Related provisions for MCOB 5.6.138

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MCOB 5.6.2RRP
An illustration provided to a customer must:(1) contain the material set out in MCOB 5 Annex 1 in the order and using the numbered section headings, sub-headings and prescribed text in MCOB 5 Annex 1, except where provided for in MCOB 5.6;(2) follow the layout of the template in MCOB 5 Annex 1 with:(a) prominent use of the Key facts3 logo followed by the text 'about this mortgage';33(b) each section clearly separated;(c) all the amounts to be paid in Sections 5, 6, 8 and 9 in
MCOB 5.6.6RRP
As a minimum the illustration must be personalised to reflect the following requirements of the customer:(1) the specific regulated mortgage contract in which the customer is interested;(2) the amount of the loan required;(3) the price or value of the property on which the regulated mortgage contract would be secured (estimated where necessary);(4) the term of the regulated mortgage contract (where the customer is unable to suggest a date at which he expects to repay the loan,
MCOB 5.6.9RRP
The amount referred to in MCOB 5.6.6 R(2) is:(1) in cases where on the basis of the information obtained from the customer before providing the illustration it is clear that the customer would not be eligible to borrow the amount he requested, an estimate of the amount that the customer could borrow based on the information obtained from the customer; or(2) where the regulated mortgage contract is a revolving credit agreement such as a secured overdraft or mortgage credit card:4(a)
MCOB 5.6.14GRP
(1) MCOB 5.6.13 R applies where, for example, the illustration covers a regulated mortgage contract that is:(a) divided so that a certain amount of the loan is payable on a fixed interest rate, and a certain amount on a discounted interest rate; or(b) a combination of a repayment mortgage and an interest-only mortgage and the loan is subdivided into different types of interest rate and/or different rates of interest.(2) MCOB 5.6.13 R does not apply where an illustration covers
MCOB 5.6.25RRP
Under the section heading 'Description of this mortgage' the illustration must:(1) state the name of the mortgage lender providing the regulated mortgage contract to which the illustration relates (a trading name used by the mortgage lender may also be stated in accordance with MCOB 5.6.2 R(6)), and the name, if any, used to market the regulated mortgage contract;(2) (a) provide a description of the interest rate type and rate of interest that applies in accordance with the format
MCOB 5.6.32RRP
Under the section heading 'Overall cost of this mortgage' where the regulated mortgage contract has no agreed term for repayment, (and a 12 month term has been assumed), or no regular payment plan, or both (for example, a revolving credit agreement such as a secured overdraft or mortgage credit card or a regulated mortgage contract where all the interest rolls up such as an open-ended bridging loan9):9(1) the following text must be included in the illustration: 'The overall cost
MCOB 5.6.35RRP
(1) The APR and the total amount payable in MCOB 5.6.34 R must be calculated on the basis of information obtained from the customer under MCOB 5.6.6 R.(2) Where there is a charge to be included in the APR and total amount payable and the precise amount of that charge is not known at the time that the illustration is provided, MCOB 10.3 (Formula for calculating the APR) sets out a number of relevant assumptions to be used. If the method for including the charge is not addressed
MCOB 5.6.39RRP
MCOB 5.6.40 R to MCOB 5.6.57 G do not apply to loans without a term or regular payment plan where some or all of the interest rolls up, for example bridging loans9, secured overdrafts or mortgage credit cards. In these cases, MCOB 5.6.134 R to MCOB 5.6.138 G apply.9
MCOB 5.6.44GRP
If appropriate, the two statements required by MCOB 5.6.42 R(1) and MCOB 5.6.42 R(2) may be merged, for example 'These payments are based on a loan amount of £x and assume that the mortgage will start on [dd/mm/yy]'.
MCOB 5.6.53GRP

An example of how the information required by MCOB 5.6.52 R (1), MCOB 5.6.52 R (3) and MCOB 5.6.52 R (5) may be presented is as follows:

Cost of repaying the capitalYou will still owe £Z at the end of the mortgage term. You will need to make separate arrangements to repay this. When comparing the payments on this mortgage with a repayment mortgage, remember to add any money that you may need to pay into a separate savings plan to build up a lump sum to repay this amount.

Savings plan that you do not have to take out through [insert name of mortgage lender or mortgage intermediary]

Monthly payments

XYZ savings plan (see separate product disclosure document)

£C

What you will need to pay each month including the cost of a savings plan to repay the capital

36 payments at a fixed rate currently x% followed by:

£(A+C)

264 payments at a variable rate currently y%.

£(B+C)
MCOB 5.6.58RRP
MCOB 5.6.59 R to MCOB 5.6.65 R do not apply to loans without a term or regular repayment plan where some or all of the interest rolls up, for example, bridging loans9, secured overdrafts or mortgage credit cards. In these cases MCOB 5.6.140 R to MCOB 5.6.145 R apply.9
MCOB 5.6.70RRP
(1) If a higher lending charge is payable by the customer, the following text must be used to describe such a charge for the purposes of MCOB 5.6.69 R:'A higher lending charge is payable because you are borrowing [insert the ratio of the mortgage amount (from MCOB 5.6.6 R(2)) to the property's price or value (from MCOB 5.6.6 R(3))] of the property's [estimated] [price/value].'(2) If the customer has asked for any fees to be added to the loan, this must be stated alongside each
MCOB 5.6.78GRP
Under the sub-heading 'Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]' the illustration should not include any insurance policy that may be taken out by a mortgage lender itself to protect its own interests rather than the customer's interests, for example, because of the ratio of the loan amount to the property value.1
MCOB 5.6.119GRP
An example of a statement which would comply with MCOB 5.6.113 R and MCOB 5.6.117 R would be:'[name of mortgage lender] will pay [name of mortgage intermediary] an amount of £350 in cash and benefits if you take out this mortgage.'
MCOB 5.6.123GRP
An example of wording which would comply with MCOB 5.6.122 R would be:'If you wish to discuss this mortgage illustration please contact [name of firm] at [address] or on [telephone number]'.
MCOB 5.6.133RRP
MCOB 5.6.134 R to MCOB 5.6.138 G apply only to loans without a term or regular payment plan where some or all of the interest rolls up, for example bridging loans9, secured overdrafts or mortgage credit cards.9
MCOB 5.6.136RRP
Section 6 of the illustration must contain the following information:(1) the loan amount on which the illustration is based. Where fees are being added to the loan then this figure should include all fees, charges and insurance premiums that have been added to the loan in accordance with MCOB 5.6.18 R(2) and MCOB 5.6.18 R(3), and the following text must follow the loan amount:'and include[s] the fees [and insurance premiums] that are shown in Section 8 [and Section 9] as being
MCOB 5.6.137GRP
An example of the statement required by MCOB 5.6.136 R(3) would be:'You [do not need to/cannot] make regular payments on this mortgage.'
MCOB 5.6.139RRP
MCOB 5.6.140 R to MCOB 5.6.145 R apply only to loans without a term or regular payment plan where some or all of the interest rolls up, for example bridging loans9, secured overdrafts or mortgage credit cards.9
DISP App 1.2.4GRP
12In some cases other factors may be included in the overall calculation, for example, if mortgage arrangement fees were waived by agreement on the occasion of the endowment policy being taken out.
DISP App 1.2.6GRP
12If the complainant's endowment mortgage outgoings exceed the equivalent cost for the repayment method, the complainant should be compensated for the higher payments in addition to any loss on the surrender value and capital repaid comparison. This means, for example, that if the endowment arrangement has been more expensive, this may result in compensatable loss even though the capital repayment against surrender comparison may be favourable to the endowment.
DISP App 1.2.17GRP
12The standard approach to redress can be illustrated by the following examples, which show how redress would be calculated in certain hypothetical but typical scenarios. (Because the examples are illustrative, round numbers have been used for 'established facts' in each example. The payments should be taken as being made monthly: firms should not approximate by assuming that payments are made annually. If the complainant has benefited from MIRAS, the calculations should allow
DISP App 1.2.18GRP

12Table of examples of typical redress calculations

Example 1

Capital shortfall and higher endowment outgoings

Example 2

Capital shortfall partially offset by lower endowment mortgage outgoings

Example 3

Capital shortfall more than offset by lower endowment mortgage outgoings

Example 4

Capital surplus more than offset by higher endowment mortgage outgoings

Example 5

Capital surplus partially offset by higher endowment mortgage outgoings

Example 6

Capital surplus and lower endowment mortgage outgoings

Example 7

Low start endowment mortgage
DISP App 1.2.19GRP

12Example 1

Example 1

Capital shortfall and higher endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 5 years

Endowment premium per month: £75

Established facts

Endowment surrender value:

£3,200

Capital repaid under equivalent repayment mortgage:

£4,200

Surrender value less capital repaid:

(£1,000)

Cost of converting from endowment mortgage to repayment mortgage:

(£200)

Total outgoings to date

Equivalent repayment mortgage (capital + interest + DTA life cover):

£21,950

Endowment mortgage (endowment premium + interest):

£22,250

Difference in outgoings (repayment - endowment):

(£300)

Basis of compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid and also because of the higher total outgoings to date of the endowment mortgage relative to the repayment mortgage. The two losses and the conversion cost are therefore added together in order to calculate the redress.

Redress

Loss from surrender value less capital repaid:

(£1,000)

Loss from total extra outgoings under endowment mortgage:

(£300)

Cost of converting to repayment mortgage:

(£200)

Total loss:

(£1,500)

Therefore total redress is:

£1,500
DISP App 1.2.20GRP

12Example 2

Example 2

Capital shortfall partially offset by lower endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 5 years

Endowment premium per month: £60

Established facts

Endowment surrender value:

£2,500

Capital repaid under equivalent repayment mortgage

£4,200

Surrender value less capital repaid under equivalent repayment mortgage:

(£1,700)

Cost of converting from endowment mortgage to repayment mortgage

(£300)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£21,950

Endowment mortgage (endowment premium + interest):

£21,350

Difference in outgoings (repayment - endowment):

£600

Basis of Compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained form the lower outgoings of the endowment mortgage to date. In calculating the redress the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain.

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,700)

Gain from total lower outgoings under endowment mortgage:

£600

Cost of converting to repayment mortgage:

(£300)

Net loss:

(£1,400)

Therefore total redress is:

£1,400

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,700)

Gain from total lower outgoings under endowment mortgage:

Ignored*

Cost of converting to repayment mortgage:

(£300)

Net loss taken into account:

(£2,000)

Therefore total redress is:

£2,000

* In this example, and also in Examples 3, 7, 8 and 9, the complainant's circumstances are assumed to be such as to make it unreasonable to take account of any of the gain from lower outgoings.
DISP App 1.2.21GRP

12Example 3

Example 3

Capital shortfall more than offset by lower endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 8 years

Endowment premium per month: £65

Established facts

Endowment surrender value:

£7,300

Capital repaid under equivalent repayment mortgage:

£7,600

Surrender value less capital repaid:

(£300)

Cost of converting from endowment mortgage to repayment mortgage:

(£200)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£34,510

Endowment mortgage (endowment premium + interest):

£33,990

Difference in outgoings (repayment - endowment):

£520

Basis of Compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained from the lower total outgoings of the endowment mortgage. In calculating redress the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain.

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from surrender value less capital repaid:

(£300)

Gain from total lower outgoings under endowment mortgage:

£520

Cost of converting to repayment mortgage:

(£200)

Net gain:

£20

Therefore, there has been no loss and no redress is payable.

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£300)

Gain from total lower outgoings under endowment mortgage:

Ignored

Cost of converting to repayment mortgage:

(£200)

Net loss taken into account:

(£500)

Therefore total redress is:

£500
DISP App 1.2.22GRP

12Example 4

Example 4

Capital surplus more than offset by higher endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 8 years

Endowment premium per month: £75

Established facts

Endowment surrender value:

£7,800

Capital repaid under equivalent repayment mortgage:

£7,600

Surrender value less capital repaid:

£200

Cost of converting from endowment mortgage to repayment mortgage:

(£250)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£34,510

Endowment mortgage (endowment premium + interest):

£34,950

Difference in outgoings (repayment - endowment):

(£440)

Basis of Compensation

In this example, the complainant has suffered loss because of the higher total outgoings to date of the endowment mortgage but has gained because the surrender value of the endowment is greater than the capital repaid. Since the sum of the loss and the conversion cost is greater than the gain, the redress is calculated as the difference between the two.

Redress

Gain from surrender value less capital repaid:

£200

Loss from total extra outgoings under endowment mortgage:

(£440)

Cost of converting to repayment mortgage:

(£250)

Net loss:

(£490)

Therefore total redress is:

£490
DISP App 1.2.23GRP

12Example 5

Example 5

Capital surplus partially offset by higher endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 10 years

Endowment premium per month: £75

Established facts

Endowment surrender value:

£11,800

Capital repaid under equivalent repayment mortgage

£9,700

Surrender value less capital repaid:

£2,100

Cost of converting from endowment mortgage to repayment mortgage:

(£300)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£46,800

Endowment mortgage (endowment premium + interest):

£47,500

Difference in outgoings (repayment - endowment):

(£700)

Basis of Compensation

In this example, the complainant has suffered loss because of the higher total outgoings to date of the endowment mortgage relative to the repayment mortgage. However the sum of this and the conversion cost is less than the complainant's gain from the difference between the surrender value of the endowment and the capital repaid. Thus no redress is payable.

Redress

Gain from surrender value less capital repaid:

£2,100

Loss from total extra outgoings under endowment mortgage:

(£700)

Cost of converting to repayment mortgage:

(£300)

Net gain:

£1,100

Therefore, there has been no loss and no redress is payable.
DISP App 1.2.24GRP

12Example 6

Example 6

Capital surplus and lower endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 10 years

Endowment premium per month: £65

Established facts

Endowment surrender value:

£10,100

Capital repaid under equivalent repayment mortgage

£9,700

Surrender value less capital repaid:

£400

Cost of converting from endowment mortgage to repayment mortgage:

(£200)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£46,800

Endowment mortgage (endowment premium + interest):

£46,300

Difference in outgoings (repayment - endowment):

£500

Basis of Compensation

In this example, the complainant has gained both because the surrender value of the endowment is greater than the capital repaid and because of the lower total outgoings of the endowment mortgage. These gains are larger than the cost of converting to a repayment mortgage. Thus no further action is necessary.

Redress

As there has been no loss, no redress is payable.
DISP App 1.2.25GRP

12Example 7

Example 7

Low start endowment mortgage

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 10 years

Endowment premium per month: starting at £35 in first year, increasing by 20% simple on each policy anniversary, reaching £70 after five years and then remaining at that level.

Established facts:

Endowment surrender value:

£8,200

Capital repaid under equivalent repayment mortgage:

£9,700

Surrender value less capital repaid:

(£1,500)

Cost of converting from endowment mortgage to repayment mortgage:

(£250)

Total outgoings to date

Repayment mortgage (capital + interest + DTA life cover):

£46,800

Endowment mortgage (endowment premium + interest):

£45,640

Difference in outgoings (repayment minus endowment):

£1,160

Of this difference in outgoings, £800 arose in the five year period when the complainant was paying a low endowment premium.

Basis of compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained from the lower total outgoings of the endowment mortgage. As in Example 3, in calculating redress the whole of the gain should be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to do so. However, unlike Example 3, in a low start endowment mortgage the complainant may have chosen to pay a lower than usual premium in the early years (this would need to be established on the facts of the case). Where it has been established that the complainant chose to make lower payments, even if it is unreasonable to take account of the whole of the gain from total outgoings, the gain from paying a lower premium during the low start period is normally taken into account. In such cases the redress is calculated as the capital loss plus the conversion cost minus the total amount by which repayment mortgage outgoings would have exceeded the actual low start endowment mortgage outgoings during the five year low start period.

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,500)

Gain from total lower outgoings under endowment mortgage:

£1,160

Cost of converting to repayment mortgage:

(£250)

Net loss:

(£590)

Therefore total redress is:

£590

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,500)

Gain from total lower outgoings during low start period of endowment mortgage:

£800

Cost of converting to repayment mortgage:

(£250)

Net loss taken into account:

(£950)

Therefore total redress is:

£950
MCOB 9.4.24RRP
Under the section heading "Description of this mortgage" the illustration must:(1) state the name of the mortgage lender providing the lifetime mortgage7 to which the illustration relates (a trading name used by the mortgage lender may also be stated in accordance with MCOB 9.4.2 R(6)), and the name, if any, used to market the lifetime mortgage;777(2) include a statement describing the lifetime mortgage;77(3) if the lifetime mortgage7 is linked to an investment, and payments required
MCOB 9.4.64RRP
Section 10: "How the value of your home could change" must contain the following text in addition to the text in accordance with MCOB 9.4.62 R or MCOB 9.4.63 R:"Based on the estimated value of your home now of [insert amount from MCOB 9.4.6 R(3)] this example shows what the value of your home would be after [insert term from MCOB 9.4.10 R or MCOB 9.4.12 R] years if the value went up by 1% each year or went down by 1% each year. Remember also that the mortgage may run for more
MCOB 9.4.69RRP
(1) If a higher lending charge is payable by the customer, the following text must be used to describe such a charge for the purposes of MCOB 9.4.68 R:"A higher lending charge is payable because you are borrowing [insert the ratio of the mortgage amount (from MCOB 9.4.13 R) to the property's price or value (from MCOB 9.4.6 R(3))] of the property's [estimated] [price/value]."(2) If the customer has asked for any fees to be added to the loan, this must be stated alongside each fee.2(3)
MCOB 9.4.77GRP
Under the sub-heading "Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]", the illustration should not include any insurance policy that may be taken out by a mortgage lender itself to protect its own interests rather than the customer's interests, for example, because of the ratio of the loan amount to the property value.1
MCOB 7.6.15GRP
MCOB 7.6.14 R allows the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading for the customer. For example, the firm may add text to let the customer know if conditions applying to the original mortgage do not apply to the additional borrowing, such as 'The early repayment charges applying to your existing loan do not apply to this additional borrowing.'
DISP App 1.3.4GRP
21Firms should make it clear that they will bear the costs of conversion if the rearrangement is made with the existing lender and to the equivalent repayment mortgage. If a complainant is not willing to rearrange with the existing lender, then the costs to be paid by the firm should normally be limited to those which would have been payable had the rearrangement been made with the existing lender and to the equivalent repayment mortgage. If it is not possible to rearrange with
DISP App 1.3.11GRP

12Example of assessment set out at 1.3.10

The following example illustrates the position:

Surrender value

£10,000

TEP value

£16,000

Loss calculated by standard approach

£5,000

Remortgaging costs

£300

Total

£15,300

Complainant receives £16,000 all ultimately funded from the TEP sale.

Surrender value

£10,000

TEP value

£13,000

Redress calculated by standard approach

£5,000

Remortgaging costs

£300

Total

£15,300

Complainant receives £15,300, £13,000 ultimately funded from the TEP sale and £2,300 ultimately funded from the firm.

MCOB 9.8.1RRP
The statement required by MCOB 7.5.1 R must contain the following information:(1) except in the case of mortgage credit cards, information on the type oflifetime mortgage,3 (for example, fixed rate or variable rate) including a clear statement of how the firm expects the capital, or capital and interest (whichever is applicable) to be repaid (for example, from the proceeds of the sale of the property);3(2) details of the following transactions and information on the lifetime
MCOB 9.8.4GRP
Examples of where MCOB 7.6.5 R will apply are the release of tranches of money to the customer in relation to a self-build mortgage or other instalment mortgage, but not a drawdown mortgage.
MCOB 9.8.10RRP
If a customer requests, or agrees to, a change to a lifetime mortgage.3(other than a change as described in MCOB 7.6.7 R to MCOB 7.6.27 R (as modified by MCOB 9)) that changes the amount paid to the customer under a drawdown mortgage, or the amount that the customer will owe under a roll-up of interest mortgage, or both, a firm must provide the customer with the following information, in a single communication, before the change takes effect:3(1) the amount outstanding on the
DISP App 1.4.14GRP

12Example 8

Example 8

Term extends beyond retirement age and policy reconstruction

Background

45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th policy anniversary.

It has always been the intention of the complainant to retire at State retirement age 65.

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is 5 years after retirement.

Established facts

Established premium paid by investor on policy of original term (25 years):

£81.20

Premium that would have been payable on policy with term from sale to retirement (20 years):

£111.20

Actual policy value at time complaint assessed:

£12,500

Value of an equivalent 20-year policy at time complaint assessed:

£21,300

Difference in policy values at time complaint assessed:

£8,800

Difference in outgoings (20 year policy - 25 year policy):

£4,320

Basis of compensation

The policy is reconstructed as if it had been set up originally on a term to mature at retirement age, in this example, a term of 20 years. The difference in the current value of the policy actually sold to the complainant and the current value of the reconstructed policy, as if the premium on the reconstructed policy had been paid from outset, is calculated. The complainant has gained from lower outgoings (lower premiums) of the actual endowment policy to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain.

Redress generally if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from current value of reconstructed policy less current value of actual policy:

(£8,800)

Gain from total lower outgoings under actual policy:

£4,320

Net loss:

(£4,480)

Therefore total redress is:

£4,480

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from current value of reconstructed policy less current value of actual policy:

(£8,800)

Gain from total lower outgoings under actual policy:

Ignored

Therefore total redress is:

£8,800

Additional Information

If the policy is capable of reconstruction, the complainant must now fund the higher premiums himself for the remainder of the term of the shortened policy until maturity. In this example the higher premium could be £111.20. However the firm should provide the complainant with a reprojection letter based on the reconstructed policy such that the actual monthly payment required to achieve the target sum could be even higher, say £130. The reprojection letter should set out the range of options facing the complainant to deal with the projected shortfall, if any.

DISP App 1.4.15GRP

12Example 9

Example 9

Term extends beyond retirement age: example of failure to explain investment risks

Background

45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th anniversary.

It has always been the intention of the complainant to retire at state retirement age 65.

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is five years after retirement.

In addition, an endowment does not meet the complainant's attitude to investment risk and a repayment mortgage would have been taken out if properly advised.

Established facts

Surrender value (on the 25 year policy) at time complaint assessed:

£12,500

Capital repaid under repayment mortgage of term to retirement date (20 years):

£21,000

Surrender value less capital repaid:

(£8.500)

Difference in outgoings (repayment - endowment):

£5,400

Cost of converting from endowment mortgage to repayment mortgage:

£200

Basis of compensation:

The surrender value of the (25 year term) endowment policy is compared to the capital that would have been repaid to date under a repayment mortgage arranged to repay the loan at retirement age, in this example, a repayment mortgage for a term of 20 years. The complainant has gained from lower outgoings of the endowment mortgage to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. The conversion costs are also taken into account in calculating the redress.

Redress generally

Loss from surrender value less capital repaid:

(£8,500)

Gain from total lower outgoings under endowment mortgage:

£5,400

Cost of converting to a repayment mortgage:

(£200)

Net loss:

(£3,300)

Therefore total redress is:

£3,300

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£8,500)

Gain from total lower outgoings under endowment mortgage:

Ignored

Cost of converting to a repayment mortgage:

(£8,700)

Therefore total redress is:

£8,700
MCOB 9.7.2RRP
A firm that enters into a lifetime mortgage1 with a customer where interest payments are required (whether or not they will be collected by deduction from the income from an annuity or other linked investment product) must provide the customer with the following information before the customer makes the first payment under the contract:1(1) the amount of the first payment required;(2) the amount of the subsequent payments;(3) the method by which the payments will be collected
MCOB 9.7.4RRP
A firm that enters into a lifetime mortgage1 which is a drawdown mortgage, with fixed payments to the customer, must provide the customer with the following information before the first payment is drawn down by the customer:1(1) the amount of the first payment to be made;(2) the amount of subsequent payments, if different; (3) the method by which the payment will be made (for example, by transfer to the customer's bank account) and the date of issue of the first and subsequent
MCOB 9.7.6RRP
Where the lifetime mortgage1 is a drawdown mortgage and the customer can choose the amount and frequency of the payments they receive, or the amount and frequency of payments can vary for other reasons (for example in line with interest rates) the firm must provide the customer with the following information before the first payment is drawn down by the customer:1(1) (a) where the customer can choose the amount and frequency of the payments they receive, details of any limitations
MCOB 9.7.8RRP
Where thelifetime mortgage1 provides for a lump sum payment to be made to the customer, and all or part of the interest will be rolled up during the life of the mortgage, the firm must provide the customer with the following information before the customer makes the first payment under the contract, or if no payments are required from the customer, within seven days of completion of the mortgage:1(1) if no payments are required from the customer, confirmation that no payments
MCOB 4.4A.6GRP
The disclosure required by MCOB 4.4A.1R (1), MCOB 4.4A.2R and MCOB 4.4A.4R(1) about limitations in product range and direct deals should be expressed in simple, clear terms. A firm may wish to consider using a sentence appropriate to the circumstances, along the following lines:• “We are not limited in the range of mortgages we will consider for you.”• “We offer a comprehensive range of mortgages from across the market, but not deals that you can only obtain by going direct to
BIPRU 3.4.82GRP
(1) The application of BIPRU 3.4.81 R may be illustrated by an example. If a firm has a mortgage exposure of £100,000 secured on residential property in the United Kingdom that satisfies the criteria listed in BIPRU 3.4.56 R to BIPRU 3.4.80 R and the value of that property is £100,000, then £80,000 of that exposure may be treated as fully and completely secured and risk weighted at 35%. The remaining £20,000 may be risk weighted at 75% provided the exposure meets the criteria
MCOB 1.6.5GRP
(1) MCOB 1.6.4 R(2) means, for example, that if a firm discovered immediately after completion that a loan was a regulated mortgage contract, the firm would be required to comply with MCOB 7.4 (Disclosure at the start of the contract).(2) Although MCOB 1.6.4 R recognises that firms may become aware that a mortgage is a regulated mortgage contract at a late stage, the FCA expects this to be an extremely rare occurrence. It could arise, for example, if a firm has acted on the understanding,
MCOB 5.4.16GRP
3MCOB 53 places no restrictions on the provision of information that is not specific to the amount the customer wants to borrow, for example, marketing literature including generic mortgage repayment tables or graphs illustrating the benefits of making a regular overpayment on a flexible mortgage. Such literature may, however, constitute a financial promotion2 and be subject to the provisions of MCOB 3A4(Financial promotions and communications with customers).424
RCB 2.3.8GRP
(1) The credit risk of an asset is the risk of loss if another party fails to perform its obligations or fails to perform them in a timely fashion.(2) Where, for example, the asset pool includes residential mortgages the relevant factors which the FCA may consider include: (a) whether the asset pool contains (or could contain) loans made to individuals who have been made bankrupt or have had court judgments made against them;(b) the extent to which the asset pool contains (or
RCB 2.3.18GRP
(1) The FCA expects the report from the accountants to address at least the following matters:(a) that the level of over collateralisation meets the limits set out in the covered bond arrangements which are designed to ensure compliance with the requirement that the asset pool is capable of covering claims attaching to the bond in Regulation 17 (requirements on issuer in relation to the asset pool) of the RCB Regulations; and(b) that appropriate due diligence procedures (which
MCOB 6.4.4RRP
The illustration provided as part of the offer document in accordance with MCOB 6.4.1 R (1) must meet the requirements of MCOB 5.6 (Content of illustrations) with the following modifications:(1) the illustration must be suitably adapted and revised to reflect the fact that the firm is making an offer to a customer and updated to reflect changes to, for example, the interest rate, charges, the exchange rate or the APR required by MCOB 10 (Annual Percentage Rate), at the date the
MCOB 6.4.6RRP
In adapting and revising the illustration that is part of the offer document in accordance with MCOB 6.4.4 R(1) a firm must:(1) avoid amending the format of the information required by MCOB 5.6 (Content of illustrations) where possible, since this could result in the illustration in the offer document being difficult to compare with the illustration originally provided to the customer in accordance with MCOB 5.5.1 R;(2) use, where possible, the same headings, ordering of information,
MCOB 8.3.1AGRP
3The rules and guidance that are not relevant to home reversion plans are those related, for example, to interest rates, APR, higher lending charge, mortgage credit cards, multi-part mortgages and foreign currency mortgages.