mortgage cost information to a consumer (although you should not print this for them if it is not in the form of a KFI).

If the consumer uses a 'self-help' electronic medium, such as a website, to get 'quick quote' information, there are extra requirements. We prescribe text that firms offering such a facility must use to tell the consumer of the limitations of the information and encourage them to get a KFI before making a decision (MCOB 5.4.14 R (1)).

You do not need to provide a KFI if, based on discussions with a consumer, he is not eligible, does not wish to continue an enquiry or does not give you enough personal details to enable you to provide one. You must not provide a KFI for a mortgage for which the consumer is clearly ineligible.

An application must be specific to the mortgage product the consumer is applying for, that is, it should identify the type of interest rate, the rate of interest, and the lender at the point it is submitted by the consumer (MCOB 5.3.2 G). If a lender declines an application and you wish to place it with another lender, you must first ensure that you give the consumer a KFI on the new lender's product before submitting the new application.

You can obtain an approval in principle for a consumer before providing them with a KFI if that is what the consumer wants (MCOB 5.5.6 G). Often though, given the KFI triggers described earlier, you will also need to provide a KFI.

You should have a good understanding about the content of a KFI. The following issues are likely to be particularly relevant as they require you to vary the content of the KFI depending on the service you offer.

Section 2 of the KFI requires you to state whether you are recommending the mortgage in the KFI to a consumer or simply providing him with information.

You must disclose any fees that you will charge for advising on or arranging the mortgage in Section 8 of the KFI in the section 'Other fees'. This must state who the fee is payable to, when it is payable and whether it is refundable. The total amount payable and the APR shown in Section 5 of the KFI will need to include this fee.

You may include in the KFI a quotation for an optional repayment vehicle to repay an interest-only mortgage in Section 6 of the KFI or for optional insurance products in Section 9. You can only include a brief description of such products but may refer to a detailed summary, such as a policy summary that complies with ICOB (see Section 3.4 of Part III).

Section 4 must include details of any tied products that you or the lender require as a condition of the mortgage. The KFI will include further details of the product in the relevant section (for example Section 9 - Insurance).

The KFI does not need to include a quotation, however you should give the consumer an accurate quotation about the cost of any tied product before he applies (including products required by the lender). If you do not, then you must provide it as soon as possible afterwards and in good time before the consumer receives a mortgage offer. If you do not provide the consumer with an accurate quotation before he applies then he will have the right, for seven days from the day he receives an accurate quotation, to withdraw his application with a refund of all fees (except those payable for providing advice).

Section 13 of the KFI must include full details of any payments the lender makes to a mortgage intermediary and any third parties. This includes payments made to a network, packager and appointed representative (except appointed representatives of lenders). If you will pass to the consumer all or part of the commission you receive from the lender, the KFI may state this.

A firm need not disclose a fee paid by a lender for pure outsourced arrangements to process applications as long as the mortgage intermediary is not connected to the firm undertaking the outsourced activities (for example, through a network arrangement or through common ownership).

You should not issue a standard KFI when the mortgage is clearly not a regulated mortgage (for example, a buy-to-let mortgage and the tenant is not related to the borrower). If you are unsure about whether a mortgage enquiry is about a regulated mortgage then you should obtain further information to enable you to assess this. Unless you have reasonable evidence that the contract is not regulated, you should provide the consumer with a KFI.