Related provisions for MCOB 11.6.59
1 - 11 of 11 items.
(1) This section sets out rules and guidance for lenders and providers under regulated mortgage contracts and home purchase plans, in relation to the assessment of affordability for the customer of these contracts. Firms have the option of applying certain of the rules and guidance on a modified basis in relation to regulated mortgage contracts and home purchase plans which are solely for a business purpose or are with high net worth mortgage customers. This section also contains
(1) If a firm treats any of the following changes as not likely to be material to affordability, this may be relied upon as tending to show contravention of MCOB 11.6.2 R:(a) an extension of the term of the regulated mortgage contract or home purchase plan which it is reasonable to expect will extend into (or further into)7 the customer's retirement (including a change from a mortgage with a term to a retirement interest-only mortgage)7; or(b) changing from a repayment mortgage
When assessing for the purposes of MCOB 11.6.2 R whether a customer will be able to pay the sums due, a firm: (1) must not base its assessment of affordability on the equity in the property which is used as security under the regulated mortgage contract or is subject to the home purchase plan, or take account of an expected increase in property prices;[Note: article 18(3) of the MCD]3(2) must take full account of:(a) the income of the customer, net of income tax and national insurance;
(1) Examples of committed expenditure are: credit commitments such as secured and unsecured3 loans and credit cards; hire purchase agreements; child maintenance; alimony; and the cost of a repayment strategy where the customer has an interest-only mortgage (where affordability has not been assessed on a capital and interest basis: see MCOB 11.6.48 R (Assessing affordability under an interest-only mortgage)).(2) Examples of basic quality-of-living costs (which can be reduced, but
When assessing for the purposes of MCOB 11.6.2 R whether a customer will be able to pay the sums due, a firm: (1) must not base its assessment of affordability on the equity in the property which is used as security under the regulated mortgage contract, or take account of an expected increase in property prices;(2) must:(a) where the repayments will be made from the resources of the customer:(i) take full account of the income, net of income tax and national insurance, or net
When assessing for the purposes of MCOB 11.6.2 R whether a customer will be able to pay the sums due, a firm: (1) must not base its assessment of affordability on the equity in the property which is used as security under the regulated mortgage contract, or take account of an expected increase in property prices;[Note: article 18(3) of the MCD]3(2) must:(a) take full account of the income, net of income tax and national insurance, or net assets (or both) of the customer; and the
(1) A mortgage lender may only enter into an interest-only mortgage, or switch a repayment mortgage onto an interest-only basis for all or part of its term, if: (a) it has evidence that the customer will have in place a clearly understood and credible repayment strategy; and (b) as far as it is reasonably able to assess at that time, the repayment strategy has the potential to repay the capital borrowed and any interest reasonably expected to be accrued under the interest-only
Firms are reminded that:(1) interest-only mortgages include those where some, but not all, interest is payable at the end of the term. Accordingly, the requirement in MCOB 11.6.41R (1)(b) applies equally to such interest-only mortgages as it does to those where all of the interest is accrued until the end of the term; and (2) a lifetime mortgage is a type of interest-only mortgage, as full repayment of capital and interest is not required over the term. Accordingly, the requirements
Acceptance by a mortgage lender of any of the following repayment strategies for the purposes of MCOB 11.6.41R (1) may be relied upon as tending to show contravention of that rule:(1) an expectation that the value of the property which is the subject of the regulated mortgage contract will increase over its term sufficiently to enable the customer to sell the property to repay the capital borrowed and, where applicable, pay the interest accrued under the interest-only mortgage;
For the purposes of MCOB 11.6.2 R, where a mortgage lender is lending under an interest-only mortgage in accordance with MCOB 11.6.41R (1), it may assess affordability on the basis of payment of interest only over the term (plus repayment of such capital as may be due to be repaid over the term). If it does so, it must consider as part of the customer's committed expenditure under MCOB 11.6.5R (2)(b)(i) (or the equivalent alternative provision for transactions with high net worth
(1) This rule applies in relation to all interest-only mortgages which a mortgage lenderenters into on or after 26 April 2014 except:(a) lifetime mortgages7;(aa) retirement interest-only mortgages;7(b) bridging loans; and(c) any other case where the repayment of capital borrowed and, if applicable, interest accrued, is certain.(2) Except as set out in (3), a mortgage lender must carry out a review (as a minimum, once) during the term of the mortgage, in which contact is made with
A mortgage lender which enters intointerest-only mortgages (unless they are only lifetime mortgages) must include in the policy which is required by MCOB 11.6.20 R (Responsible lending and financing policy) a policy on interest-only mortgages, setting out its processes and procedures for ensuring compliance with MCOB 11.6.41R (1) and for safeguarding the interests of customers during the term of interest-only mortgages. This policy must include:(1) details of the mortgage lender's
(1) The controls in MCOB 11.6.50R (2) may include, where appropriate: maximum loan to value limits; minimum equity requirements; regional factors such as property prices; or other eligibility requirements.(2) The policy and procedures for safeguarding the interests of a customer under an interest-only mortgage should not permit the mortgage lender to change the interest-only mortgage to a repayment mortgage, extend the term or otherwise change the features of the interest-only
MCOB 11.6.50 R sets out requirements for mortgage lenders to have appropriate procedures for managing interest-only mortgages in order to safeguard the interests of customers. Firms are reminded of the rules and guidance in SYSC (notably SYSC 7.1) relating to systems and controls for the management of risks to which firms themselves are exposed. Firms will need to consider whether their systems and controls are adequate in relation to the management of risks arising from interest-only
For a bridging loan which is an interest-only mortgage, acceptance by a mortgage lender as a repayment strategy for the purposes of MCOB 11.6.41R (1) of an expectation that, by entering into the bridging loan, the customer's credit status will be sufficiently improved to enable him to refinance to a longer-term regulated mortgage contract (except where the mortgage lender has evidence of a guaranteed offer for such a longer-term contract) may be relied upon as tending to show
For a bridging loan which is an interest-only mortgage, in complying with MCOB 11.6.41R (1):(1) where the customer'srepayment strategy is the sale of his existing home, the mortgage lender may wish to consider asking for it to be supported by an independent valuation of that property, as a condition of accepting that repayment strategy; and (2) where the customer'srepayment strategy is the replacement of the bridging loan with a mainstream regulated mortgage contract, the mortgage
(1) A firm must make, in paper or electronic form, an adequate record of the steps it takes to comply with the rules in this chapter in relation to each customer.(2) The record in (1) must include the information taken into account in each affordability assessment, so that it is possible to understand from the record the basis of the mortgage lender's or home purchase provider's lending or financing decision, including (except as provided in MCOB 11.6.32R (3) and MCOB 11.6.39R
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. If 12the customer is unable to suggest a date at which they expect to repay the loan,
(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
Where the same illustration covers a regulated mortgage contract that is a combination of a repayment mortgage and an interest-only mortgage, either:(1) Section 3 of the illustration must state the amount the customer wishes to borrow as a repayment mortgage and the amount required as an interest-only mortgage; or(2) Section 3 of the illustration must summarise the repayment method as partly an interest-only mortgage and partly a repayment mortgage, and Section 4 of the illustration
For the purpose of illustrating to the customer the repayment method in Section 3 or Section 4 of the illustration, or the cost of the regulated mortgage contract in Section 5 of the illustration, if the illustration covers a regulated mortgage contract that is a combination of more than one interest-only part on the same product terms but with different repayment dates, the illustration must either treat it as one part by assuming the longest term, or alternatively treat it as
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
Under the section heading 'Overall cost of this mortgage' where the regulated mortgage contract has an agreed term for repayment and a regular payment plan (that is, it is not a revolving credit agreement such as a secured overdraft or mortgage credit card, or a regulated mortgage contract where all of 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 takes into account the payments in Sections
At the end of Section 5 of the illustration the following text must be included:(1) unless the interest rate is fixed throughout the term of the regulated mortgage contract:'The figures in this section will vary following interest rate changes and if you do not keep the mortgage for [insert term from MCOB 5.6.6 R(4)].'; and(2) (a) where the regulated mortgage contract is a repayment mortgage:'Only use the figures in this section to compare the cost with another repayment mortgage.';
The information required by MCOB 5.6.42 R(3)(d) must exclude:(1) the cost of repaying the capital if the regulated mortgage contract is an interest-only mortgage: where part of the regulated mortgage contract is an interest-only mortgage, the cost of repaying the capital must be excluded only for that part; and(2) the cost of any products which may be sold in conjunction with the regulated mortgage contract (whether tied products or not), unless the cost has been added to the
Where the illustration covers a regulated mortgage contract that is a combination of a repayment mortgage and an interest-only mortgage, the payment amounts in MCOB 5.6.42 R(3)(d) must be the combination of the amount to be paid on the repayment mortgage and the amount to be paid on the interest-only mortgage, unless MCOB 5.6.13 R or MCOB 5.6.54 R apply in which case they must be stated separately.
Where all or part of the regulated mortgage contract to which the illustration relates is an interest-only mortgage:(1) the illustration must include the sub-heading 'Cost of repaying the capital' with the following text under it:'You will still owe [insert amount of loan on an interest-only basis] 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
Where MCOB 5.6.55 R applies and part of the regulated mortgage contract is an interest-only mortgage:(1) if a quotation for the repayment strategy9has been included in the illustration in accordance with MCOB 5.6.52 R(3) then MCOB 5.6.52 R(5) does not apply.9(2) a statement is required to indicate that these payments do not include the cost of any savings plan.
Under the section heading 'Are you comfortable with the risks?':(1) under the sub-heading 'What if interest rates go up?' the illustration must include the following:(a) if the interest rate is fixed throughout the term of the regulated mortgage contract, an explanation that the payments will not vary because the interest rate is fixed;(b) if the interest rate is fixed for part of the term of the regulated mortgage contract, an explanation of when or how increases in the interest
An8illustration provided in accordance with MCOB 7.6.7R(1)8 must:(1) be based on the amount of the further advance only;(2) use the term 'additional borrowing' in place of the term 'mortgage' where appropriate throughout the titles and text of the illustration;(3) include an additional section headed: 'Total borrowing' and numbered '7a' after Section 7, including the following text:(a) "This section gives you information about how your mortgage will be affected by taking out this
If a customer requests, or agrees to, a change to a regulated mortgage contract (other than a change as described in MCOB 7.6.7 R to MCOB 7.6.26 G44) that changes the amount of each payment due, a firm must provide the customer with the following information, in a single communication (subject to MCOB 7.6.28AR (3))4, before the change takes effect:(1) the amount outstanding on the regulated mortgage contract at the date the change is requested;(2) the payment due and the frequency
(1) 4MCOB 7.6.28 R (5) does not apply where the regulated mortgage contract is changing to an interest-only mortgage and interest is being deferred and capitalised by the firm as a result of the customer having payment difficulties.(2) Where (1) applies, the firm must instead provide a prominent reminder to the customer of the amount outstanding together with an explanation of the implications of deferred payments being capitalised, before the change in the regulated mortgage
The statement required by MCOB 7.5.1 R must contain the following:(1) except in the case of mortgage credit cards, information on the type of regulated mortgage contract, including:(a) a clear statement of whether the regulated mortgage contract is an interest-only mortgage, or repayment mortgage, or a combination of both; and(b) a prominent reminder, where all of the regulated mortgage contract is an interest-only mortgage, that:(i) the customer's payments to the firm do not
(1) 4MCOB 7.5.3 R (1)(b) does not apply where as a result of the customer having payment difficulties:(a) the regulated mortgage contract has changed to an interest-only mortgage; and(b) interest is being deferred and capitalised by the firm.(2) Paragraph (1) applies only where the customer continues to have payment difficulties.
Examples of types of statement that would satisfy MCOB 9.4.24 R(2) are as follows (more than one may apply to particular types of lifetime mortgage7):7(1) For an interest roll-up mortgage12: "You do not have to make any repayments during the life of this lifetime mortgage. The loan, all of the interest and charges due to [name of mortgage lender] will be repaid from the sale of your home. This will happen on your death [or the death of the last borrower] or if you move home (either
12The type of lifetime mortgage described in MCOB 9.4.132AR starts out with the customer making regular payments as they would with a regular (non-lifetime) interest-only mortgage or repayment mortgage, but converts into an interest roll-up mortgage if and when the customer chooses to stop making payments.
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 5.6.31 R(2), MCOB 5.6.52 R(1) and MCOB 5.6.52 R(4) prescribe text that should be used to remind a customer with an interest-only mortgage that there is a need to separately arrange for the repayment of capital. The options for repayment of capital may be different where the regulated mortgage contract is for a business purpose or a high net worth mortgage customer3, and a firm must vary the prescribed wording in the business illustration or high net worth illustration3to
(1) When considering entering into a first charge regulated mortgage contract which is an interest-only mortgage2 or varying a first charge regulated mortgage contract which is2 an interest-only mortgage, a mortgage lender need not apply the rules in MCOB 11.6.41R (1), MCOB 11.6.49 R, MCOB 11.6.50 R and MCOB 11.6.60R (3) if the conditions in MCOB 11.7.1 R) are satisfied, and if it has established, acting reasonably, that the existing regulated mortgage contract in MCOB 11.7.1R
(Subject to MCOB 7.7.5 R) a firm that enters into a regulated mortgage contract with a customer must provide the customer with the following information before the customer makes the first payment under that regulated mortgage contract:1(1) the amount of the first payment required;(2) the amount of the subsequent payment(s) if different from the first payment;(3) the method by which the payment will be collected (for example, by direct debit) and the date of collection of the