SUP 16 Annex 19B Notes for completion of the Mortgage Lenders & Administrators Return (‘MLAR’)

Introduction:

General notes on the return

Section A:

Balance Sheet

Section B:

Profit & Loss Account

Section C:

Capital

Section D:

Lending: Business Flows & Rates

Section E:

Residential Lending to Individuals: New Business Profile

Section F:

Lending: Arrears Analysis

Section G:

Mortgage Administration: Business profile

Section H:

Mortgage Administration: Arrears analysis

Section J:19

Fee tariff measures

Section K:19

Sale and rent back (SRB agreement) 19 business

Section L:19

Credit risk

Section M:19

Liquidity

A1 and A2: Balance sheet

Applies to all home finance activity firms except:

• A firm that is required to submit a balance sheet by a lower numbered regulated activity group, as described in SUP 16.12.3R(1)(a)(iii)

• An incoming EEA firm (note a)

A3: Analysis of loans to customers

Applies to all home finance activityfirms

19A4: Analysis of second charge loans to customers

Applies to all home finance activity firms in respect of second charge regulated mortgage contracts.

B1: Income statement

Applies to all home finance activity firms except:

• A firm that is required to submit an income statement by a lower numbered regulated activity group, as described in SUP 16.12.3R(1)(a)(iii)

• An incoming EEA firm (note a)

B2: Provisions analysis

Applies to all home finance activityfirms

C: Capital

Applies to all home finance activityfirms except:

• A firm19 that is required to submit a capital adequacy data item by a lower numbered regulated activity group19, as described in SUP 16.12.3R(1)(a)(iii)

• An incoming EEA firm (note a)

• A firm19 which is a solo-consolidated subsidiary of an authorised credit institution19

• A firm which exclusively carries on home finance activities in relation to second charge regulated mortgage contracts, as set out in SUP 16.12.18BR (note 4).

D: Lending: business flows19 and rates

Applies to all firms with permission to undertake a home finance providing activity except:

• SRB agreement providers

• SRB administrators

D(a): Second charge business flows19 and rates

Applies to all home finance providing activity firms in respect of second charge regulated mortgage contracts .

E: Residential lending to individuals: new business profile

Applies to all firms with permission to undertake a home finance providing activity except:

SRB agreement providers

SRB administrators

E1(a) and E2(a): Second charge lending to individuals

Applies to all home finance providing activity firms in respect of second charge regulated mortgage contracts.

F: Lending: Arrears Analysis

Applies to all firms with permission to undertake a home finance providing activity except:

• SRB agreement providers

• SRB administrators

F(a): Second charge lending: Arrears19analysis

Applies to all home finance providing activity firms in respect of second charge regulated mortgage contracts.

G: Mortgage Administration: Business Profile

Applies to all firms with permission to undertake administering a home finance transaction, except:

• SRB administrators

H: Mortgage Administration: Arrears analysis

Applies to all firms with permission to undertake administering a home finance transaction, except:

• SRB administrators

H(a): Second charge mortgage administration: Arrears analysis

Applies to all firms with permission to undertake administering a home finance transaction, in respect of second charge regulated mortgage contracts.

J: Fee tariff measures

Applies to all home finance activity firms

K: Sale and rent back business

Applies to SRB agreement providers and SRB administrators

L: Credit risk

Applies to a firm that meets the conditions of SUP 16.12.18BR19 (notes 2 and 4).

M: Liquidity

Applies to a firm that meets the conditions of SUP 16.12.18BR 19(notes 3 and 4).

Note (a): Credit Institutions passporting under BCD for mortgage lending (which also includes mortgage administration), or other firms passporting under another EU Directive for a non-mortgage activity and holding a top-up permission from the appropriate regulator for mortgage lending and/or mortgage administration. Also includes firms classed as "Treaty firms" under Schedule 4 of the Act. But any other EEA firm type should complete in full all sections of the MLAR described above this table, as it would not be eligible for any reduction in reporting requirements.

Tables A to C, L, M:

provide the framework for the FCA’s19 financial monitoring and prudential supervision of home finance providers and administrators;

Tables D to F:

provide the framework for the provision of qualitative home finance information by home finance providers;19

Tables G, H: 19

provide the framework for the FCA’s19 monitoring of administering a home finance transaction activity;19

Table J: 19

provides information on fee tariff measures for home finance providers and administrators;19

Table K: 19

provides the framework for the FCA’s19 monitoring of SRB agreement providers and SRB administrators.19

A1,

A2

The balance sheet is intended to reflect the practices used in compiling published or other accounts, although its format in the MLAR (with 'total assets' and 'total liabilities') will not necessarily be the same as that used by firms in their regular accounts. ‘Loans to customers’ is expected to be the customer balance after any write-offs have been taken.19

A1.6

Loans to customers may be a non-standard accounting sub-head for some firms whose business is not primarily mortgage related. But since this is an explicit MLAR data requirement, it should be split out from the sub-head under which it is routinely shown in the firm’s other accounts. Include HR and HPP products here.19

A1.11

Other current assets should include all assets measured at fair value not included in any other asset category on the return. Include any SRB assets here.19

A2.1

Shareholders' funds should include any unrealised gains or losses resulting from the fair valuation of available-for-sale financial assets, and any fair value gains or losses arising on cash flow hedges of financial instruments measured at cost or amortised cost.

A2.7

Other liabilities should include all liabilities measured at fair value not included in any other liability category on the return. Include any liabilities incurred in acquiring SRB assets here.19

A3

Analysis of loans to customers

This section recognises that some lenders may have securitised loans on their balance sheet, and hence provides for unsecuritised/securitised loans to be shown separately.

Unsecuritised balances are analysed in terms of three elements: gross loan balances (before deduction of any provisions); provisions balances in respect of those balances; and the net balances after deduction of such provisions.

Securitised balances are analysed in a similar way, except that 'gross' also means before the deduction of any linked non-recourse funding, the amount of which is also to be shown separately.

A3.1-4

See Introduction (paragraphs 4(i) to (iv)) for details of the coverage of these terms.

A3.5

Other loans refers to any lending secured on land and buildings outside of the UK19, any loan for which security is provided other than by land and buildings, together with all unsecured loans (e.g. consumer credit, personal loans, or such loans to corporates). Loans and mortgages secured on land in the EEA other than the UK should be reported here.19

A3.6

It is expected that net balances on unsecuritised loans plus net balances on securitised loans will equal the entry shown at A1.6 in the main balance sheet analysis of assets.

B0

Financial year to date

In terms of reporting period, the analysis should be compiled on a ‘year to date’ basis, covering successively 3, 6, 9 or 12 months19 from the firm’s accounting reference date.

B1

Profit & Loss Account

The P&L section is intended to reflect the practices used in compiling accounts prepared under the Companies Acts, although its format in the MLAR (with explicit focus on financial items such as interest, fees & commissions19 etc) will not necessarily be the same as that used by firms in their regular accounts.

The reason for this approach is that most lenders to which this section is applicable are mortgage specialists, and as such it is considered desirable to put their P&L format onto a similar basis as that used for banks and building societies.

The analysis therefore requires the firm’s profit & loss account to be re-structured in a way that makes a number of items explicit in the interests of achieving consistency with other reporting firms.

B1.1

Focuses on gross profit from non-financial activities 19

B1.2-1.7

Covers a range of income elements which are more closely related to financial activities, including in particular those associated with mortgage lending. In particular B1.7 Other income should include unrealised gains in respect of assets and liabilities which have been measured on a fair value basis.

B1.9-1.13

Covers a range of expenditure elements, including those related to non-financial and also to financial (including mortgage related) activities. In particular B1.13 Other expenses should include unrealised losses in respect of assets and liabilities which have been measured on a fair value basis.

B1.15

Operating Profit is total income less total expenses.

B1.16

Provisions covers write-offs and provisions charges on bad and doubtful debts, (including for example on mortgage loans); any suspended interest (i.e. any interest included in Interest receivable19 which, through loan default, impairment or otherwise, is deemed unlikely to be received); and any other provisions for contingent liabilities.

B2

Provisions analysis

This supplementary analysis draws together the key movements in provisions balances from the firm’s accounting reference date19 up to the reporting quarter end.

The two ‘flow items’, namely write-offs and provisions charges, are those relating to the period from the firm’s accounting reference date19 up to the reporting date.

The total of provisions charges in line B2.6 (column 3)19 will not necessarily be the same as the provisions charge in the Profit & Loss analysis at B1.16 (since this latter item may include further provisions against other asset items not included in B2.6, or provisions arising from other sources).

C1-2

CAPITAL RESOURCES

C1 and C2 set out the individual components of eligible capital and the separate deductions that should be made to arrive at capital resources.

Components of eligible capital are:

(1) Share capital

Share capital must be fully paid (i.e. the firm is under no obligation to repay this capital unless and until the firm is wound up) and may include ordinary share capital or preference share capital (excluding preference shares redeemable by shareholders within two years).

See paragraph (7) Subordinated loans below for details of the limits that may apply to the inclusion of redeemable preference shares in capital resources.

(2) Partnership or sole trader capital

Partnership capital is capital made up of the partners’ capital account. The capital account is an account into which capital contributed by the partners is paid and from which, under the terms of the partnership agreement, an amount representing capital may be withdrawn by a partner only if he or she19 ceases to be a partner and an equal amount is transferred to another such account by his or her 19 former partners or any person replacing him or her 19 as their partner, or the partnership is otherwise dissolved or wound up.

Sole trader capital is the net balance on the firm’s capital account and current account.

(3) Reserves

Reserves are accumulated profits retained by the firm (after deduction of tax, dividends and proprietors’ or partners’ drawings) and other reserves created by appropriations of share premiums and similar realised appropriations. Reserves also include gifts of capital, for example, from a parent company. For partnerships, reserves include partners’ current accounts according to the most recent financial statement. Reserves must be audited unless the firm is eligible to include unaudited reserves in its capital resources calculation under MIPRU 4.4.2R.

The reserves figure is subject to the following adjustments, where appropriate:

(a) any unrealised gains must be deducted or, where applicable, any unrealised losses added back in on cash flow hedges of financial instruments measured at cost or amortised cost;

(b) any unrealised gains must be deducted or, where applicable, any unrealised losses added back in on debt instruments held in the available-for-sale financial assets category. Any unrealised gains or losses on equities held in the available-for-sale financial assets category should be reported at C1.5;

(c) in respect of a defined benefit occupational pension scheme, any defined benefit asset must be derecognised;

A firm may substitute for a defined benefit liability the firm's deficit reduction amount provided that that election is applied consistently in respect of any one financial year19.

(4) Interim net profits and partners’ interim current accounts

A firm is not required to take into account interim net profits. However, if it does, the profits have to be verified by the firm’s external auditors, net of tax, anticipated dividends or proprietors’ drawings and other appropriations unless the firm is eligible to include unverified interim net profits in its capital resources calculation under MIPRU 4.4.2R.

In terms of the verification for inclusion, for the first, second and third financial quarters firms may include interim profits in their MLAR, on the understanding that the firm will obtain the required verification from its external auditors within two months of the financial quarter end. (The FCA19 may ask for a copy of the verification statement.) For the fourth quarter the FCA19 will rely on the forthcoming audited accounts as providing verification and accordingly the full year’s profits should be included in the make-up of eligible capital under interim profits19 in the return.

(5) Revaluation reserve

Firms should report reserves relating to the revaluation of fixed assets.

(6) General/collective provisions

Firms should report general/collective provisions that are held against potential losses that have not yet been identified, but which experience indicates are present in the firm’s portfolio of assets. Such provisions must be freely available to meet these unidentified losses wherever they arise. General/collective provisions must be verified by external auditors and disclosed in the firm’s annual report and accounts19 annual report and accounts unless the firm is eligible to include unaudited general and collective provisions in its capital resources calculation under MIPRU 4.4.2R.

(7) Subordinated loans

Subordinated debt (i.e. the amount of principal outstanding before amortisation) must not form part of the capital resources of a firm unless it meets the following conditions:

(1)

it has an original maturity of at least five years or is subject to five years’ notice of repayment;

(2)

the claims of the subordinated creditors must rank behind those of all unsubordinated creditors;

(3)

the only events of default must be non-payment of any interest or principal under the debt agreement or the winding up of the firm;

(4)

the remedies available to the subordinated creditor in the event of non-payment or other default in respect of the subordinated debt must be limited to petitioning for the winding up of the firm or proving the debt and claiming in the liquidation of the firm;

(5)

the subordinated debt must not become due and payable before its stated final maturity date except on an event of default complying with (3);

(6)

the agreement and debt are governed by the law of England and Wales, or of Scotland, or of Northern Ireland;

(7)

to the fullest extent permitted under the rules of the relevant jurisdiction, creditors must waive their right to set off amounts they owe the firm against subordinated amounts owed to them by the firm;

(8)

the terms of the subordinated debt must be set out in a written agreement or instrument that contains terms that provide for the conditions set out in (1) to (7); and

(9)

the debt must be unsecured and fully paid up.

For a mortgage lender or mortgage administrator undertaking business connected to regulated mortgage contracts (unless its Part 4A permission prevents it from undertaking new business), MIPRU 4.4.8R limits the amount of subordinated loans and redeemable preference shares that can be included in eligible capital.

In Table C of the MLAR the firm will deduct from capital resources under item C2.3a any amount by which the subordinated loans and redeemable preference shares exceed the limit in MIPRU 4.4.8R.

Treatment of eligible capital items (listed above) in section C1:

C1.1

Reserves: include items

• reserves

• revaluation19 reserves

C1.2

Interim profits: include items

• interim net profits

• partners’ interim current accounts

C1.3

Issued capital: include items

• share capital

• partnership or sole trader capital

C1.3a

Subordinated loans

C1.4

General/collective provisions

C1.5

Other eligible capital: includes

• any other item of eligible capital not required to be included in items C1.1 to C1.4, including any unrealised gains or losses on equities held in the available for sale financial assets portfolio.

C1.6

Total eligible capital 19

This is the sum of the components listed in C1.1 to C1.5.

C2

Deductions from capital

C2.1

Investments in own shares represents any investment in the shares of the company, quantified as fixed assets in the balance sheet.

C2.2

Intangible assets are the full balance sheet value of goodwill, capitalised development costs, brand names, trademarks and similar rights and licences.

C2.3

Interim net losses refers to the cumulative amount covering the period from the firm’s accounting reference date to the end of the current quarter. All the current year’s losses should be reported. Unpublished losses from the previous accounting period should also be shown here.

C2.3a

Subordinated loan and redeemable preference share restriction

This is the amount of any excess as computed under the restriction explained in paragraph (7) of the C1-2 CAPITAL RESOURCES section above.

C2.4

Other deductions from capital: include

• Excess of drawings over profits for partnerships or sole traders: firms should report the difference between the personal drawings of a partnership or sole trader and the profit in the period, where the drawings exceed the profit for the period.

C2.5

Total deductions 19

This is the sum of the components listed in C2.1 to C2.4.

C3

CAPITAL RESOURCES CALCULATION

C3.1

Capital resources 19

This is total eligible capital less total deductions (C1.6 to C2.5).

C3.2

Capital requirement

This is the amount calculated in sections C4.6(e) or C5.5(c), whichever is applicable.

C3.3

Surplus/(Deficit) of resources 19

This is the capital resources less the capital requirement (C3.1 to C3.2).

C4

CAPITAL REQUIREMENTS

Capital requirement for a lender, or an administrator with administered assets on its balance sheet

C4.1

The capital requirement for lenders or administrators that have the regulated mortgage contracts that they administer on their balance sheet is asset-based, and the information required is detailed in C4.2 to C4.6.

C4.2

Total assets: this is the total value of assets as shown at line A1.12 in section A of the MLAR.

C4.2a

Assets subject to the credit risk requirement

This is the amount of assets subject to the credit risk requirement computation as shown at line 6A in section L of the MLAR.

This is relevant for a mortgage lender; or mortgage administrator with its administered assets on balance sheet, that undertakes business connected to regulated mortgage contracts and19 has one or more exposures which satisfy the conditions set out in MIPRU 4.2A.4R.

C4.3

Undrawn commitments

Undrawn commitments means the total of those amounts which a borrower has the right to draw down from the firm but which have not yet been drawn down (see MIPRU 4.2.12R and MIPRU 4.2.13G).

However, undrawn commitments should not be included in the calculation of capital requirements if they have an original maturity of up to one year or if they can be unconditionally cancelled at any time by the lender.

Similarly, existing mortgage offers should not be included in the calculations of capital requirements if the offer has an original maturity of up to one year or can be unconditionally cancelled at any time by the lender.

C4.4

Intangible assets: this is the amount shown at C2.2.

C4.5

Total adjusted assets: this is the sum of C4.2 and C4.3, less C4.2a and C4.4.19

C4.6

CAPITAL REQUIREMENT

This section sets out how to calculate the capital requirement for a lender, or an administrator with administered assets on its balance sheet (see19MIPRU 4.2.12R, MIPRU 4.2.18R and MIPRU 4.2.23R):

(a)

is the minimum requirement of £100,000;

(b)

is 1% of the amount shown as total adjusted assets at C4.5, i.e. the assets that are not subject to the credit risk requirement calculation;

(c)

is the credit risk requirement as shown at line 9E in section L of the MLAR;19

(d)

is the total of (b) and (c); and

(e)

is the capital requirement which is the higher of the fixed amount at (a) and the sum shown at (d).

C5

Capital requirements for an administrator not having administered assets on its balance sheet

C5.1

This section sets out the income-based capital requirements applicable to administrators that do not have the assets that they administer on their balance sheet. The information requirements are detailed in C5.2 – 5.5.

Firms should report the following amounts from both their most recent annual financial statement and their estimated accounts for the current reporting year.

C5.2

Total income

Firms should report the amount of total income in their most recent (or other) financial statements, and an estimate of income for the current reporting year.

Total income should include both revenue and gains arising in the course of the ordinary activities of a firm. Revenue consists of commissions, fees, net interest income, dividends, royalties and rent. Only gains that are recorded in the profit and loss account should be included in income. What is relevant for the calculation of income is the amount of actual income generated rather than the gross cash streams of any one transaction (see MIPRU 4.3.7R).

C5.3

Relevant adjustments

The following exceptional items must be deducted from the firm’s total income:

(1)

profit on the sale or termination of an operation;

(2)

profit arising from a fundamental reorganisation or restructuring having a material effect on the nature and focus of the firm’s operations; and

(3)

profits on the disposal of fixed assets, including investments held in long-term portfolio.

C5.4

Total relevant income

Is the sum of C5.2 minus C5.3.

C5.5

CAPITAL REQUIREMENT

This sets out how to calculate the capital requirement for anadministrators administrator not having administered assets on its balance sheet (see MIPRU 4.2.19R):

(a)

is the minimum requirement of £100,000;

(b)

is 10% of the amount shown as total relevant income at C5.4 above; and

(c)

is the capital requirement which is the higher of the minimum amount at (a) and the calculation shown at (b).

D1-D4

For details of the terms ‘Residential lending to individuals’ (and regulated/unregulated), and ‘other secured loans’, see Introduction, paragraphs 4 (i) – (iv).

D1

Loans: Advances/Repayments – Row & Column Analysis

For the two categories of loan assets, details are requested under various transaction columns that explain the transition from the previous quarter’s balances to the current quarter’s balances.

D1

Loans: Advances/Repayments – Transactions (columns)

Advances made in quarter should include:

(a)

instalments released in the quarter for instalment advances;

(b)

re-advances, i.e. where previous charge cancelled;

(c)

further advances;

(d)

in the case of loans that have a facility to draw down extra amounts over and above the sum originally advanced, the total of any further amounts drawn down in the quarter;

(e)

the deduction from advances made of advance cheques cancelled;

but should exclude:

(f)

the amount of any loan books acquired in the quarter (which should be reported in ‘other debits/credits etc’):

(g)

retentions imposed, which should be included as they are released;

(h)

sundry debits, i.e. any items not approved and not included in commitments, e.g. insurance debits, fines, insurance guarantees, valuation fees, arrangement fees19 (unless formally treated as part of loan, that is where such amounts are repaid over the period of the loan);

(i)

any movements on overdrafts.

Repayment of principal should include:

(a)

repayment of principal including capital repayments, full or partial redemptions and the principal element of the normal monthly payment;

(b)

mortgage receipts temporarily posted to investment accounts;

(c)

transfers from investment accounts to mortgage accounts;

but should exclude:

(d)

the amount of any loan book sold during the quarter (to be reported in ‘other debits/(credits)19 etc’);

(e)

sundry credits to accounts, such as insurance premiums, fines, fees, etc;

(f)

advance cheques cancelled;

(g)

investment receipts temporarily posted to mortgage accounts;

(h)

any movement in overdrafts.

In determining the amount shown under repayment of principal, it is recognised that firms may need to estimate the amount of interest repaid where amounts repaid include both interest and principal, and/or where the amount of interest repayable is not the same as the amount charged (e.g. annual review or deferred interest schemes, or where a loan is not being fully serviced).

Write-offs in quarter

This is the amount of19 written off mortgage balances in the quarter (and of19 provisions charged to the income and expenditure account) and is to be on a basis consistent with amounts shown in the firm's published accounts as 'written off' within the analysis of changes in loss provision usually appearing as Notes to the Accounts.

The amount written off may arise for example from:

(a)

sale of a property in possession where there is a shortfall; or19

(b)

a decision to write down the mortgage debt on a loan still on the books. This may arise where the firm has taken the view that it is certain that a loss will arise and that it is prudent to write down the mortgage debt rather than carry the full debt and an offsetting provision. Examples might include certain fraud cases, or where arrangements have been reached with the borrower to reduce the mortgage debt repayable;19

(c)

the amount should be net of any write-backs in the quarter. If there are more write-backs than write-offs the net figure should be shown as a negative.19

Other debits/(credits) and transfers (net) should include: 19

(a)

interest charged to the loan account in the period;

(b)

interest repaid during the period;19

(c)

amounts charged to loan accounts and amounts received from borrowers in respect of such items as insurance premiums, valuation fees, and fines etc;19

(d)

mortgage balances acquired following takeover / merger;

(e)

loan books acquired from other lenders in the quarter;

(f)

loan books sold to other lenders in the quarter;

(g)

loan books securitised during the quarter;

(h)

the transfer of any securitised assets back onto the balance sheet (e.g. following the closure of a securitised pool of loans);

(i)

transfers19 (net) should include any reclassified loans (e.g. where there has been a change in the use of the land on which the loan is secured to/from residential; or a19 change in status of loan from/to regulated/non-regulated etc);

(j)

all movements on overdrafts (that is, net change in overdraft balances), other than write-offs19.

NB: Balances on loan books acquired/sold/securitised should be as at the date of the relevant event and not be subject to any revaluation factors.19

Overdraft analysis (final 3 columns of D1):

The term “overdraft” here and in other columns of D1, is used to cover two types of revolving credit facilities: overdrafts and credit cards.

The balance at end of quarter in column 6 is further analysed into loan balances excluding overdrafts and, separately, balances on overdrafts.

The final column in D1 represents the sum total, across all overdraft accounts included in the penultimate column, of the individual credit limits on each such overdraft.

D2

Loans: Book movements

The 'transactions in the quarter' columns are analyses of amounts already included within the 'other debits/(credits) and transfers (net)' column of section D1.

(a)

'loans acquired' represents balances on any relevant loan books acquired during the quarter from other lenders;

(b)

'loans sold' represents balances on any relevant loan book (i.e. parcel of loans) sold during the quarter to another lender;

(c)

'loans securitised' represents balances on any loans that the firm has securitised in the quarter. It includes balances on loans subject to securitisation transactions which should follow MIPRU 4.2.14R to MIPRU 4.2.16G. Securitised loans brought back onto the balance sheet in the quarter should also be included and the amount here should be net of them. If the amount of securitised loans brought back onto the balance sheet is greater than the securitised balance then the net figure should be reported as a negative; and19

(d)

'other' represents the net amount of other transaction amounts included in 'other debits/(credits) and transfers (net)' in D1.

NB: As a result, D2 (item (a) – item (b) – item (c) + item (d)) should equal D1 (item ‘other debits/(credits) and transfers (net)).

The final column 'balance at end quarter on loan assets subject to non-recourse funding' represents all such loan assets (and not just the amount treated as transactions in the quarter), and requires the 'gross amount' of such loan assets to be reported against relevant line item categories. Non-recourse funding can be established either by contract or in-substance.19 The 'gross amount' is the amount of any such loan that would be shown in a firm's published or other balance sheet as X in the example below:

gross loan asset

=

X

less non-recourse funding

=

Y

net loan asset

=

X-Y

In the analysis here at D2, it is therefore the gross loan asset at the end of the reporting quarter that should be reported in the final column. Once securitised, it is recognised that end quarter gross balances will not necessarily remain constant (due either to borrower repayments, the possibility of any further advances, or other arrangements19 for 'topping up' a pool of securitised loans, etc).

D3

Loans: Interest rates

Basis

Interest rates in this table are nominal annual rates charged to the customer on loan accounts excluding overdrafts (as defined in D1). They should ignore the effect of any interest rate swaps or other hedging contracts that might exist, and also ignore the effect of any offsetting deposit account (as for example in the case of an offset mortgage).

This provides an analysis of weighted average interest rates for the loan assets reported under ’Loans excluding overdrafts’ in column 7 of D1 above. 'Interest rates at end of quarter' (columns 4, 5, and 6 of section D3) means rates applying at least throughout the last day of the quarter, so firms should not use rates which only come into operation at the beginning of the next quarter. Points to note on specific columns are:

(1) Balances at end quarter

Accrued interest should be included (even though it is excluded when computing the weighted average rate).

The first 'of which' analysis is designed to obtain information on balances subject to fixed rates of interest and balances subject to variable rates of interest. (The two amounts should add to the balance in column 1). For these purposes:

'fixed' means the rate of interest is fixed for a stated period. It should also include any products with a 'capped rate' (i.e. subject to a guaranteed maximum rate) and any products that are 'collared loans' (i.e. subject to a minimum and a maximum rate). Annual review or stabilised payment loans should be excluded (since the purpose is merely to smooth cash flow on variable rate loans);

'variable' includes all other interest rate bases (i.e. other than those defined above as 'fixed') applying to particular products, including those at, or at a discount or premium to, one of the firm's administered lending rates; those linked to Libor (or other market rate); those linked to an index (e.g. FTSE) etc. However if any such loan products are subject to a 'capped rate', then treat as 'fixed'.

The second 'of which' analysis is designed to obtain information on loan balances according to whether the nominal annual interest rate charged to the customer at the quarter-end is higher than the prevailing Bank of England Base (or repo) Rate (BBR). For these purposes the BBR is that applying on the last day of the reporting quarter. The analysis is subdivided into four categories:

(a)

loan balances where the rate charged is less than 2% above BBR. Include here also all loan balances where the rate charged is less than BBR (as a result the sum of these four columns will equal the figure in the TOTAL column);

(b)

loan balances where the rate charged is 2% or up to 3% above BBR;

(c)

loan balances where the rate charged is 3% or up to 4% above BBR;

(d)

loan balances where the rate charged is 4% or more above BBR.

(2) Weighted average nominal annual rates

(a)

Interest rates reported in Table D3 provide a broad indication of market rates. They should ignore the effect of any interest rate swap or hedging. For each line item the weighted average rate should be derived as follows:

(i)

identify the various nominal/quoted interest rates that apply to elements of this line item; then

(ii)

for each separate nominal/quoted rate, multiply that rate by the amount of end quarter balances (excluding accrued interest) for which that rate applies; and

(iii)

add up the results of (ii) for all the different rates for this line item; and

(iv)

divide the total calculated in (iii) by the corresponding end quarter balance in column 1, 2 or 3 less accrued interest (against the line item concerned).

NB: in the 'of which' analysis that requires separate reporting of weighted 'fixed' and 'variable' rates, a cross check for each row is that the weighted average nominal rate on all balances is equal to the weighted average of the reported fixed and variable rates in the subsequent two columns.

D3.1 – 3.8

Other Points

The interest rate to be used is the rate charged to the loan account, which in certain circumstances will differ from the interest rate 'payable' by a borrower. These circumstances include deferred interest loans, interest roll-up loans, annual review schemes or where the loan is not performing.

Advances in quarter refers to the same amount as covered under 'advances in quarter' in the Loans: Advances/Repayments analysis in Section D1 above.

D4

Loans: Commitments (columns)

Commitments made since end of previous quarter

should include:

(a)

the aggregate of formally agreed advances (whether or not the mortgage offer has been accepted by the prospective borrower), including amounts recommended for retention, all instalment elements, and further advances;

but should exclude:

(b)

commitments from previous quarters that have been cancelled in the current quarter;

(c)

retentions imposed and subsequently not released;

(d)

instalment commitments that have not been taken up;

(e)

advance cancellations that are not re-issued;

(f)

sundry debits, e.g. insurance debits, fines, insurance guarantees, valuation fees, arrangement fees etc (unless formally treated as part of the loan, that is where such amounts are repaid over the period of the loan).

Cancellations in quarter

Includes (b), (c), (d) and (e) above.

Advances made in quarter

This refers to the same amount as covered under ‘advances in quarter’ in section D1 above.

Other debits/(credits) and transfers (net)

This is unlikely to be needed on a routine basis. It is intended to cover less frequent events such as loan commitments acquired on merger with another firm or acquisition of a loan book; or transferred on sale of a package of loans; or where 'commitments outstanding' need adjusting for reasons not attributable to other columns.

E1-6

Gross advances in quarter

Covers actual advances made in the quarter. For these purposes separate advances (e.g. stage payments) made in the period on the same mortgage should count as a single advance for the 'number' column in sections E3, E4, E5 and E6.

NB: 'gross advances' should be compiled on the same basis as in section D1 above and therefore relevant totals for each section in E1 to E6 should also agree with the amount of gross advances reported in D1.

E3-6

Balances outstanding

Covers balances at end of the quarter. Relevant sub-totals should agree with corresponding balances shown under ‘Loans excluding overdrafts’ in column 7 of D1.

E1/2

By Income Multiple and LTV (Loan to Valuation ratio)

The amount to be included in the table is the gross advance, but its allocation to a specific cell is determined according to income multiple and LTV which are both defined using the size of the loan (as defined below).

For second charge regulated mortgage contracts, the calculation of income multiples and LTVs are to also include the outstanding balance of the first charge regulated mortgage contract and any higher priority second charge regulated mortgage contracts.

E1/2

By Income Multiple and LTV

Income multiple based on single or joint incomes

For this analysis, 'income' should be taken as gross annual income before tax or any other deductions.

The loan should first of all be categorised to 'single' or 'joint' income basis, and the income multiple calculated as described below:

(i)

Single income basis. This means only one person's income was taken into account when making the lending assessment/decision.

The income multiple here is the total loan amount divided by the borrower's total income (total of the borrower's main income and any other reckonable income, e.g. overtime,19 to the extent that the firm takes such additional income into account in whole or in part).

(ii)

Joint income basis. This means that two or more persons' incomes were used in the lending assessment/decision.

The income multiple here is the total loan amount divided by the aggregate income of the two or more borrowers.

(iii)

Other. This category is to be used when the loan assessment is based, only partly or not at all, on one or more persons' incomes. Thus include here:

Under Single Income section (E1.6/E1.13)

• Buy to let loans where the loan assessment is based on the rental yield of the property (but not buy to let loans based solely on one or more persons’ incomes which should be shown against the relevant income multiple category);

• Lifetime mortgages since in most if not all instances, the concept of a supporting income is not applicable;

• Other products (no current examples)

Under Joint Income section (E2.6/E2.13)

• Business loans, where typically the loan assessment will be based on mixed sources of business/personal income or perhaps just on the capacity of a person’s business to support the loan;

• Other products that have similar characteristics, that is where the loan assessment is based on either mixed income sources or non-personal incomes.

(iv)

Not evidenced. This 'of which' analysis applies to loans made on the basis of one or more persons' incomes, and therefore should exclude any loans reported in "Other" (defined in (iii) above).

It covers loans where: the lender has no independent documentary evidence to verify income (e.g. as provided by an employer's reference, a bank statement, a salary slip, a P60, or audited/certified accounts.19

For the purpose of income multiples, the multiple is of loan to income where loan is as defined below.

Loan to valuation ratio LTV

Should be based on the following:

(i)

loan is defined for:

(a)

new borrowers - as the amount of actual advance or, in the case of loans where the amount advanced in the period is less than the total amount of the loan19 which the firm has agreed to lend (for example loans with additional drawing facilities or loans involving instalments/stage payments/retentions), is the amount of committed advance (including any committed drawing facilities);

(b)

existing borrowers - as the total amount of debt outstanding including the further advance plus any committed drawing facilities at the time of the further advance;

and will include MIG ("mortgage indemnity guarantee"), building and other insurance premiums and other sundry items if these are included in the amount advanced;

(ii)

valuation is to be taken as the most recent valuation of the property which is subject to the mortgage (the existence of additional collateral on any other property should be ignored when calculating LTV). For these purposes, "recent valuation" can either be based on an actual valuation, or an estimated valuation using indexed valuation methodology applied to an original actual valuation. In the case of staged construction or self-build schemes, valuation means 'expected final value of the property' at the time the firm is committed to making the loan (i.e. takes the lending decision).

E3

Credit history

This seeks to categorise lending in terms of a borrower’s previous credit history, as measured at the point when the new advance is made. For these purposes, it is only necessary to establish a borrower’s credit history at a single point in time, i.e. at the time of making the loan. In practice this will usually be done at the ‘offer’ stage of making a loan. It is not intended that credit history should be reassessed after the loan has been made. However, if a further advance is made, then it will be necessary to re-assess.

In particular the aim is to separately identify under the heading 'Impaired credit history', those loans where it appears that the borrower has some form of adverse credit history:

(i)

at the point when the new advance is made and the loan is reported under 'Gross advances';

(ii)

subsequently for reporting under 'Balances outstanding', the amount of the loan at the quarter end to such a borrower (who at the point when the present loan was advanced, was deemed to have had an adverse credit history).

However, if there is subsequently a further advance on the loan (19which will be reported under ‘Gross advances’ in E3), this is an occasion to re-assess the borrower’s credit history. At that stage, the total amount of the loan (including further advance) should be classified under ‘Balances outstanding’ on the basis of the credit history as determined at the time of making the further advance. This means that the further advance and total loan amount will be reported on a consistent basis.

E3.1

Impaired credit history

If any of the following conditions are met at the time of making the loan, the borrower should be reported as having an impaired credit history:

(i)

arrears on a previous (or current) mortgage or other secured loan within the last two years, where the cumulative amount overdue at any point reached three or more monthly payments;

(ii)

arrears on a previous (or current) unsecured loan within the last two years, where the cumulative amount overdue at any point reached three or more monthly payments;

(iii)

one or more county court judgments19 (CCJs), with a total value greater than £500, within the last three years;

(iv)

being subject to an Individual voluntary arrangement (IVA) at any time within the last three years;

(v)

being subject to a bankruptcy order at any time within the last three years;

but firms should not include technical arrears as part of the above definition. Technical arrears means circumstances where the borrower has been the victim of a banking error giving rise to late payment.

NB: In (i) to (v), firms should ignore whether the borrower has subsequently paid off arrears, or has satisfied/discharged a CCJ or IVA or bankruptcy.

In the case of loans involving two or more borrowers, the impaired credit test is whether any one of the borrowers individually meets any of the five listed impaired credit conditions.

E4

Payment type

This section analyses loans in terms of how the borrower is contractually expected to service the loan, and is split into four categories:

• repayment;

• interest only;

• combined; and

• other.

E4.1

Repayment (capital and interest) This is the traditional payment option available to borrowers. Such loans involve regular periodic payments covering interest for the period and some repayment of capital.

E4.2

Interest only

This is the type of loan which requires the borrower to make regular payments of interest only (i.e. without any obligation to make periodic payments of capital). It includes 'endowment' type loans, others having an independent ultimate repayment vehicle (e.g. PEP, ISA or pension mortgages), as well as other interest-only loans where there is either no specific ultimate repayment vehicle in place or where the lender does not formally require one to be in place.

E4.3

Combined

This section is for loans where both of the above payment types are in place (i.e. part of the loan is ‘repayment’, and part is ‘interest only’).

E4.4

Other

This category will contain loans where no regular periodic payment obligation is in place, for example secured overdraft facilities or secured credit cards, and lifetime mortgages.

E5

By drawing facility

These are loans which include an option to draw down further amounts (i.e. where, at the outset of the loan, extra drawing rights exist over and above the original amount advanced, but not those arising only in relation to previous overpayments).

The drawing facility category is also meant to indicate a facility that is only exercisable by the borrower (e.g. via a cheque book, on line transaction or on demand). It would therefore not apply to situations where a loan is merely subject to retentions or stage payments, since the borrower does not have a draw-down option that they19 can exercise.

E5.1

Extra drawing facility

These are loans which in general are structured as follows:

Example structure when flexible loan contract agreed

Amount of loan advanced

£65,000

Amount of extra drawing facility agreed to (but not advanced at outset of loan)

£15,000

Total loan facility up to

£80.000

E5.1

(a) Loans including unused facility

This means the total loan facility i.e. the sum of the amount of loan advanced and the amount of extra drawing facility agreed (but not advanced at the outset of the loan):

(i)

gross advances in quarter should detail those loans that include an extra drawing facility: show the number and amount of such loans;

(ii)

loans outstanding means the end quarter balances (on original advance plus any subsequent draw downs) plus the residual amount of any unused drawing facility that remains available to the borrower: show the number and amount of such loans.

(b) Unused facility This is the amount of the extra drawing facility that has not been drawn down by the borrower:

(i)

gross advances in quarter should detail the unused facility element of such loans: show the amount;

(ii)

loans outstanding means the end quarter balances of any unused extra drawing facility that remains available to the borrower: show the amount.

(c) Net loans

This can be calculated by subtracting the entry in row b) from the entry in row a).

E5.2

Loans with no extra drawing facility

Firms should report all other loans here.

E5.3

TOTAL

This figure should be calculated as follows:

(i)

for 'Number' by adding E5.1(a) and E5.2, and

(ii)

for 'Amount' by adding E5.1(c) and E5.2.

E6

By purpose

E6.1/2

House purchase

Loans where the borrower is purchasing a house (or flat etc). Firms should include stage payments on such transactions here and not in 'further advances'. A distinction is drawn between loans for house purchase where the purpose is for owner occupation, or for buying with a view to letting ('buy to let').

Loans for owner occupation are required to be sub divided into those to first time buyers (FTBs, that is where the tenure of the main borrower immediately before this advance was not owner-occupier) and those to other buyers.

E6.2

Buy to let (BTL)

Such loans typically involve the borrower purchasing a residential property with the intention of letting it out on a rental basis.

The majority of BTL loans will be those used by the borrower to acquire a property with the intention of letting it on a commercial basis to unrelated third parties. That is to persons who, in relation to the borrower, are not ‘related persons’ (where ‘related persons’ are those set out in subsections (A), (B) and (C) of section 4 (iv) of the Introduction). These BTL loans are not regulated mortgage contracts and hence should be shown in columns 5 to 8 of E6.2 under ‘Non regulated loans’.

However, where a BTL loan is used by the borrower to acquire a residential property that will be occupied by a related person, such a loan will normally be a regulated mortgage contract (providing it satisfies the other requirements of a regulated mortgage contract) and should therefore be shown in columns 1 to 4 of E6.2 under ‘Regulated loans’. An example of such a loan is where a parent buys a house or flat for use by a student son or daughter, with a plan to take in other students on a rental basis.

Further advances and remortgages on any BTL loans should be included within E6.2.19

E6.3

Further advances and drawdowns 22

A further loan (either as a 22further advance, or as a second charge loan where the firm has the first charge) to an existing borrower of the firm, secured on the same property; or a drawdown on a flexible mortgage22.

The underlying purpose of the further advance or drawdown22 is not relevant and could include e.g. purchasing freehold interest in a currently owned leasehold property; buying a second property on the security of the first; as a consumer loan fully secured on residential property22.

However, further advances and drawdowns22 on existing buy to let loans, and on lifetime mortgage loans should instead be reported against E6.2 and E6.6 respectively.

E6.4/5

Re-mortgage

Loans where the borrower is not moving house but is refinancing an existing loan, either one already with the firm or one from another lender. The whole amount of the new advance should be classified as a19 're-mortgage' even if it is larger than the existing loan.

Re-mortgages from another lender are well understood, and need no further comment.

But a ‘re-mortgage’ by one of a firm’s existing borrowers (i.e. ‘own borrower’ in E6.4) will not always be transacted in exactly the same way by different lenders. The following comments are designed to provide some illustrative examples, and indicate how the actual transaction between lender and borrower should be reported:

• Example 1: borrower changes from variable rate to fixed rate, with loan amount unchanged, at say £100k. Some lenders' systems formally treat this as a redemption and a new loan advance which is reportable under "advances" in D1 (in which case report as "re-mortgage" under this analysis of advances in E6), but other lenders treat it as an interest variation and not as a new advance (so not included in advances in D1 or E).19

• Example 2: borrower changes from variable rate to fixed rate and takes out additional loan at the same time, say extra £25k on top of existing £100k. Some lenders will treat as a redemption of £100k and a new advance of £125k (in which case the £125k is a re-mortgage), but others may treat as two loans (with first loan regarded as just subject to an interest rate variation, and the extra loan as a "further advance").19

• It is recognised that practices vary among lenders when it comes to further advances or re-mortgages. What is important is that the actual transaction between the lender and the borrower is reflected in the MLAR.

• Thus if a firm genuinely treats the advance of new money as a further advance (perhaps setting up a second sub-account), then that should be reported as such (e.g. at E6.3).19

• However if the old loan is formally replaced with a new loan (at the same or increased size) and this is reported in "advances" in D1, then the new loan should similarly be reported in E, and in E6.4 shown as a19 "re-mortgage".

NB: However, re-mortgages on existing buy to let loans, and on lifetime mortgage loans, should instead be reported against E6.2 and E6.6 respectively.

E6.6

Lifetime mortgages

(i) Regulated loans: Lifetime mortgages (columns 1 to 4)

This is19 defined in the Handbook as follows:

19

21

21

(1) 21

an article 3(1)(b) credit agreement or a regulated mortgage contract which is not a retirement interest-only mortgage, under which:21

(a)

entry into the mortgage is restricted to older customers above a specified age; and19

(b)

the lender may or may not specify a mortgage term, but will not seek full repayment of the loan (including interest, if any, outstanding) until the occurrence of one or more of the specified life events; and19

(c)

while the customer continues to occupy the mortgaged land as their main residence:19

(i) no instalment repayments of the capital and no payment of interest on the capital (other than interest charged when all or part of the capital is repaid voluntarily by the customer) are due or capable of becoming due; or19

(ii) although interest payments may become due, no full or partial repayment of the capital is due or capable of becoming due; or19

(iii) although interest payments and partial repayment of the capital may become due, no full repayment of the capital is due or capable of becoming due; or21

(2)21

an MCD exempt lifetime mortgage which is not a retirement interest-only mortgage.21

19

(ii) Non- regulated loans: ‘Lifetime mortgage’ (columns 5 to 8)

Loans to be included under these columns include:

• loans having broadly similar characteristics to those set out in (i)(a), (b) and (c) above, but which were advanced before 31 October 2004. Such loans will usually have been known as ‘equity release loans’;

• loans made after 31 October 2004, which whilst not satisfying the full criteria needed to be classed as a regulated mortgage contract (e.g. since a second but not a first charge is taken), nonetheless match the characteristics set out in (i)(a), (b) and (c) above.

(iii) Further advances and re-mortgages on any of the loans described in (i) and (ii) above, should be included within E6.6

E6.7

Other

Would include for example where a borrower is not moving house but takes a loan on the security of his previously unmortgaged property.

G1

Mortgage contracts administered at end-quarter

Where your firm is acting as Principal administrator (columns 1-3)

Collects data on mortgage contracts administered as at the end of the quarter, but only where you are formally acting as principal in exercising a mortgage administrator’s activity. It therefore excludes the reporting of:

• any loan administration where you, being a firm without a mortgage administrator’s activity, are merely providing an outsourced service for a third party which does have a mortgage administrator’s activity22; and

• any loan administration where you, a firm having a mortgage administrator’s activity, are acting as agent and providing an outsourced service for a third party which itself has a mortgage administrator’s activity22.

If you also have a mortgage lender’s activity, then you should treat your own on and off-balance sheet loans as follows:

(i)

your firm’s on-balance sheet loans should be excluded from G1.1 a) and G1.2 a). These items will therefore only include loans administered for third party lenders who do not themselves have a mortgage administrator’s activity;

(ii)

your firm’s off-balance sheet loans should be included in G1.1 c) and G1.2 c). These will be the loans you have shown in section A3 ‘Securitised balances’ under ‘gross balances’. (These items G1.1 c) and G1.2 c) will also include loans you administer for other special purpose vehicles where you are formally exercising your mortgage administrator’s activity).

Where your firm is acting as Other administrator (columns 4-6)

Record under these columns all of the mortgage contracts administered at the end of the quarter where you are not acting as a principal administrator.

G1.1

Number of loans

You should detail the number of regulated mortgage contracts administered as at the end of the quarter for firms22 with a mortgage lender’s activity, for other persons22 (including unauthorised purchasers of your off-balance sheet mortgages for whom you administer mortgages) and for special purpose vehicles22.

You should also detail the number of non-regulated loans administered as at the end of the quarter for firms with a mortgage lender’s activity, for other persons (including unauthorised purchasers of your off-balance sheet mortgages for whom you administer mortgages) and for special purpose vehicles22.

The total (all loans) is the sum of regulated mortgage contracts and non-regulated loans.

G1.2

Balance outstanding on loans

You should detail the balances outstanding on all regulated mortgage contracts that you administer as at the end of the quarter for firms with a mortgage lender’s activity, for other firms (i.e. lenders for which you administer mortgages but they themselves do not have a mortgage lender’s activity) and for SPVs19.

You should detail the balances outstanding on all non-regulated loans that you administer as at the end of the quarter for firms with a mortgage lender’s activity, for other firms (i.e. lenders for which you administer mortgages but they themselves do not have a mortgage lender’s activity) and for SPVs19.

The total (all loans) is the sum of regulated mortgage contracts and non-regulated loans.

G2

Persons 22 for whom mortgage administration was being carried out at quarter-end

Collects data only on the top five persons22 for each category by value (i.e. the largest five persons22 by value, based on balances outstanding on regulated loans) for whom mortgage administration was being carried out at the quarter-end. (Details on other persons22 are not required to be shown, over and above the top five listed in each category.)

The analysis required in G2 covers all mortgage administration activity undertaken by your firm22, irrespective of whether your firm22 is acting as a ‘principal’ or ‘other’ administrator. The final column of the analysis, however, asks you to indicate your status for each person22 listed, namely whether acting as ‘Principal’ or as ‘Other’ administrator.

G2.1

Firms with a mortgage lender’s activity

Please detail the top five firms (by value) for whom mortgage administration was being carried out at the quarter-end.

You should include the firm's reference number in addition to the name of the firm.

You should indicate the value of regulated mortgage contracts and non-regulated loans for each of the top five firms for whom you administer such contracts.

The total (all loans) for each firm listed is the sum of regulated mortgage contracts and non-regulated loans.

G2.2

Other persons who own loans 22

Please detail the top five other persons who own beneficially the rights of the lender under the relevant mortgage contracts22 (by value) for whom mortgage administration was being carried out at the quarter-end (but who themselves do not have a mortgage lender’s activity; these persons may be authorised persons or unauthorised persons22).

You should indicate the value of regulated mortgage contracts and non-regulated loans for each of the top five other persons who own beneficially the rights of the lender under the relevant mortgage contracts and22 for whom you administer.

The total (all loans) for each person22 listed is the sum of regulated mortgage contracts and non-regulated loans.

G2.3

Special purpose vehicles 22

Please detail the top five special purpose vehicles22 (by value) for whom mortgage administration was being carried out at the quarter-end. If your firm has off-balance sheet loans (which it has reported in G1.1 c) and G1.2 c)) then please show your firm as one of these five special purpose vehicles22 as follows:

• group together all special purpose vehicles22 for which your firm is the originator and show the aggregated amounts on a single line (irrespective of whether the total of regulated loans for all such special purpose vehicles22 would rank within the top five);

• under "firm reference" column, put your firm's reference number;

• under "Name of firm" column, put your firm's name followed by "own special purpose vehicles22" in brackets, for example XYZ firm name (own special purpose vehicles22).

You should indicate the value of regulated mortgage contracts and non-regulated loans for each of the top five special purpose vehicles22 for whom you administer.

The total (all loans) for all special purpose vehicles22 listed is the sum of regulated mortgage contracts and non-regulated loans.

H1 – H5

Guidance on arrears items

The guidance for these items is provided in section F of these guidance notes, where items H1 to H5 correspond to items F1 to F5.

The arrears analysis is of loan balances excluding overdrafts, as is the case in section F.

J1

Introduction

The purpose of this section is to enable the firm to provide data on the current fee tariff measures that apply to each of the regulated activities of home finance providing activity and administering a home finance transaction.

This section also distinguishes between the fee tariff measures that apply to the FCA19 and FOS Ltd19 (Financial Ombudsman Service Limited19).

Since the relevant fee tariff measures may change from time to time, these guidance notes merely define where the current definitions of fee tariff measures are to be found. Accordingly, please refer19 to the relevant part of the FCA’s Handbook19 where such details can be found:

* FEES 4 Annex 1AR and Annex 2AR19 of the Handbook for the FCA19 fee tariff*

* FEES 5 Annex 1R, Annex 2R and Annex 3R19 of the Handbook for the FOS Ltd19 fee tariff*

To the extent that the FOS Ltd19 fee tariff measure requires other relevant activities that the firm carries out to be taken into account, these should be included in J1.3.

In relation to section J of the MLAR, firms must report the information required by this section solely in their year-end MLAR. Firms with an accounting reference date of between 31 December and 31 March (inclusive) must report the information required by this section as at 31 December of the calendar year immediately before the relevant fee period. All other firms must report the information required by this section as at 31 December of the previous calendar year. For example, for 2006/07 fees, for firms with an accounting reference date of between 31 December 2005 and 31 March 2006 (inclusive) the information required by section J is that calculated as at 31 December 2005. For all other firms the information required by section J is that calculated as at 31 December 2004.

K1

Overall business summary

This section looks at the firm’s SRB position at the start of the reporting quarter, at the various movements in the quarter, and at the end quarter position. Details required are:

K1.1

SRB agreements at start of quarter: those agreements that existed at the end of the previous quarter. This line should normally agree with figures reported as at the previous quarter-end.

K1.2

New sales in quarter: new SRB agreements transacted in the quarter, where the firm has obtained title to the property and monies have been paid to the SRB seller. ‘Amount’ is the sale value (paid to seller) and should be reported gross, that is, before the deduction of any fees and charges.

K1.3

Disposals in quarter: SRB agreements where the firm has sold the actual property. ‘Amount’ is the SRB value of the contract as used for the same contract reported in K1.1. Transfers or sales of SRB agreements should be reported under ‘Business transfers-sales’ below.

K1.4

Business transfer-acquisitions: where the firm acquires one or more existing SRB agreements from another party or parties.

K1.5

Business transfer- sales: where the firm sells one or more existing SRB agreements to another party or parties. Include also transfers of such agreements to any party.

K1.6

Other: include any other amounts which affect the balances reported in K1.1 and K1.7, that is which reflect any change in the book value of any SRB agreements during the quarter. This is to capture any ‘amounts’ that will affect the overall position but are19 not covered by K1.2-K1.5. A value is required to be recorded in the ‘Amount’ column only.

K1.7

SRB agreements at end of quarter: the number and book value of SRB contracts in existence at the end of the quarter.

K1.8

SRB agreements arranged for unauthorised persons: The number of SRB agreements arranged where an unauthorised person has obtained title to the property and monies have been paid to the SRB seller. The ‘Amount’ is the sale value (paid to seller) and should be reported gross, that is, before the deduction of any fees and charges.

NB: it is expected that figures in K1.7 will reconcile with those in other rows as follows:

• For ‘Numbers’: K1.7 = K1.1 + K1.2 – K1.3 + K1.4 – K1.5

• For ‘Amounts’: K1.7 = K1.1 + K1.2 – K1.3 + K1.4 – K1.5 + K1.6

K2

New business in the quarter

This section looks at various aspects of new business that has been transacted in the quarter: each is described below. For each aspect:

• The ‘sale value’ means the gross amount paid to the seller before any fees and charges have been deducted.

• The ‘All sales’ line should agree with figures reported in K1.2.

K2.1 to K2.3

Sales: analysed by discount on open market value (OMV)

Here SRB transactions are classified into different bands, according to the amount of discount expressed as a percentage of the open market value of the property that is subject to the SRB contract. Discount is the open market value minus the sales value.

Values are required to be recorded in both the ‘Number’ and ‘Amount’ columns. So for example, for those SRB agreements where the discount is 30% to under 40%, enter the total number of such sales and the total sales values of those agreements in the relevant boxes on the K2.2 line.

K2.4

Average of all sales

The average discount is recorded as an amount. This value should therefore be recorded in the ‘Amount’ column only. For example, if 4 properties with an open market value of £100,000 were bought at a 25% discount and 4 properties with an open market value of £120,000 at a 35% discount, the average amount of discount is £33,500.

K2.5 to K2.6

Sales: analysed by provider fees charged

Here, SRB transactions are classified into two different bands, according to the amount of provider fees charged to the SRB agreement. Enter the total number of such sales in the ‘Number’ column and the total sales values of those agreements in the ‘Amount’ column.

K2.7

Average fees charged

The average amount of provider fees is19 recorded here. This value should be recorded in the ‘Amount’ column only. For example, if 8 new agreements were entered into during the quarter with provider fees totalling £4000, enter £500 (£4000 divided by 8) in the ‘Amount’ column.

K2.8 to K2.9

Sales: analysed by annual rent as percentage of sales values 19

K2.8

Here the total number of new SRB agreements (entered in the ‘Number’ column) and the amount of average monthly rent being charged at the outset of the agreements (entered in the ‘Amount’ column) is recorded.

K2.9

The average rental yield percentage is calculated as the total annual rent for all new SRB agreements in the quarter divided by the total sales values, entered in the ‘Amount’ column.

K3

SRB agreements terminated or transferred in the quarter

This analyses SRB agreements terminated by either the provider or seller, and also those SRB agreements transferred to other parties.

K3.1 to K3.6

Agreements terminated:

By firm:19

This is where the seller has breached the terms and conditions of the SRB agreement and the provider has exercised the right to terminate the contract. Here, terminations are analysed according to the duration of the contract in particular time bands. For each time band, enter the total number of such terminations.19

At the end of the quarter, some or possibly all of these agreements in K3.1 to K3.6 will also be included in end-quarter figures at K1.7. Those not included may already have been disposed of (reported at K1.3), or sold or transferred to third parties (reported at K1.5).

By seller:19

This is where the seller has exercised the right to buy back the property under the SRB agreement, or where the seller has terminated the tenancy agreement before the end of the fixed term. Here, redemptions are analysed according to the duration of the contract in particular time bands.

For each time band, enter the total number of such transactions.

K3.7 to K3.9

Transfers and disposals

Transfers

This covers SRB agreements which are sold or transferred to third parties, but where the contract itself remains in being.

The analysis looks into the status of each SRB agreement when it is sold or transferred.

Firms should report:

• original SRB values: the gross sales value paid to the seller;

• current SRB values: the book value of the contract at time of sale/transfer; and

• actual disposal/transfer values: the value of the contract as recognised in the agreement with the acquiring party.

Disposals

This covers disposals made during the normal course of business, and does not include business transfers. This is a further analysis of ‘disposals’ reported in K1.3.

Firms should report:

• original SRB values: the gross sales value paid to the seller;

• current SRB values: the book value of the contract at time of disposal; and

• actual disposal/transfer values: the price obtained on sale (before deducting any costs of sale).

K4

SRB agreements at end of quarter: cases 10% or more in arrears

Firms should report those SRB contacts where the total amount of arrears on rental payments is 10% or more of the annual rental amount. Cases should be allocated to the relevant arrears band according to the percentage in arrears.

For each arrears band, report the number of such cases,19 the amount of arrears, and the amount of the expected annual rent on these cases.

K5

SRB administrators

Firms holding SRB administration permissions must complete the number of regulated SRB agreements that they administer, the number of non-regulated SRB agreements that they administer and the number of SRB agreements that they administer for other firms.

The agreements administered for third parties must be further broken down by the number of SRB agreements administered for the largest five firms that they administer regulated SRB agreements for.