Financial promotions include but are not limited to advertisements. They are invitations or inducements to engage in an investment activity (which includes mortgages). They can be solicited or unsolicited and can take various forms, such as mailshots and newspaper or TV advertisements. The financial promotion rules relating to mortgages (which we call 'qualifying credit promotions') are in Chapter 3 of MCOB (MCOB 3).

Financial promotions are prohibited unless they are communicated by an authorised person or an authorised person has approved the content of the promotion or an exemption applies.

The exemptions for qualifying credit promotions are set out in MCOB 3.2.4 R to MCOB 3.2.7 R. For example, promotions are exempt from the content rules where they contain only a limited amount of information. The rules do not apply to advertisements that contain only a company (or trading) name, a logo, a contact point (address or telephone number) and a brief factual statement of your main occupation.

A real time qualifying credit promotion is any promotion made during a personal visit, telephone call or other interactive dialogue. It does not include e-mail.

A non-real time qualifying credit promotion is simply one that is not a real time promotion. This includes letters, faxes, leaflets, newspaper advertisements, TV and radio commercials.

All qualifying credit promotions must be clear, fair and not misleading (see paragraph 2.1.9).

All non-real time qualifying credit promotions must contain the company (or trading) name and an address or contact point such as a telephone number at which the full address is available. You do not need to name us as your regulator, but if you do, and the qualifying credit promotion contains references to matters that we do not regulate, then you must make it clear what we do not regulate.

Rules covering the content of real time qualifying credit promotions are in MCOB 3.8. You must make clear the purpose of your call or visit, and there are detailed requirements covering when you should terminate the call and preventing you from calling at an unsocial hour.

You must be able to show that you have taken reasonable steps to ensure the qualifying credit promotion is clear, fair and not misleading. MCOB 3.6.4 E sets out how you can comply with this rule. Key points include:

1. (1)

   you should not leave out anything, where the exclusion will make the promotion unclear, unfair or misleading;

2. (2)

   you should ensure that when describing a feature of a product you give no less prominence to any disadvantage associated with it;

3. (3)

   you should ensure the accuracy of statements can be substantiated and the facts on which you make any comparison are verified or relevant assumptions prominently disclosed; and

4. (4)

   the design of the promotion should not diminish or obscure the significance of prescribed statements.

Other content requirements apply in specific circumstances depending on the nature of the promotion you publish.

1. (1)

   Comparisons (MCOB 3.6.3 R) must objectively compare one or more verifiable and representative features of the qualifying credit, which can include price.

2. (2)

   Restrictions on using certain expressions (MCOB 3.6.8 R) - for example, 'overdraft' is only allowed to describe an agreement for running-account credit that allows the consumer to overdraw on a current account. You must use the terms 'early repayment charge' and 'higher lending charge' and not use any other expression to describe such charges (MCOB 3.6.9 R).

3. (3)

   Tied products (MCOB 3.6.11 R) - if any qualifying credit is conditional on the consumer buying one or more other product from a specific firm, you must prominently state this in the promotion.

4. (4)

   Risk statements (MCOB 3.6.13 R) - unless the promotion is a transient advertisement (e.g. on TV or radio) you must include certain risk statements for given circumstances.

5. (5)

   APR (MCOB 3.6.17 R) - you must calculate the APR in line with MCOB 10 and must include it in any promotion which includes price information about the mortgage. You must also use it where the promotion refers to the availability of credit for consumers who might consider their access to credit is restricted.

   A specific warning must be used where the promotion is for a product where its price varies according to the specific circumstances of the borrower (MCOB 3.6.25 R).

   If the APR can vary (for example because of the circumstances of the borrower), then you must include an APR that is representative of business expected to arise from the promotion (MCOB 3.6.22 R to MCOB 3.6.24 G). This means that at least 66% of consumers responding to the promotion and entering a qualifying credit agreement as a result must be charged an APR at or below the stated APR.

6. (6)

   Multi-rate advertising (MCOB 3.6.26 R) -where you advertise qualifying credit which, for example, has a special offer rate applying to it for a short time, the promotion must contain equally clear and prominent descriptions of all the rates that will apply and indicate the period for which each rate is applicable.

7. (7)

   Fees for advice or arranging (MCOB 3.6.27 R) -if you publish a promotion for mortgage advice or arranging and you charge a fee for these services, then you must disclose the fee charged. If you do not know this, then you must include a representative fee based on the business you expect to arise from the promotion.

The rules ban unsolicited real time qualifying credit promotions (cold calling), except in limited circumstances (MCOB 3.7.3 R). To be solicited, a qualifying credit promotion must only occur following an express request from the consumer, or be initiated by the consumer (MCOB 3.7.1 R (2)). This will mean that if you get leads from, for example, third-party marketing companies, you will need to ensure the consumer has expressly requested a call from you.

If you have an established existing customer relationship with a consumer you may make unsolicited real time qualifying credit promotions, if the consumer expects to receive such promotions (MCOB 3.7.3 R and MCOB 3.7.4 G).

We have published a series of FAQs that cover this issue in more detail. These are on our website at: www.fsa.gov.uk/mgi/faqs_conduct.html#finproms

Before you communicate or approve a qualifying credit promotion, you must confirm it complies with the rules in MCOB 3. You must ensure this exercise is carried out by someone with appropriate expertise to do so (MCOB 3.9.1 R).

If at any time after you have approved or communicated a qualifying credit promotion, you become aware that it no longer complies with these rules, you must ensure the promotion is withdrawn as soon as practicable (MCOB 3.9.3 R). This will include stopping communication, withdrawing compliance and telling anyone who you know is relying on the communication.

This section of the Guide sets out the advising and selling rules in chapter 4 of MCOB (MCOB 4). These rules apply generally to mortgage intermediaries. There are separate obligations depending on whether you give mortgage advice or not.

When advising on or selling mortgages you must take reasonable steps to ensure the service you offer (MCOB 4.3.1 R) is based on:

1. (1)

   whole of market;

2. (2)

   a limited number of lenders; or

3. (3)

   a single lender.

If you offer a whole of market service, you must consider a sufficiently large number of mortgages generally available from the market. This consideration needs to be informed by adequate knowledge of the current mortgage market (MCOB 4.3.4 R). You can use a panel of representative firms to provide a whole of market service (MCOB 4.3.6 G (2)).

If you wish to describe yourself as 'independent' you must intend to:

1. (1)

   offer a whole of market service; and

2. (2)

   give the consumer the option of paying a fee that will be the only remuneration you receive for the service (MCOB 4.3.7 R). If the consumer exercises this option, you will have to pay them any commission you receive on the mortgage sale.

If you sell both mortgages and investments, you can choose to be 'independent' for mortgages but not for investments (or vice versa). However, you will need to take care to ensure that consumers correctly understand the scope of the service you are providing (MCOB 4.3.8 G (2)). Remember, all your communications with consumers must be clear, fair and not misleading.

When you anticipate giving a consumer advice or personalised information about a mortgage, you must give them an initial disclosure document or IDD (MCOB 4.4.1 R). The IDD explains to the consumer:

1. (1)

   how to use the disclosure;

2. (2)

   the scope of service you offer. If you base your service on a limited number of lenders you must tell the consumer that he can ask for a list (MCOB 4.4.6 R);

3. (3)

   the service that you will provide;

4. (4)

   what he will have to pay for your service;

5. (5)

   whether any fees are refundable;

6. (6)

   your regulated status;

7. (7)

   your contact point if he has a complaint; and

8. (8)

   that you are covered by the Financial Services Compensation Scheme and the level of protection provided.

If dealing with a consumer on the telephone, you must tell them certain pieces of this information (MCOB 4.4.7 R (1)(a) - MCOB 4.4.7 R (1)(d)). After the call, provided that you think the consumer is still eligible for the mortgages you offer and you have his contact details, you must then send him an IDD within five working days (MCOB 4.4.7 R (2)).

The initial disclosure document will promote consumer understanding about the services on offer. You must give an IDD out as early as you can within a mortgage discussion. However, you do not have to give out the IDD when the consumer is simply booking a mortgage appointment (MCOB 4.4.3 G (2)).

Where you are also advising on or selling general insurance or investments, you can instead give out a combined initial disclosure document. This means you can describe the service you are providing on all these products in one place (MCOB 4.4.1 R (1)(c)(ii)).

The rules on advised sales are in MCOB 4.7 (Suitability). These rules apply when you make a "personal recommendation" (this term has a special meaning - see Appendix A for further details) to a consumer to buy or sell a regulated mortgage contract.

A personal recommendation has three elements:

1. (1)

   you must give advice relating to the merits of the borrower entering into, or varying the terms of, a regulated mortgage contract;

2. (2)

   the advice must relate to a specific mortgage e.g. "I recommend ABC Building Society's 2 year fixed rate mortgage at 4.6%"; and

3. (3)

   the advice must be to a specific person in his capacity as borrower or potential borrower.

There is guidance on the regulated activity of 'advising on regulated mortgage contracts' in the guidance in the Authorisation manual (AUTH App 4.6).

Where you give advice, you must not recommend a mortgage (or a variation to an existing mortgage) unless it is suitable for the consumer (MCOB 4.7.2 R). (The table in paragraph 2.2.14 explains the suitable advice rules.) Your assessment of suitability (MCOB 4.7.4 R) must address the following questions:

1. (1)

   can the consumer afford a mortgage? If the answer is no, you must not recommend a mortgage;

2. (2)

   what mortgages are appropriate to the consumer's needs and circumstances? If you do not have access to an appropriate type of mortgage you must not recommend a mortgage; and

3. (3)

   of the appropriate mortgages available through you, which is the most suitable?

The suitable advice rules:

When deciding if a mortgage is affordable, you must explain that you are basing your assessment on:

1. (1)

   current rates, which may rise in the future; and

2. (2)

   the consumer's current circumstances, which may change (MCOB 4.7.5 R).

You can generally base your assessment of affordability on information from the consumer, unless you have reason to doubt it (MCOB 4.7.8 G).

Where one of the major purposes of the mortgage is to consolidate existing debts, you must also consider the following in assessing suitability:

1. (1)

   the costs associated with extending the period for repaying existing debts;

2. (2)

   if it is appropriate to secure any existing unsecured debt; and

3. (3)

   whether it would be better for a consumer already in payment difficulties to negotiate an arrangement with their existing creditors (MCOB 4.7.6 R).

There are a range of factors you should consider when assessing if a mortgage is appropriate to the consumer's needs and circumstances (MCOB 4.7.11 E). These include the consumer's preference or need for:

1. (1)

   payment stability, especially having regard to the impact of future interest rate changes;

2. (2)

   reduced payments at the outset; and

3. (3)

   product features such as payment holidays, cashbacks etc.

To identify the most suitable of the appropriate mortgages you have available, you can use 'price' as a basis. In this case, 'price' means the least expensive mortgage based on those elements of price the consumer told you were most important (MCOB 4.7.13 E). Depending on what the consumer told you, this could be, for example, the overall cost, the lowest cost over a given period or the absence of early repayment charges.

You can recommend a mortgage on a basis other than 'price', for example because another lender has a more flexible underwriting approach (MCOB 4.7.14 G (2)). If you do this, you still need to have reasonable grounds to conclude that the mortgage is the most suitable of those that you offer.

Where you give advice you must keep, for three years, a record:

1. (1)

   of the information you gained from the consumer, including that relating to their needs and circumstances; and

2. (2)

   that explains why any recommendation given is suitable for the consumer, including (if this is the case) the reasons you used a criterion other than 'price' to identify the mortgage recommended (MCOB 4.7.17 R).

Where you do not give advice but instead give information only, any questions you ask about the consumer's needs and circumstances must be scripted (MCOB 4.8.1 R).

Any person using scripted questions in a non-advised sale must be:

1. (1)

   trained in using the script;

2. (2)

   trained in the difference between giving advice and giving information; and

3. (3)

   aware that advice must not given - unless that person is appropriately trained and competent (MCOB 4.8.3 R).

If you have staff that are not competent to give advice on mortgages and they use scripted questions in non-advised sales, they should be appropriately supervised. This is to ensure that they stick to the script when asking questions about the consumer's needs and circumstances and do not give advice (MCOB 4.8.4 R).

You must keep a record of the scripted questions you are using. The scripted questions must be clear, fair and not misleading (MCOB 4.8.5 G (1)). When you change the script you must make a record, and keep a record of the previous script for one year (MCOB 4.8.7 R).

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.

This section of the Guide sets out the offer stage disclosure rules in chapter 6 of MCOB (MCOB 6). These rules set out our requirements for mortgage offers. Although MCOB 6 only applies to lenders, they may need to ask you to give them information to help them prepare the offer. For example, they may ask you to confirm the level of service you provided and details of any fees you may have charged.

A lender must provide an offer document which complies with the rules in MCOB 6 when making an offer to a consumer for a new mortgage or for the following variations to a mortgage: further advances; adding or removing a party to the mortgage (transfers of equity); and product switches (transferring all or part of the mortgage to a new rate).

The offer document must include an updated and suitably-adapted KFI as an integral part of the offer rather than a separate document (MCOB 6.4.9 R). MCOB 6.4.7 R allows a lender to include greater detail within the specified sections of the KFI than allowed by MCOB 5. Lenders may also add extra information at the beginning and at the end of the offer document.

This section of the Guide sets out the after sale disclosure rules in chapter 7 of MCOB (MCOB 7). These rules apply mainly to mortgage lenders and require them to give out certain information after the mortgage is taken out (such as disclosure at the start of the contract and annual statements). However, the rules on further advances and other post-sale changes to mortgage contracts also apply to mortgage intermediaries where they arrange or give advice on such changes.

Where you arrange or give advice on a further advance that the lender must approve, you must give the consumer a KFI before he applies for the further advance, unless one has already been provided or the further advance is for a business purpose (MCOB 7.6.7 R). This KFI must be in the format required by MCOB 5 and be based on the amount of the further advance only. The rules require you to make some changes to the KFI to reflect its use for a further advance. In preparing a KFI for a further advance, you may generally rely on information given by the consumer (such as the amount of his existing mortgage) unless you have reason to doubt it (MCOB 7.6.11 G).

Where you arrange or give advice to a consumer to change all or part of their mortgage from one interest rate to another (such as a transfer from a variable rate to a fixed rate mortgage) you must give the consumer a KFI for the amount of the whole loan before he applies for the new mortgage, unless a KFI has already been provided (MCOB 7.6.18 R). The KFI must be in the format required by MCOB 5, with appropriate changes.

Where you arrange or give advice to a consumer to add or remove a party to a mortgage (for example, to remove one partner from the mortgage in the event of divorce) you must give the consumer a KFI before he applies for the revised mortgage (MCOB 7.6.22 R). The KFI must be in the format required by MCOB 5, with appropriate changes.

Where a consumer requests a product switch and the additional or removal of a party to the mortgage at the same time, you can give the consumer a single KFI covering both changes (MCOB 7.6.33 G).

This section of the Guide explains the advising and selling rules for lifetime mortgages in chapter 8 of MCOB (MCOB 8). These rules apply to mortgage intermediaries selling such mortgages. There are separate requirements depending on whether you give advice or not.

Some rules are the same as those that apply to standard mortgages. They cover the scope of service (including whole of market requirements) and independence.

However, we have treated the lifetime mortgage market as a separate mortgage market. So when we refer to the whole market in MCOB 8, we mean the whole market for lifetime mortgages (MCOB 8.3.2 R).

The rules relating to standard mortgages also apply here, but with two differences. Firstly, the IDD is tailored to reflect the particular features of lifetime mortgages. It also includes a warning to consumers to take advice if they are at all unsure about which lifetime mortgage or home reversion scheme is right for them. Secondly, if you sell home reversion schemes as well as lifetime mortgages, you must disclose this on the IDD (MCOB 8.4.1 R).

You must meet our training and competence requirements if you advise on lifetime mortgages (see Chapter 3 of this Part).

You must take reasonable steps to ensure that you do not recommend that a consumer takes out a lifetime mortgage, or varies an existing lifetime mortgage, unless it is suitable for that consumer (MCOB 8.5.2 R). When you are assessing suitability, there are several factors you need to consider. We have explained these in the form of a diagram at Appendix B.

If you also sell home reversion schemes and, as a result of your suitability assessment you recommend a home reversion scheme to the consumer, this does not constitute regulated advice.

Some staff involved in non-advised sales must meet our training and competence requirements (see Chapter 3 of this Part).

The rules relating to standard mortgages apply here, but with some additions. The scripted questions must cover the following subjects:

1. (1)

   whether the consumer is eligible for the lifetime mortgage;

2. (2)

   the consumer's preferences for his estate;

3. (3)

   the consumer's health and life expectancy;

4. (4)

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

5. (5)

   whether the consumer has a preference or need for stability in the amount of payments (where payments are required);

6. (6)

   whether the consumer has a preference or need for any other features of a lifetime mortgage or a home reversion scheme;

7. (7)

   whether the consumer has considered alternative methods of raising the required funds, and in particular a home reversion scheme or where relevant, a grant; and

8. (8)

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

In non-advised sales you should encourage the consumer to seek advice if he is unsure about making his own choice. For grants, benefits and tax issues, you should, where relevant, encourage the consumer to seek further information from an appropriate source such as his local authority or Citizens Advice Bureau (or other similar agency).

This section of the Guide explains the rules that apply to product disclosure for lifetime mortgages in chapter 9 of MCOB (MCOB 9). These rules apply to firms who sell lifetime mortgages.

You must give consumers personalised product information in the form of a KFI early in the sales process.

Because some areas of the MCOB 9 rules are very similar to those for standard mortgages in MCOB 5, we have included tables at MCOB 9.3.2 R to MCOB 9.3.4 R to show how the standard mortgage rules should be amended for lifetime mortgages.

The lifetime mortgage KFI is different from the standard version to reflect the different risks and characteristics of lifetime mortgage products. For example, there is a general explanation of lifetime mortgages, sections setting out benefits and risks and a projection of the increase in debt where interest rolls up.

The rules about the content of the lifetime mortgage KFI are in MCOB 9.4. You will need to read them in detail if you are creating your own KFI, but you should be familiar with them even if you are using KFIs provided by lenders or a sourcing system. You should make sure you are comfortable that a KFI is an accurate reflection of the lifetime mortgage product you are advising or giving information on. You must also explain to the consumer the importance of reading and understanding the KFI.

The post sale requirements are broadly the same as for standard mortgages, but some of the individual rules have been amended to allow for the particular characteristics of lifetime mortgages. For example, the rules on further advances include details of how we expect you to deal with the estimated term of the lifetime mortgage.

This section of the Guide explains the rules in chapter 10 of MCOB (MCOB 10) that set out how to calculate the APR. There are several occasions when you might need to state an APR, including in financial promotions and KFIs. The rules outline which costs are (and are not) included in the APR. These rules are very similar to the Consumer Credit (Total Charge for Credit) Regulations 1980. We have made minor changes, for example, to ensure consistency of wording with our other rules.

If you produce any material where MCOB requires you to state the APR, then you must calculate it in line with these rules.

Any charge that the consumer must pay to obtain credit must go into the APR calculation. The APR is therefore an indication of the true cost of the credit, taking into account all fees and charges as well as interest.

This includes all fees and charges payable to the lender or any third party. It will also include any fee you charge for advising on or arranging a mortgage.

You also include the cost of any tied products that the consumer must take out. For example, if you require a consumer to take buildings insurance as a condition of arranging a mortgage, the premium must go into the calculation.

Some fees and charges are excluded from the calculation (MCOB 10.4.4 R) including money transmission charges and non-tied buildings and contents insurance.

The rules set out the assumptions you must use to calculate the APR. For example, you must not include a fee that you add to the loan as part of the credit. There are also rules about how you should calculate an APR for a further advance and what assumptions you must make about interest rates at the end of a special offer period.

This section of the Guide explains the rules on responsible lending in chapter 11 of MCOB (MCOB 11). These rules oblige lenders to lend responsibly. They do not apply to mortgage intermediaries. However, you will find it useful to understand the rules because:

1. (1)

   a lender may seek information from you to help it make a responsible lending decision; and

2. (2)

   they supplement the need for you to consider the affordability of the mortgage for the consumer when giving advice.

When making a mortgage offer, or agreeing a further advance, a lender must be able to show that it took account of the consumer's ability to repay (MCOB 11.3.1 R). This rule reflects the Principle 6 requirement to pay due regard to the interests of consumers, and to treat them fairly (see section 3.2 of Part I).

The rules do not prescribe the steps a lender must take when assessing ability to repay. We recognise that sometimes a lender may rely on self-certification by the consumer. However, the lender will have to decide in what circumstances this is appropriate. In doing this, the lender will need to consider both the interests of the consumer and the reliance they can place on the information provided (MCOB 11.3.2 R).

The rules assume, unless there is evidence to the contrary, that regular mortgage payments will come from income. So, knowledge of income is generally expected to underpin the responsible lending decision (MCOB 11.3.5 G). Similarly, the lender will need to consider ability to repay from means other than income, where the consumer has said this is the case (MCOB 11.3.7 G).

A lender may choose to draw on many sources for information on which to base a responsible lending decision. You may well be one of these, especially where the consumer is acting on a recommendation you made. This is because you will have considered affordability when recommending a mortgage.

This section of the Guide explains the rules on charges in chapter 12 of MCOB (MCOB 12). The rules on excessive charges in this chapter apply to mortgage intermediaries. There are also rules in MCOB 12 on early repayment charges and arrears charges, but these only apply to mortgage lenders.

The charges that you make to a consumer when advising on or arranging a mortgage must not be excessive (MCOB 12.5.2 R).

1. (1)

   In determining whether a charge is excessive, you should consider:

2. (2)

   the amount of the charge for the service compared to charges for similar services available elsewhere;

3. (3)

   the degree to which the charges are an abuse of the trust the consumer has placed in you; and

4. (4)

   the nature and extent of the disclosure of the charges to the consumer.

This section of the Guide explains the rules on arrears and repossessions in chapter 13 of MCOB (MCOB 13). These rules apply to mortgage lenders and mortgage administrators, but if you undertake any debt collection work the chapter may apply to you.

The rules require firms to deal fairly with consumers in arrears, facing repossession or who have a shortfall debt after the sale of a property, for example, after it has been repossessed. The firm must operate in line with a written arrears policy which must be agreed by its governing body The rules set out what we consider to be fair treatment of consumers in these circumstances.

The rules require firms to give borrowers information about the state of their mortgage as soon as possible (and no later than 15 business days) after they first go into arrears. The term 'arrears' has a special meaning in the rules (see Appendix A). This means that there are trigger points for when the firm must provide the information.

The firm must also send the borrower a statement at least once a quarter where the payment shortfall is attracting charges. This includes when the arrears are attracting interest at a different rate to the main mortgage.