Related provisions for PERG 4.4.16A
1 - 20 of 153 items.
An illustration provided to a customer must:(1) contain the material set out in the relevant annex to this chapter in the order and using the numbered section headings, sub-headings and text prescribed, except where this section provides otherwise;88(2) follow the format of the template in 8the relevant annex to this chapter8, with:(a) prominent use of the Key facts5 logo followed by the text 'about this lifetime mortgage' or 'about this home reversion plan'8;55(b) each section
A firm must include in the illustration all prescribed section headings, except that:8(1) in Section 8 of the lifetime mortgageillustration8 (What you owe and when):(a) Section 8 (A) (details of mortgage payments) is only required where the terms of12 the lifetime mortgage either:1277(i) require the customer to make regular payments to the mortgage lender, in respect of all or part of the interest or part of the capital due under those terms, either over the duration of the lifetime
As a minimum the illustration must be personalised to reflect the following:(1) the specific equity release transaction8 in which the customer is interested;8(2) the amount of the loan or equity8 required by the customer, or for drawdown mortgages and instalment reversion plans,8 the amount the customer wishes to draw down or to receive8 on a monthly (or such frequency that amounts are available) basis. Where the amount the customer can draw down is variable, the firm must agree
In relation to the price or value of the property8, in order for the firm to comply with the principle that an illustration should be clear, fair and not misleading8, an estimated valuation, where the estimated valuation is not that provided by the customer, must be a reasonable assessment based on all the facts available at the time. For example, an overstated valuation could enable a more attractive lifetime mortgage7 to be illustrated on the basis of a lower ratio of the loan
(1) In estimating the term of a lifetime mortgage or an open-ended instalment reversion plan,8 a firm must:8(a) use an estimate of the life expectancy of the customer that is reasonable and based on evidence12; and2(b) for the purposes of the illustration, where the estimate of12 life expectancy is not a whole number of12 years, the term should be rounded up to the next whole year (for example, if the life expectancy12 is between fifteen and sixteen years, an estimated term of
The amount to be specified in the illustration and 8referred to in MCOB 9.4.6 R(2) is:(1) the amount that the customer has asked to borrow, release8 or draw down; or(2) where the lifetime mortgage7 is a revolving credit agreement such as a secured overdraft or mortgage credit card:67(a) 6(if it provides for an initial drawdown and linked borrowing facilities that would allow the customer to increase the amount of the loan without any further approval from the mortgage lender)
Where the illustration relates to a lifetime mortgage7 that is sub-divided into different parts with different types of interest rate or different rates of interest or different conditions, or a combination of these, the requirements in MCOB 9.4 may be adapted to accommodate this. The adaptations made must be limited to those that are necessary.7
The following information must be included at the head of the illustration: (1) the customer's name;(2) the date of issue of the illustration;(3) details of how long the illustration is valid for, and whether there is any date by which the equity release transaction8 covered by the illustration needs to commence (for example, where a fixed interest rate is only available if the lifetime mortgage8 commences before a certain date); and8(4) the prescribed text at the head of the
(1) Unless (2) applies, under the section heading "Which service are we providing you with?" the prescribed text in MCOB 9 Annex 1 under this heading must be included with a "check box" for each statement, one of which must be marked prominently to indicate the level of service provided to the customer:(2) If the level of service described in the illustration is provided by another firm, (1) may be replaced by the following:Under the section heading "Which service are we providing
(1) Under the section heading "What you have told us", the illustration must state the information that has been obtained from the customer under MCOB 9.4.6 R and MCOB 9.3.12 R (apart from MCOB 9.4.6 R(1) and MCOB 9.4.6 R(5) which are provided for in Section 5 of the illustration ), and can include brief details of any other information that has been obtained from the customer and used to produce the illustration.(2) Where the customer requests an additional illustration showing
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
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
Where the loan under the lifetime mortgage7 is divided into more than one part (for example where part of the loan is a fixed interest rate and part of the loan is a discounted variable interest rate) and the firm displays this in a tabular format in the illustration:7(1) the following text must be used to introduce the table "As this lifetime mortgage is made up of more than one part, these parts are summarised below:";(2) each part must be numbered for ease of reference in the
Under the section heading "Benefits", the illustration must include:(1) a description of the monetary amount(s), and in a box aligned to the right of the document, the monetary amount(s) that the customer will receive as a lump sum and/or as a monthly [or such other frequency as is applicable] payment;(2) where the lifetime mortgage7 is linked to an investment and the payments required on the lifetime mortgage7 will be deducted from the income from the investment, the monetary
Examples of text that would satisfy MCOB 9.4.31 R(1), depending on the nature of the7lifetime mortgage,7 are:(1) "This lifetime mortgage will provide a lump sum of £[x].";(2) "The amount you are borrowing will automatically be used to purchase a [name of linked investment product] from [name of provider]. The amount is £[x]."; and(3) "You will receive a monthly [or such other frequency as is applicable] payment from the start of your lifetime mortgage. This will be £ [state a
The illustration must include under the heading "Risks - important things you must consider" statements and warnings on the following:(1) a brief statement of the specific circumstances in which the mortgage lender is able to repossess the property;(2) a statement of how the mortgage lender will treat any negative equity arising during the life of the lifetime mortgage7 and at the time the amount borrowed under the lifetime mortgage7 is due to be repaid in full;77(3) a statement
Under the heading "Risks - important things you must consider" the illustration must also include the following if they apply:(1) for drawdown mortgages where there is a monthly (or such other frequency as may apply) cash sum payable, a statement that inflation can erode the value of the cash sum over time; (2) where:(a) the lifetime mortgage7 is linked to an investment; and7(b) the payments required on the lifetime mortgage7 will be deducted from the income from the investment;
The section headed "What you will owe and when" (A) “Details of mortgage payments” will apply only where the terms of the lifetime mortgage either:127777(1) require the customer to make regular payments to the mortgage lender, in respect of all or part of the interest or part of the capital due under those terms, either over the duration of the lifetime mortgage or until a specified date; or12(1) expect that the customer will make such payments until he or she chooses to stop
Section 8 of the illustration must contain the following information:(1) the loan amount on which the illustration is based. This figure should include all fees, charges and insurance premiums that have been added to the loan in accordance with MCOB 9.4.21 R(3) and MCOB 9.4.21 R(4), and the following text must follow the loan amount:"which include[s] the [fees] [and] [insurance premiums] that are shown in [Section 11] [and] [Section 12] as being added to your lifetime mortgage.";(2)
MCOB 9.4.39 R(3) applies to each interest rate charged on the lifetime mortgage7 covered by the illustration. This means that it applies to different interest rates charged at different times, for example, where the interest rate changes at the end of any initial discounted, fixed or other special interest rate period.7
Where the loan under the lifetime mortgage7 is divided into more than one part (for example, where part of the loan is on a fixed interest rate and part on a discounted variable interest rate) and the firm displays the initial cost of all parts, and the total cost, in a tabular format in the illustration, MCOB 9.4.39 R(3) and MCOB 9.4.43 R do not apply; instead:7(1) each part must be numbered for ease of reference in the illustration;(2) the loan amounts must be totalled;(3) the
Section 8 headed "What you will owe and when" (B) "Projection of roll-up of interest" applies only where all or part of the interest due over the life of the lifetime mortgage7 is or may be12 added to the loan and paid to the mortgage lender on repayment of the loan. The projection should be based on the term of the lifetime mortgage7 estimated in accordance with MCOB 9.4.10 R (and if required, MCOB 9.4.12 R).77
The table showing the projection in the section headed "Projection of roll-up of interest" should show annual details in columns under the following headings:(1) "Year": this should list the years as 1,2,3... etc. The start date for year one must be an assumed date of completion of thelifetime mortgage.7 The table must show each year of the term estimated in accordance with MCOB 9.4.10 R (or if required, MCOB 9.4.12 R).7(2) "Balance at start of year": this must show the estimated
Where the customer is required to make payments to the mortgage lender on thelifetime mortgage,7 the illustration must include the following under the section heading "Will the interest rate change?":7(1) if the interest rate is fixed throughout the life of thelifetime mortgage,7 an explanation that the payments will not vary because the interest rate is fixed;7(2) if the interest rate is fixed for part of the life of thelifetime mortgage,7 an explanation of when or how increases
(1) Except where (3) applies, where the customer is required to make payments to the mortgage lender on thelifetime mortgage,7 and the customer's payments can vary with changes in interest rates at any time during the life of thelifetime mortgage,7 Section 9: "Will the interest rate change?" must also contain the following text:"The [frequency of payments from MCOB 9.4.37 R] payments shown in this illustration could be considerably different if interest rates change. For example,
The amount by which the customer's payments would increase in accordance with MCOB 9.4.54 R(1) must be calculated as follows:(1) the firm must use the total amount borrowed, or assume that all payments due on the lifetime mortgage7 have actually been paid, all additional fees and payments due have been paid, and no underpayments or overpayments have been made; and7(2) the interest rate from which the increase is calculated must be the variable interest rate charged on the lifetime
Where the customer is not required to make payments to the mortgage lender on the lifetime mortgage7 and therefore all or part of the interest is rolled up, the following information must be included under the section heading "Will the interest rate change?":7(1) if the interest rate is fixed throughout the life of thelifetime mortgage,7 an explanation that the estimated debt shown in accordance with MCOB 9.4.51 R(6) will not vary because the interest rate is fixed;7(2) if the
Where the customer is not required to make payments to the mortgage lender on the lifetime mortgage7 and therefore all or part of the interest is rolled up, Section 9: "Will the interest rate change?" must also contain (if applicable):7(1) if the interest rate is variable, the following text:"If the interest rate increases, the amount you owe will also increase. If the interest rate was [one percentage point higher than shown MCOB 9.4.51 R(4)(b)] throughout the example term of
Where the customer is required to make payments to the mortgage lender on the lifetime mortgage7 in respect of the interest payable, and therefore the amount outstanding on the lifetime mortgage7 will broadly remain unchanged, Section 10: "How the value of your home could change" must contain the following text:"The amount you owe will usually stay the same over the life of the mortgage so the amount due to [name of mortgage lender] when the mortgage is repaid will be [amount
Where the customer is not required to make payments to the mortgage lender on the lifetime mortgage7 and therefore all or part of the interest is rolled up, Section 10: "How the value of your home could change" must contain the following text:"When you look at how the amount you owe [goes][may go]12 up, remember also that property prices can go up or down, and this can affect the amount of money left over for you or your estate after the mortgage is repaid to [name of mortgage
Under the section heading "What fees must you pay?" the illustration must:(1) itemise all the fees that are included in the calculation of the APR in accordance with MCOB 10 (Annual Percentage Rate), excluding any charges for insurance set out in Section 12 in accordance with MCOB 9.4.72 R; and1(2) include a statement at the end of the section using the following text:"You may have to pay other taxes or costs in addition to any fees shown here.".
An example of a fee that would be included in Section 11 would be an administrative charge to redeem thelifetime mortgage.7 An example of a fee that would not be included would be a fee payable by the customer to insure their property elsewhere (however this would need to be stated in the separate "Insurance" section as required by MCOB 9.4.72 R). Where fees are payable only on early repayment of thelifetime mortgage.7 they should not be stated here (however these fees would need
The following information must be provided for each fee included in this section of the illustration in accordance with MCOB 9.4.65 R(1):(1) a description of the fee;(2) the amount payable by the customer recorded in a column headed "Fee amount" on the right-hand side of this section;(3) for fees included under the sub-heading "Other fees", to whom the fee is payable;(4) when the fee is payable;(5) whether or not the fee is refundable, and if so, the extent to which it is refundable;(6)
(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)
(1) Under the section heading "Insurance" the illustration must include details of:(a) insurance which is a tied product and(b) insurance which is required as a condition of the lifetime mortgage7 which is not a tied product7(2) Under this section heading a firm may also provide details of insurance which is optional for the customer to take out.(3) It must be clear to the customer which products he is required to purchase under which circumstances (for example, where both a tied
Under the sub-heading 'Insurance you must take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]' the following information must be included if the lifetime mortgage7 requires the customer to take out insurance that is a tied product either through the mortgage lender or where relevant the mortgage intermediary:7(1) details of which insurance is a tied product;(2) for how long the customer is obliged to purchase the insurance;(3)
If the lifetime mortgage7 does not require the customer to take out insurance as a tied product, the sub-heading "Insurance you must take out through [insert name of mortgage lender and where relevant the name of the mortgage intermediary] "must be retained and a statement must be provided under this heading that the customer is not obliged to take out any insurance through the mortgage lender or, where relevant, the mortgage intermediary.7
The following information must be included 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]":(1) if the lifetime mortgage7 requires the customer to take out an insurance policy (other than that which is a tied product which the customer is obliged to purchase through the mortgage lender or where relevant
Under the heading "What happens if you do not want this mortgage any more?", the illustration must include the following information on the lifetime mortgage:77(1) under the sub-heading "Early repayment charges":(a) an explanation of whether early repayment charges are payable;(b) an explanation of when early repayment charges are payable;(c) an explanation of any other fees that are payable if the lifetime mortgage7 is repaid early, and the current level of these fees;7(d) a
(1) In calculating example cash amounts in accordance with MCOB 9.4.83 R(1)(e), it must be assumed that:(a) the lifetime mortgage7 is repaid in full;7(b) all payments due (if applicable) on the lifetime mortgage7 are actually paid;7(c) additional fees and charges such as insurance premiums have been paid; and(d) no underpayments or overpayments (if applicable) have been made.(2) If:(a) cashbacks or other incentives need to be repaid; or(b) fees need to be paid;the amounts that
Where the cash examples from MCOB 9.4.88 R included in the illustration would vary either if the interest rate charged on the lifetime mortgage7 changed or with changes in interest rates generally, an appropriate warning that the early repayment charges may vary from the cash examples must be included in the illustration.7
Under the section heading "Additional features" the illustration must include, where relevant, details of how the mortgage lender would treat any payments by the customer in excess of those required, and details of any additional features or facilities under the various sub-headings in MCOB 9.4.93 R.
(1) If none of the features at MCOB 9.4.93 R are applicable to the lifetime mortgage7 to which the illustration relates, the section headed 'Additional features' must be retained, but the sub-headings must not be included and a statement must be added to explain that there are no additional features.7(2) Only those features available on the lifetime mortgage7 need be included in the illustration.7(3) If a firm provides a customer with supplementary information about any additional
(1) Under the sub-heading 'Overpayments', the illustration must include details of any restrictions on lump sum and regular overpayments (if payments are required) on thelifetime mortgage,7 together with a statement as to whether or not the amount on which the interest is recalculated is reduced immediately on receipt of any lump sum or regular overpayment.7(2) Where such recalculation does not take place immediately (for example, if an annual rest method is used), this statement
Under the sub-heading "Additional borrowing available without further approval", the illustration must provide details of circumstances in which additional secured lending is offered with the lifetime mortgage7 that would allow the customer, subject to certain conditions, to increase the amount of the loan on which the illustration is based.7
Under the sub-heading "Additional secured borrowing", the illustration must provide details of circumstances in which additional secured lending is offered with the lifetime mortgage7 that would allow the customer, subject to certain conditions, to increase the amount of the loan on which the illustration is based.7
Under the sub-heading "Credit card", the illustration must:(1) state whether a credit card is offered with thelifetime mortgage;7 and7(2) if a credit card is offered and it is a mortgage credit card:(a) unless (b) applies, include the following text:"This card will not give you a number of the statutory rights associated with traditional credit cards. Your lifetime mortgage offer will tell you more about the differences." or(b) where the mortgage lender provides the customer with
(1) Where additional features are included in accordance with MCOB 9.4.91 R and these are credit facilities that do not meet the definition of a regulated mortgage contract or a regulated credit agreement9, the relevant parts of Section 14 of the illustration must include the following text:"This additional feature is not regulated by the FCA."1(2) Where additional features are included in accordance with MCOB 9.4.91 R and these are credit facilities that meet the definition of
Under the sub-heading "Linked current account" the illustration must include the following information:(1) whether a linked current account is a compulsory or optional product (if the current account is a compulsory product this must also be stated in Section 5 of the illustration in accordance with MCOB 9.4.24 R(7));(2) an explanation of the interest rates that apply under different circumstances to the linked current account, if different from the interest rate charged on the
Under the sub-heading "Linked savings account" the illustration must include the following information:(1) whether a linked savings account is a compulsory or optional product (if the savings account is a compulsory product this must also be stated in Section 5 of the illustration in accordance with MCOB 9.4.24 R(7));(2) the interest rate paid on the linked savings account if it differs from the interest rate charged on thelifetime mortgage;7 and7(3) the firm providing the linked
Under the section heading "Overall cost of this mortgage":(1) the following text must be included in the illustration:"The APR helps you to compare lifetime mortgages by giving you one rate that shows the overall cost of the mortgage. It takes into account some fees and charges as well as the interest due, and this means that the APR may be higher than the interest rate shown in Sections 5 and 8. Only use the APR to compare lifetime mortgages of the same type, and where the same
MCOB 9.4.111 R(3) would require, for example, a reference to the fact that the overall cost takes into account mortgage payment protection insurance where this is required as a condition of the lifetime mortgage7 to which the illustration relates. The requirement to take out such insurance must be stated in Sections 5 and 12 of the illustration in accordance with MCOB 9.4.24 R(7), MCOB 9.4.72 R or MCOB 9.4.76 R.7
(1) The APR and the total amount payable in MCOB 9.4.113 R must be calculated on the basis of information obtained from the customer in accordance with MCOB 9.4.6 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
The purpose of the illustration is to provide the customer with details of the cost of borrowing the amount required over the example term from MCOB 9.4.6 R and MCOB 9.4.10 R (or MCOB 9.4.12 R). Section 14 has been designed specifically to allow examples of the effect of any additional features of the lifetime mortgage7 such as a linked current account. Examples of these features should therefore be shown in Section 14 and not in Section 15 or Section 8 of the illustration.7
Where the illustration is issued to a customer by, or on behalf of, a mortgage intermediary, Section 16 "Using a mortgage intermediary" must be included in the illustration and must include the following:(1) unless MCOB 9.4.120 R applies, a clear statement of the amount payable (either directly or indirectly) by the mortgage lender to the mortgage intermediary, or to any third parties; and(2) the name of the mortgage lender who will make the payment, the name of the mortgage intermediary
If the customer's liability under a lifetime mortgage7 is in a currency other than sterling, MCOB 9.4 applies to the illustration for that lifetime mortgage7 with the following modifications:77(1) all cash amounts must be given in the relevant currency except where otherwise required by (2)(a) and (3);(2) the following information must be stated under Section 5 "Description of this mortgage"(a) the amount in sterling on which the illustration is based from MCOB 9.4.13 R based
If the lifetime mortgage7 is a shared appreciation mortgage, MCOB 9.4 applies to the illustration with the following modifications:7(1) Section 5 "Description of this mortgage" must contain the following additional information and text in this order after the details required by MCOB 9.4.24 R to MCOB 9.4.29 R:(a) "This lifetime mortgage involves [name of mortgage lender] taking a percentage share in any increase in the value of your property [insert details of all occasions when
The requirements at MCOB 9.4.130 R(1) must be immediately followed by the following additional text, prominently displayed:"You will need to pay this share in the value of your home to [name of mortgage lender] [insert time at which share must be paid - for example 'when your lifetime mortgage is repaid']. Think carefully about how this will affect the amount left over for you or your estate."10
12MCOB 9.4.132DR applies if the terms of a lifetime mortgage contract:(1) (a) require the customer to make regular payments to the mortgage lender; or(b) expect that the customer will make regular payments to the mortgage lender,in respect of all or part of the interest, or part of the capital, due under those terms, either over the duration of the lifetime mortgage or until a specified date; but(2) permit the customer to stop making the payments referred to in paragraph (1) at
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.
If only part of the loan under the lifetime mortgage is of the type described in MCOB 9.4.132AR (for example, if part of the loan is on an interest roll-up basis from the outset, and part is convertible from interest-paying to interest roll-up):(1) the modifications set out in MCOB 9.4.132DR apply only to that part of the loan that is of the type described in MCOB 9.4.132AR; and(2) the projection of roll-up of interest on the part of the loan that is on an interest roll-up basis
12MCOB 9.4 applies to the lifetime mortgageillustration with the following modifications:(1) Section 7 of the illustration (“Risks – important things you must consider”) must also include information about any fees that may be charged, and other adverse consequences (such as a change in interest rate) that may occur, as a result of the customer choosing to convert the mortgage to interest roll-up.(2) Section 8(A) of the illustration should be headed “What you will owe and when
(1) 12An illustration for the type of lifetime mortgage described in MCOB 9.4.132AR will include both Section 8(A) and Section 8(B). Section 8(A) will show the number and amount of required or expected regular payments from the start of the lifetime mortgageuntil maturity (i.e. what will happen if the mortgage never converts to an interest roll-up basis), or until the date (if any) at which the mortgage automatically converts. Section 8(B) will show what happens if the mortgage
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
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,
In relation to MCOB 5.6.6 R(3), for the firm to comply with the principle of 'fair, clear11 and not misleading' in MCOB 3A.2.1R(1)11, an estimated valuation, where the estimated valuation is not that provided by the customer, must be a reasonable assessment based on all the facts available at the time. For example, an overstated valuation could enable a more attractive regulated mortgage contract to be illustrated on the basis of a lower ratio of the loan amount to the property
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)
Where the illustration relates to a regulated mortgage contract that is sub-divided into different parts with different types of interest rate or different rates of interest or different conditions, or a combination of these, the requirements in MCOB 5.6 may be adapted to accommodate this. The adaptations made must be limited to those that are necessary.
(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
At the head of the illustration, the following information must be included:(1) the customer's name;(2) the date of issue of the illustration;(3) details of how long the illustration is valid and whether there is any date by which the regulated mortgage contract covered by the illustration needs to commence (for example, where a fixed interest rate is only available if the regulated mortgage contract commences before a certain date); and(4) the prescribed text at the head of the
(1) Under the section heading 'What you have told us', the illustration must state the information that has been obtained from the customer under MCOB 5.6.6 R (apart from MCOB 5.6.6 R(1) which is provided for in Section 4 of the illustration), and can include brief details of any other information that has been obtained from the customer and used to produce the illustration.(2) If the amount on which the illustration is based includes the amount that the customer wants to borrow
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
Where the same illustration covers a regulated mortgage contract that has different parts of the loan over a different term (that is, the final repayment date of the loan parts are different), either:(1) Section 3 of the illustration must state the amount repayable over each term; or(2) Section 3 of the illustration must state the longest term that applies and Section 4 of the illustration must state the amount repayable over each term.
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
The purpose of the illustration is to provide the customer with details of the cost of borrowing the amount required over the term specified in MCOB 5.6.6 R(2) and MCOB 5.6.6 R(4). Section 12 has been designed specifically to illustrate any additional features of the regulated mortgage contract such as a linked current account, a linked savings account or the availability of unsecured lending. These features should therefore be shown in section 12 and not in section 3 of the
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
Where the loan under the regulated mortgage contract is divided into more than one part (for example where part of the loan is a fixed interest rate and part of the loan is a discounted variable interest rate) and the firm displays this in a tabular format in the illustration:(1) the following text must be used to introduce the table 'As this mortgage is made up of more than one part, these parts are summarised below:';(2) each part must be numbered for ease of reference in the
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
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 5.6.31 R(5) and MCOB 5.6.32 R(5) would require, for example, a reference to the fact that the overall cost takes into account mortgage payment protection insurance where this is required as a condition of the regulated mortgage contract to which the illustration relates. The requirement to take out such insurance must be stated in Sections 4 and 9 of the illustration in accordance with MCOB 5.6.25 R(6), MCOB 5.6.74 R or MCOB 5.6.77 R.
(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
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 purpose of the illustration is to provide the customer with details of the cost of borrowing the amount required over the term specified from MCOB 5.6.6 R(2) and MCOB 5.6.6 R(4). Section 12 has been designed specifically to allow examples of the effect of any additional features of the regulated mortgage contract such as a linked current account or a linked savings account. Examples of these features should therefore be shown in Section 12 and not in Section 5 or Section 6
Section 6 of the illustration must contain the following information: (1) the loan amount on which the illustration is based. 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 added to your mortgage.'(2) the assumed
MCOB 5.6.42 R(3) applies to each interest rate charged on the regulated mortgage contract covered by the illustration. This means that it applies to different interest rates charged at different times, for example, where the interest rate changes at the end of any initial discounted, fixed or other special interest rate period.
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 the interest is deferred on the regulated mortgage contract, the following text must be included under the information on the deferred interest rate included in the illustration in accordance with MCOB 5.6.42 R(3):'"The interest deferred will be added to your mortgage. The table at Section [insert 6a or 6b if MCOB 5.6.55 R applies] of this illustration shows how this will affect the amount you owe.'
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 the loan under the regulated mortgage contract is divided into more than one part (for example, where part of the loan is on a fixed interest rate and part on a discounted variable interest rate) and the firm displays the initial cost of all parts, and the total cost, in a tabular format in the illustration, MCOB 5.6.42 R(3) and MCOB 5.6.46 R do not apply; instead:(1) each part must be numbered for ease of reference in the illustration;(2) the loan amounts must be totalled;(3)
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
The amount by which the customer's payments would increase in accordance with MCOB 5.6.59 R(1)(g) and (h) must be calculated as follows:(1) the firm must use the total amount borrowed, or assume that all payments due on the regulated mortgage contract have actually been paid, all additional fees and payments due have been paid, and no underpayments or overpayments have been made;(2) where all or part of the regulated mortgage contract is a repayment mortgage, the calculation must
An example of a fee that would normally be included in Section 8 would be a fee to re-inspect a property after completion of works if it is known that this fee will be charged at the time the illustration is produced. An example of a fee that would not be included would be a fee payable by the customer to insure their property elsewhere (however this would need to be stated in Section 9 of the illustration 'Insurance', as required by MCOB 5.6.77 R(2)). Fees payable upon repayment
The following information must be provided for each fee included in this section of the illustration in accordance with MCOB 5.6.66 R(1):(1) a description of the fee;(2) the amount payable by the customer recorded in a column headed 'Fee amount' on the right-hand side of this section;(3) for fees included under the sub-heading 'Other fees', to whom the fee is payable;(4) when the fee is payable;(5) whether or not the fee is refundable, and if so, the extent to which it is refundable;
(1) Under the section heading 'Insurance' the illustration must include details of:(a) insurance which is a tied product; and(b) insurance which is required as a condition of the regulated mortgage contract which is not a tied product.(2) A firm may also provide details of insurance which it is optional for the customer to take out under this section heading.(3) It must be clear to the customer which products he is required to purchase under which circumstances (for example, where
Under the sub-heading 'Insurance you must take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]' the following information must be included if the regulated mortgage contract requires the customer to take out insurance that is a tied product either through the mortgage lender or where relevant the mortgage intermediary:(1) details of which insurance is a tied product;(2) for how long the customer is obliged to purchase
If the regulated mortgage contract does not require the customer to take out insurance as a tied product, the sub-heading 'Insurance you must take out through [insert the name of the mortgage lender, and where relevant the name of the mortgage intermediary]' must be retained and a statement must be provided under this heading that the customer is not obliged to take out any insurance through the mortgage lender or, where relevant, the mortgage intermediary.
The following information must be included 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 the name of the mortgage lender, or where relevant the name of the mortgage intermediary, or both]':(1) if the regulated mortgage contract requires the customer to take out an insurance policy (other than that which is a tied product which the customer is obliged to purchase through the mortgage lender,
Under the heading 'What happens if you do not want this mortgage any more?', the illustration must include the following information on the regulated mortgage contract:(1) under the sub-heading 'Early repayment charges':(a) an explanation that the customer cannot repay the regulated mortgage contract early, if this is the case;(b) an explanation of whether early repayment charges are payable;(c) an explanation of when early repayment charges are payable;(d) an explanation of any
(1) In calculating example cash amounts in accordance with MCOB 5.6.84 R(1)(f), it must be assumed that:(a) the regulated mortgage contract is repaid in full;(b) unless the original amount borrowed is used, that all payments due on the regulated mortgage contract are actually paid;(c) additional fees and charges such as insurance premiums have been paid; and(d) no underpayments or overpayments have been made.(2) If:(a) cashbacks or other incentives need to be repaid; or(b) fees
Where the cash examples from MCOB 5.6.88 R included in the illustration would vary either if the interest rate charged on the regulated mortgage contract changed or with changes in interest rates generally, an appropriate warning that the early repayment charges may vary from the cash examples must be included in the illustration.
(1) Under the section heading 'What happens if you want to make overpayments?', the illustration must include details of any restrictions on lump sum and regular overpayments on the regulated mortgage contract, together with a statement as to whether or not the amount on which the interest charged is recalculated is reduced immediately on receipt of any lump sum or regular overpayment.(2) Where such recalculation does not take place immediately (for example, if an annual rest
(1) If none of the features at MCOB 5.6.94 R are applicable to the regulated mortgage contract to which the illustration relates, the section headed 'Additional features' must be retained, but the sub-headings must not be included and a statement must be added to explain that there are no additional features.(2) Only those features available on the regulated mortgage contract need be included in the illustration.(3) If a firm provides a customer with supplementary information
Under the sub-heading 'Additional secured borrowing', the illustration must provide details of circumstances in which additional secured lending is offered with the regulated mortgage contract that would allow the customer, subject to certain conditions, to increase the amount of the loan on which the illustration is based.
Under the sub-heading 'Credit card', the illustration must:(1) state if a credit card is offered with the regulated mortgage contract; and(2) if a credit card is offered and it is a mortgage credit card:(a) unless (b) applies, include the following text:'This card will not give you a number of the statutory rights associated with traditional credit cards. Your mortgage offer will tell you more about the differences.'; or(b) where the mortgage lender provides the customer with
(1) Where additional features are included in accordance with MCOB 5.6.92 R and these are credit facilities that do not meet the definition of a regulated mortgage contract or a regulated credit agreement10, the relevant parts of Section 12 of the illustration must include the following text:'This additional feature is not regulated by the FCA'.1(2) Where additional features are included in accordance with MCOB 5.6.92 R and these are credit facilities that meet the definition
(1) Under the sub-heading 'Linked current account', the illustration must include the following information:(a) whether a linked current account is a compulsory or optional product (if the current account is a compulsory product this must also be stated in Section 4 of the illustration in accordance with MCOB 5.6.25 R(6));(b) an explanation of the interest rates that apply under different circumstances to the linked current account, if different from the interest rate charged
(1) Under the sub-heading 'Linked savings account', the illustration must include the following information:(a) whether a linked savings account is a compulsory or optional product (if the savings account is a compulsory product this must also be stated in Section 4 of the illustration in accordance with MCOB 5.6.25 R(6));(b) the interest rate paid on the linked savings account if it differs from the interest rate charged on the regulated mortgage contract; and(c) the firm providing
(1) An amortisation table may be added to the end of the illustration after the information required by MCOB 5.6.124 R if the mortgage lender or mortgage intermediary wishes. A firm may find that this is particularly appropriate to illustrate certain types of regulated mortgage contract, for example, a regulated mortgage contract with more than one part.(2) The purpose of (1) is to permit a firm to add an amortisation table in accordance with the European Commission's 'Recommendation
If the customer's liability under a regulated mortgage contract is in a currency other than sterling, MCOB 5.6 applies to the illustration for that regulated mortgage contract with the following amendments:(1) all cash amounts must be given in the relevant currency except where otherwise required in (2)(a) and (3);(2) the following information must be stated under Section 4 'Description of this mortgage':(a) the amount in sterling on which the illustration is based from MCOB 5.6.6
If the interest rate charged on the regulated mortgage contract is deferred, MCOB 5.6 applies with the following additions:(1) A section headed: 'Effect of deferring interest on the amount you owe' must be included in the illustration after Section 6.(2) This section must be numbered 6a so that the numbering follows on consecutively from the preceding section unless MCOB 5.6.55 R applies in which case it should be numbered 6b.(3) Under the section heading the following text must
The heading for Section 6 of the illustration and the heading of the column on the right-hand side of this section must state the frequency with which payments must be made by the customer. (For example, if payments were to be made on a monthly basis, the heading for this section would be 'What you will need to pay each month' and the column would be headed 'Monthly payments'). Where no regular payments are required on the regulated mortgage contract, for example where all interest
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
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 interest rate 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
The amount by which the total amount payable would increase in accordance with MCOB 5.6.140 R(1)(e) must be calculated as follows:(1) unless the total amount borrowed is used, it must be assumed that all payments due on the regulated mortgage contract have actually been paid, all additional fees and payments due have been paid, and no under or overpayments have been made;(2) unless the total amount borrowed is used, the calculation must be based on the amount of the loan outstanding
(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) Except as provided in MCOB 11.6.3 R, MCOB 11.6.57 R (Interest roll-up mortgages) and MCOB 11.7 (Transitional arrangements):(a) before entering into, or agreeing to vary, a regulated mortgage contract or home purchase plan, a firm must assess whether the customer (and any guarantor of the customer's obligations under the regulated mortgage contract or home purchase plan) will be able to pay the sums due; and[Note: article 18(1) of the MCD]3(b) the firm must not enter into the
(1) MCOB 11.6.2 R does not apply to:(a) entering into a new regulated mortgage contract or home purchase plan as a replacement for an existing regulated mortgage contract or home purchase plan between the customer and the firm (either as the original mortgage lender or home purchase provider or as the transferee of the existing contract), whether or not the new contract relates to the same property; or(b) a variation of an existing regulated mortgage contract or home purchase
(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;
A firm may wish to impose a limit, expressed as a multiple of the customer's income, on the amount it is prepared to advance under a regulated mortgage contract or home purchase plan. Such an approach is not, of itself, inconsistent with MCOB 11.6.2 R but, in accordance with the rules in this section, the firm must be able to demonstrate that the loan is affordable, having taken full account of the customer's income and expenditure, and (for a mortgage lender) the impact of future
In taking account of the customer's income (in accordance with MCOB 11.6.5R (2)(a)) for the purposes of its assessment of whether the customer will be able to pay the sums due:(1) a firm must obtain evidence of the income declared by the customer for the purposes of the customer's application for the regulated mortgage contract or home purchase plan (or variation). The evidence, whether document-based or derived through the use of automated systems, must be of a type and for a
For the purposes of a mortgage lender's or home purchase provider's assessment of whether the customer will be able to pay the sums due:(1) the committed expenditure of a customer in MCOB 11.6.5R (2)(b)(i) is his credit and other contractual commitments which will continue after the regulated mortgage contract or home purchase plan (or variation) is entered into;(2) the basic essential expenditure of a customer's household in MCOB 11.6.5R (2)(b)(ii) comprises expenditure for:
(1) Examples of evidence of income in MCOB 11.6.12R (1) are payslips and bank statements.(2) If a firm obtains details of the customer's credit commitments from the customer, it should corroborate the information, for example by making a credit reference agency search or checking credit card or bank statements.(3) Where the customer's credit or contractual commitments are due to end shortly after the regulated mortgage contract or home purchase plan (or variation) has been entered
If a firm is, or should reasonably be aware from information obtained during the application process, that there will, or are likely to, be future changes to the income and expenditure of the customer during the term of the regulated mortgage contract or home purchase plan, the firm must take them into account when assessing whether the customer will be able to pay the sums due for the purposes of MCOB 11.6.2 R.
(1) Examples of future changes to income and expenditure in MCOB 11.6.14 R are: reductions in income that may come about following the customer's retirement; where it is known that the customer is being made redundant; or where the firm is aware of another loan commitment that will become due during the term of the regulated mortgage contract or home purchase plan, such as an equity loan to assist in property purchase.(2) If the term of a regulated mortgage contract or home purchase
(1) This rule applies where: (a) a purpose of a regulated mortgage contract or home purchase plan (or variation) is debt consolidation; and (b) for a first charge regulated mortgage contract, 4the customer is a credit-impaired customer.(2) Subject to (3), where each of the conditions in (1) is satisfied and, if the debts which are to be repaid using the sums raised by the regulated mortgage contract or home purchase plan (or variation) were not repaid, the transaction would not
(1) Under MCOB 11.6.5R (4), in taking account of likely future interest rate increases for the purposes of its assessment of whether the customer will be able to pay the sums due, a mortgage lender must consider the likely future interest rates over a minimum period of five years from the expected start of the term of the regulated mortgage contract (or variation), unless the interest rate under the regulated mortgage contract is fixed for a period of five years or more from that
(1) 3Under MCOB 11.6.5R (4), in taking account of likely future interest rate increases for the purposes of its assessment of whether the customer will be able to pay the sums due, a second charge lender must also consider the likely future interest rates of any regulated mortgage contract in existence at the time of the assessment and remaining in existence after the relevant second charge regulated mortgage contract has been entered into.(2) The second charge lender must, at
In relation to MCOB 11.6.18R (2):(1) an example of market expectations is the forward sterling rate published on the Bank of England website. A mortgage lender should not use its own forecast; and (2) a mortgage lender should not link its determination to market expectations without considering the likely effect of rate changes in accordance with the market expectations on the specific regulated mortgage contract in question.
A firm must put in place, and operate in accordance with, a written policy (which may be contained in more than one document), approved by its governing body, setting out the factors it will take into account in assessing a customer's ability to pay the sums due. The policy must address the following matters:(1) how income and expenditure is to be assessed, including (except as provided in MCOB 11.6.32R (1) and MCOB 11.6.39R (1)): (a) details of the types of income which are acceptable;
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
In taking account (in accordance with MCOB 11.6.26R (2)) of the customer's income or net assets (or both) and the resources of the business for the purposes of its assessment of whether the customer will be able to pay the sums due: (1) a firm must obtain evidence of the income or net assets (or both) of the customer and the resources of the business, as declared by the customer for the purpose of the customer's application for the regulated mortgage contract (or variation); and
If a firm is, or should reasonably be aware from information obtained during the application process, that there will, or are likely to, be future changes to the income and expenditure of the customer, or the resources of the business, during the term of the regulated mortgage contract, the firm must take them into account when assessing whether the customer will be able to pay the sums due for the purposes of MCOB 11.6.2 R.
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
In taking account of the customer's income or net assets (or both) (in accordance with MCOB 11.6.34R (2)(a)) for the purposes of its assessment of whether the customer will be able to pay the sums due: (1) a firm must obtain evidence of the income or net assets (or both) declared by the customer for the purpose of the customer's application for the regulated mortgage contract (or variation); and(2) a firm must not accept self-certification of income by the customer, and the source
If a firm is, or should reasonably be, aware from information obtained during the application process, that there will, or are likely to, be future changes to the income and expenditure of the customer during the term of the regulated mortgage contract, the firm must take them into account when assessing whether the customer will be able to pay the sums due for the purposes of MCOB 11.6.2 R.
(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;
In complying with MCOB 11.6.41R (1), where a customer'srepayment strategy is the sale of the property which is the subject of the regulated mortgage contract, a mortgage lender may wish to consider, as part of its assessment of that repayment strategy, factors such as the equity in the property when considered in relation to the level of property prices in the relevant area at the time of the consideration or, for a lifetime mortgage, the borrower’s life expectancy.
(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
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
Except in relation to a secured overdraft which is solely for a business purpose or is with a high net worth mortgage customer:(1) when considering extending the term of a bridging loan, a mortgage lender must comply with MCOB 11.6.2 R as if the bridging loan were a new loan;(2) where MCOB 11.6.2 R does not apply in relation to extending the term of a bridging loan (because the bridging loan is an interest roll-up mortgage, and therefore MCOB 11.6.57 R applies), the mortgage lender
A mortgage lender may not enter into an interest roll-up mortgage, or vary an existing regulated mortgage contract so that it becomes an interest roll-up mortgage, unless it is:(1) a lifetime mortgage; or(2) a bridging loan; or(3) a loan to a high net worth mortgage customer; or(4) a loan solely for business purposes; or3(5) a shared equity credit agreement.3
(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
Article 61(3)(a) of the Regulated Activities Order defines a regulated mortgage contract as a contract which, at the time it is entered into, satisfies the following conditions:(1) the contract is one where a lender provides credit to an individual or trustees (the 'borrower');(2) the contract provides for the obligation of the borrower to repay to be secured by a mortgage on land in the EEA;5 and5(3) at least 40% of that land is used, or is intended to be used, as or in connection
5A contract is not a regulated mortgage contract if it is:(1) a loan to a commercial borrower excluded under PERG 4.4.17 G or PERG 4.4.21 G; or(2) a second charge loan by a credit union excluded under PERG 4.4.24 G; or(3) a second charge bridging loan excluded under PERG 4.4.27 G;66(4) a CBTL credit agreement excluded as described in PERG 4.4.31G.6
(1) Article 61(3)(c) of the Regulated Activities Order states that credit includes a cash loan and any other form of financial accommodation. Although 'financial accommodation' has a potentially wide meaning, its scope is limited by the terms used in the definition of a regulated mortgage contract set out in PERG 4.4.1 G. Whatever form the financial accommodation may take, article 61(3)(a) envisages that it must include 7an obligation to repay on the part of the individual who
The condition set out in PERG 4.4.1G (1) limits the range of borrowers to whom the protections of the mortgage regulation regime apply to individuals and trustees. If a company (which is not acting as a trustee) borrows money for the purpose of funding the company's business, and the loan is secured by a mortgage over the company's property, the mortgage contract is not a regulated mortgage contract. So a lender will not carry on a regulated activity by entering into that contract,
(1) 5A loan to a trustee is caught, even if the trustee or the beneficiary is not an individual.(2) Therefore, it is possible that a loan to a trustee acting for a large commercial company is a regulated mortgage contract.(3) In practice, the exclusions for loans to commercial borrowers (in particular, see PERG 4.4.17 G and PERG 4.4.21 G) are likely to prevent such loans from being regulated mortgage contracts.(4) If:(a) the loan is made to a trustee;(b) the trustee is a bare
In order to meet the definition of a regulated mortgage contract, a mortgage contract must meet the conditions set out in PERG 4.4.1G (1) to PERG 4.4.1G (3) at the time it was entered into. The effect is that contracts which meet those conditions at that time remain regulated mortgage contracts throughout their remaining term, even if there are periods of time when some or all of the conditions are not satisfied. Conversely, contracts that do not start out as regulated mortgage
There may, however, be instances where an existing contract, which was not a regulated mortgage contract at the time it was entered into, is replaced as a result of a variation (whether the variation is initiated by the customer or by the lender), and the new contract qualifies as a regulated mortgage contract. A person may therefore need to consider this possibility (which could affect contracts initially entered into before 31 October 2004 as well as subsequent loans) when deciding
The condition set out in PERG 4.4.1G (2) means that a regulated mortgage contract must be secured on land in the EEA.55 Contracts which involve taking security over moveable property therefore cannot be regulated mortgage contracts. So a contract secured on a caravan will not be a regulated mortgage contract, unless the contract also involves a mortgage over the land on which the caravan stands.
5The most obvious example of a regulated mortgage contract is a loan made to an individual to enable the individual to buy a home for themselves where the loan is secured on that home. However, there is no requirement that the borrower should occupy the property. There is a requirement that at least 40% of the land should be used as a house, but no requirement that it is the borrower who uses it as a house. So, for example:(1) a loan may be a regulated mortgage contract if the
The expression 'as or in connection with a dwelling' set out in PERG 4.4.1G (3) means that loans to buy a small house with a large garden would in general be covered. However, if at the time of entering into the contract the intention was for the garden to be used for some other purpose – for example, if it was intended that a third party were to have use of the garden – the contract would not constitute a regulated mortgage contract. Furthermore, the FCA would not regard a loan
The definition of regulated mortgage contract contains no reference to the purpose for which the loan is being made. So, in addition to loans made to individuals to purchase residential property, the definition is wide enough to cover other loans secured on land, such as loans to consolidate debts, or to enable the borrower to purchase other goods and services.
The definition of regulated mortgage contract also covers a variety of types of product. Apart from the normal mortgage loan for the purchase of property, the definition also includes other types of secured loan, such as secured overdraft facility, a bridging loan (although bridging loans described in PERG 4.4.27 G are not regulated mortgage contracts)5,4 a secured credit card facility and regulated lifetime mortgage contracts under which the borrower (usually an older person)
5A contract is excluded from the definition of regulated mortgage contract if, at the time it is entered into, it meets the following conditions:(1) it meets the conditions in PERG 4.4.1G (1) to (3); and(2) less than 40% of the land secured by the mortgage is used, or intended to be used, as or in connection with a dwelling by the borrower or (for credit provided to trustees) by an individual who is a beneficiary of the trust, or by a related person; and(3) the agreement is entered
(1) 5If less than 40% of the land secured by the mortgage is used, or intended to be used, as or in connection with a dwelling then the exclusion for loans to commercial borrowers described in PERG 4.4.17 G is irrelevant, as the loan falls outside PERG 4.4.1 G and so cannot be a regulated mortgage contract.(2) The exclusion becomes relevant (if all the conditions in PERG 4.4.17 G are met) if at least 40% of the land secured by the mortgage is used, or intended to be used, as or
5There is also an exclusion for loans to commercial borrowers secured by a second or subsequent security. A contract is excluded from the definition of regulated mortgage contract if, at the time it is entered into, it meets the following conditions:(1) it meets the conditions in PERG 4.4.1G (1) to (3); and(2) the lender provides the borrower with credit exceeding £25,000; and(3) the mortgage ranks in priority behind one or more other mortgages affecting the land in question;
(1) 5There is no exclusion from the £25,000 floor in PERG 4.4.21G (2) for an item entering into the total charge for credit.(2) Giving time for payment of interest if the borrower gets into difficulty, does not affect the calculation of the sum as the definition relates to the time at which the contract is entered into.(3) However, for example, if the credit includes a broker fee, that fee may be excluded in the calculation of the floor.
5A contract is excluded from the definition of regulated mortgage contract if, at the time it is entered into, it meets the following conditions:(1) it meets the conditions in PERG 4.4.1G (1) to (3); and(2) the lender is a credit union; and(3) it is a borrower-lender agreement; and(4) the mortgage ranks in priority behind one or more other mortgages affecting the land in question; and(5) the rate of the total charge for credit does not exceed 42.6 per cent.
5A contract is excluded from the definition of regulated mortgage contract if, at the time it is entered into, it meets the following conditions:(1) it meets the conditions in PERG 4.4.1G (1) to (3); and(2) it is a borrower-lender-supplier agreement financing the purchase of land; and(3) it is used by the borrower as a temporary financing solution while changing to another financial arrangement for the land secured by the mortgage; and(4) the mortgage ranks in priority behind
10A contract is excluded from the definition of regulated mortgage contract if, at the time is entered into, it meets the following conditions:(1) it is a bridging loan described in PERG 4.13.6G;(2) it is secured by an equitable mortgage on land; and(3) it is an exempt agreement within the meaning of article 60B(3) (regulated credit agreements) of the Regulated Activities Order by virtue of article 60E(2): in summary, the lender is a local authority, or the agreement is specified
10A contract is excluded from the definition of regulated mortgage contract if, at the time is entered into, it meets the following conditions:(1) it provides for credit to be granted by a ‘housing authority’ within the meaning of article 60E of the Regulated Activities Order. The definition in article 60E includes housing associations registered under the relevant housing legislation (see PERG 2.7.19FAG);(2) if entered into on or after 21 March 2016:(a) it is an agreement of
5The two exclusions for loans to commercial borrowers (PERG 4.4.17 G and PERG 4.4.21 G) depend on the borrower not being a consumer. For these purposes, if an agreement includes a declaration which:(1) is made by the borrower; and(2) includes:(a) a statement that the agreement is entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower;(b) a statement that the borrower understands that the borrower
(1) 1MCOB 4.7A sets out standards to be observed by firms when advising a particular customer on regulated mortgage contracts.(2) The rules at MCOB 4.8A require firms which are selling regulated mortgage contracts to, or entering into variations of existing regulated mortgage contracts with, certain types of vulnerable customer, to provide advice to them.(3) The rules at MCOB 4.8A also provide that advice must be given wherever the sales process involves spoken or other interactive
For the purposes of MCOB 4.7A.2 R:(1) a regulated mortgage contract will not be suitable for a customer unless the regulated mortgage contract is appropriate to the needs and circumstances of the customer;(2) a firm must base its determination of whether a regulated mortgage contract is appropriate to a customer's needs and circumstances on the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware;(3) no
When a firm assesses whether the regulated mortgage contract is appropriate to the needs and circumstances of the customer for the purposes of MCOB 4.7A.5R (1), the factors it must consider include the following, insofar as relevant:(1) whether the customer's requirements appear to be within the mortgage lender's known eligibility criteria for the regulated mortgage contract;(2) whether it is appropriate for the customer to have an interest-only mortgage, a repayment mortgage,
In relation to MCOB 4.7A.6R (2), where a firm has identified an interest-only mortgage as appropriate for a customer, the firm must ensure that the customer is aware that he will have to demonstrate to the mortgage lender that he will have in place a clearly understood and credible repayment strategy, in order for the mortgage lender to be able to satisfy MCOB 11.6.41R (1).
(1) 3In considering whether a retirement interest-only mortgage that will be used to release capital is appropriate to the needs and circumstances of the customer for the purposes of MCOB 4.7A.2R, a firm must consider, in addition to the factors set out in MCOB 4.7A.6R, whether the benefits to the customer outweigh any adverse effect on:(a) the customer’s entitlement (if any) to means-tested benefits; and(b) the customer’s tax position.(2) In considering the factors set out in
If a firmadvises a customer to enter into a regulated mortgage contract with a term of a particular length so that MCOB 4.7A.11 R to MCOB 4.7A.13 R do not apply because the regulated mortgage contract does not fall within the definition of a bridging loan, that advice may be relied on as tending to show contravention of MCOB 2.5A.1 R (The customer’s best interests).
2When a firm assesses whether a shared equity credit agreement is appropriate to the needs and circumstances of the customer for the purposes of MCOB 4.7A.5R (1) it must consider, in addition to the factors listed in MCOB 4.7A.6 R, whether it is appropriate for the customer to: (1) take out the shared equity credit agreement for a particular term, taking into account the customer's intentions about the repayment of that shared equity credit agreement and the term of the customer's
When a firmadvises a customer in relation to entering into a regulated mortgage contract where the main purpose for doing so is the consolidation of existing debts by the customer, in addition to the factors at MCOB 4.7A.6 R, it must also take account of the following, where relevant, in assessing whether the regulated mortgage contract is suitable for the customer:(1) the costs associated with increasing the period over which a debt is to be repaid;(2) whether it is appropriate
When advising a customer on the suitability of a regulated mortgage contract, a firm must explain to the customer that the assessment of whether the regulated mortgage contract is appropriate to his needs and circumstances is based only on the customer's current circumstances and any reasonably foreseeable changes to those.
Different considerations apply when giving advice to a customer with a payment shortfall. For example, the circumstances of the customer may mean that, viewed as a new transaction, a customer should not be advised to enter into a regulated mortgage contract. In those cases, a firm may still be able to give advice to that customer where the regulated mortgage contract concerned is, in the circumstances, a more suitable one than the customer's existing regulated mortgage contra
In complying with MCOB 4.7A.5R (1) a firm is not required to consider whether it would be preferable for the customer to:(1) purchase a property by using his own resources, rather than by borrowing under a regulated mortgage contract (save for where the customer is seeking to enter into a shared equity credit agreement (see MCOB 4.7A.14AR (4);2 or(2) rent a property, rather than purchase one; or(3) delay entering into a regulated mortgage contract until a later date (on the grounds
MCOB 4.7A.5R (3) means that where the advice is not provided on an unlimited range of products from across the relevant market, the assessment of suitability should not be limited to the types of regulated mortgage contracts which the firm offers. A firm cannot recommend the 'least worst' regulated mortgage contract where the firm does not have access to products appropriate to the customer's needs and circumstances. This means, for example, that a firm dealing solely in the credit-impaired
(1) A firm must provide the customer with an illustration for a regulated mortgage contract before the customer submits an application for that particular regulated mortgage contract to a mortgage lender, unless an illustration for that particular regulated mortgage contract has already been provided.(2) Except in the circumstances in MCOB 5.5.1A R, a1firm must provide the customer with an illustration for a regulated mortgage contract when any of the following occurs, unless
The effect of the requirements at MCOB 5.3.1 R and MCOB 5.5.1 R(1) is that if a customer's application to enter into a regulated mortgage contract with a mortgage lender, made via a mortgage intermediary, is subsequently passed by that mortgage intermediary to another mortgage lender, then the mortgage intermediary must ensure that the application is amended and the customer is provided with an illustration for the other mortgage lender'sregulated mortgage contract before the
The effect of the requirements at MCOB 5.5.1 R(1) and MCOB 5.5.4 R is that a customer will be deemed to be committed to an application if, for example, he pays a product related fee (including a valuation fee) or provides electronic or verbal authority to process an application. It is not necessary for a customer to provide a mortgage lender with a completed application form to submit an application for a regulated mortgage contract.
Where a firm has already provided an illustration in accordance with MCOB 5.5.1 R and the terms for the proposed regulated mortgage contract are subsequently materially altered, the firm must ensure that the customer is provided with a revised illustration, before acting on the amendment, when the change occurs at the point at which a customer submits an application for the regulated mortgage contract.
What constitutes 'materially altered' requires consideration of the facts of each individual case. For example, a change of product such that the underlying terms and conditions of the regulated mortgage contract have changed should normally be regarded as material, as would an additional charge, such as a higher lending charge, applying to the regulated mortgage contract when it did not previously.
(1) If, at the point an illustration must be provided in accordance with MCOB 5.5.1 R, a firm is uncertain whether the contract will be a regulated mortgage contract, the firm must:(a) provide an illustration; or(b) seek to obtain from the customer information that will enable the firm to ascertain whether the contract will be a regulated mortgage contract.(2) Where (1)(b) applies, an illustration must be provided, unless, on the basis of the information the customer provides,
If the firm has reasonable evidence that the contract is not a regulated mortgage contract and has not provided an illustration before a customer submits an application, and it is subsequently found that the contract is a regulated mortgage contract, there is no requirement to provide a separate illustration at that stage. However, the requirement to integrate an illustration into the offer document at MCOB 6.4.1 R will apply.
Where the customer requests an illustration for1 a particular regulated mortgage contract (see MCOB 5.5.1 R (2)(d)), the purpose of MCOB 5.5.15 R, MCOB 5.5.16 R and MCOB 5.5.17 G is to ensure that the customer receives an illustration without unnecessary delay. These requirements do not restrict the information that the firm may obtain from the customer after it has provided the customer with an illustration.11
In meeting a request for an illustration in accordance with MCOB 5.5.1 R (2)(d)11, the firm must not delay the provision of the illustration by requesting information other than:1(1) the information necessary to personalise the illustration in accordance with MCOB 5.6.6 R, if the firm does not already know it;(2) where the firm acts in accordance with MCOB 5.5.11 R(2), such information as is necessary to ascertain whether or not the contract will be a regulated mortgage contract;(3)
If, on the basis of the information obtained from the customer or on the basis of information that the firm already holds on the customer, the firm would do business with the customer, but not on the terms requested, the firm may provide the customer with an illustration in respect of a different regulated mortgage contract if it chooses to do so.
Article 53A of the Regulated Activities Order (Advising on regulated mortgage contracts) makes advising on regulated mortgage contracts a regulated activity. This covers advice which is both:(1) given to a person in his capacity as borrower or potential borrower; and(2) advice on the merits of the borrower:(a) entering into a particular regulated mortgage contract (whether or not the entering into is done by way of business); or(b) varying the terms of a regulated mortgage contract
In the FCA's view, the circumstances in which a person is giving advice on the borrower varying the terms of a regulated mortgage contract so as to vary his obligations under the contract include (but are not limited to) where the advice is about:(1) the borrower obtaining a further advance secured on the same land as the original loan; or(2) a rate switch or a product switch (that is, where the borrower does not change lender but changes the terms for repayment from, say, a variable
Advice will come within the regulated activity in article 53A of the Regulated Activities Order only if it relates to a particular regulated mortgage contract (or several different regulated mortgage contracts). The question is whether a recommendation is made to a customer which either explicitly or implicitly steers the customer to a particular regulated mortgage contract because of its features.
In the FCA's view, guiding a person through scripted questions or a decision tree should not, of itself, involve advice within the meaning of article 53A (it should be generic advice). But the combination of advice, which in isolation may properly be considered generic, with the identification of a particular or several particular regulated mortgage contracts may well, in the FCA's view, cause the person to be advising on regulated mortgage contracts; the FCA considers that it
For the purposes of article 53A, advice must be given to or directed at someone who is acting as borrower or potential borrower. As indicated in PERG 4.4.2 G (Which borrowers?), this means the individual or trustee to whom the credit has been provided by the lender or who is looking to obtain the credit on the security of his property. Advice given to a body corporate will not generally be caught because the advice will not concern a regulated mortgage contract, as defined. But
Article 53A will not, for example, apply where advice is given to persons who receive it as:(1) a lender under or administrator of a regulated mortgage contract; or(2) an adviser who may use it to inform advice given by him to others; or(3) a journalist or broadcaster; or(4) an agent of a borrower unless appointed as the borrower's attorney and therefore entering into the regulated mortgage contract as agent (or proxy) for the borrower.
Information relating to entering into regulated mortgage contracts may often involve one or more of the following:(1) an explanation of the terms and conditions of a regulated mortgage contract, whether given orally or in writing or by providing leaflets and brochures;(2) a comparison of the features and benefits of one regulated mortgage contract with another;(3) the production of scripted questions for the borrower to use in order to exclude options that would fail to meet his
Without explicit or implicit advice on the merits of entering into as borrower or varying the terms of a regulated mortgage contract, advice will not fall under article 53A if it is advice on the likely meaning of uncertain provisions in a regulated mortgage contract or on how to complete an application form.
Undertaking the process of scripted questioning gives rise to particular issues concerning advice. These mainly involve two aspects of this regulated activity. These are that advice must relate to a particular regulated mortgage contract (see PERG 4.6.5 G) and the distinction between information and advice (see PERG 4.6.13 G). Whether or not scripted questioning in any particular case is advising on regulated mortgage contracts will depend on all the circumstances. If the process
The potential for variation in the form, content and manner of scripted questioning is considerable, but there are two broad types. The first type involves providing questions and answers which are confined to factual matters (for example, whether a borrower wishes to pay a fixed or variable rate of interest or the size of deposit available). In the FCA's view, this does not of itself amount to advising on regulated mortgage contracts, as it involves the provision of information
The second type of scripted questioning involves providing questions and answers incorporating opinion, judgement or recommendations (for example, whether a repayment mortgage or interest-only mortgage is a better option or whether interest rates are likely to rise). There are various possible scenarios, including the following:(1) the scripted questioning may not lead to the identification of any particular regulated mortgage contract; in this case, the questioner has provided
In the scenarios identified inPERG 4.6.23G (3)1 andPERG 4.6.24G (2)1, the FCA considers that it is necessary to look at the process and outcome of scripted questioning as a whole. It may be that the element of advice incorporated in the questioning may properly be viewed as generic advice if it were considered in isolation. But, although the actual advice may be generic, the process has ended in identifying one or more particular regulated mortgage contracts. The combination of
The main exclusion from advising on regulated mortgage contracts relates to advice given in periodical publications, regularly updated news and information services and broadcasts (article 54 of the Regulated Activities Order (Advice given in newspapers etc)). The exclusion applies if the principal purpose of any of these is neither to give advice of the kind to which article 53 (Advising on investments) or article 53A applies nor to lead or enable persons to:(1) acquire or dispose
2Further examples of what is and is not regulated advice
This table belongs to PERG 4.6.33 G.
Example of what the firm3 says and does 3 |
Regulated or not? |
(1) The firm says “We have a wide range of mortgages, including fixed and variable rates. Here are some leaflets which set out the main features.” |
No. Leaflets that just explain the terms and conditions of a lender’s products are not advice (see PERG 4.6.15G (1)). Even if the leaflet contains promotional material, merely handing over the leaflet does not mean that the firm is giving advice. |
(2) The firm says “We have a wide range of mortgages, our best rates are two-year fixed rates, you might want to look at those.” |
Yes. The firm has identified specific products that it offers and is steering the customer to those products. Identifying which products have the lowest rates is not advice on its own, only facts. However, “best” involves a value judgment, particularly when a comparison is made with other products that have different periods for which interest is fixed or that have variable interest rates. |
(3) The firm says “In order to provide you with an illustration, I need to know how much you want to borrow, the term and the property value. Which product or products would you like an illustration for?” |
No. The firm is collecting factual information to provide the customer with an illustration of costs. |
(4) The firm says “Based on what you’ve told me I think you would be best to look at two-year fixed rates. Here is some information about our products.” |
Yes. The firm has made a judgment on what type of product is best for the customer and has identified specific products of that type that it offers. |
(5) The firm says “Our fixed rates start at 4.99% for two years with a £900 fee. Our variable rates start at 4.50% with a £800 fee. Depending on how much you want to borrow and your circumstances, this may affect the rate available to you.” |
No. The firm is comparing two products without recommending either, nor is the firm steering the customer to one over the other. |
(6) A lender with just one mortgage product advises a customer to take out that mortgage. The lender makes it clear that it does not give advice about products other than its own. |
Yes. The lender may argue that this is not regulated advice because it is not recommending one product over another as it only has one product itself and does not give advice about the products of other lenders. However, in the FCA's view this is still regulated advice. For advice to be regulated it must be advice on the merits of entering into a particular regulated mortgage contract (or varying one). It is possible to give advice about the merits of a product without comparing that product with another. |
Note: Unless otherwise specified, the firm might be the lender or an advisory or intermediary firm. |
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A firm must give the customer reasonable notice, in advance, of:(1) any changes to the payments that the customer is required to make resulting from interest rate changes; and(2) any material change by the firm (other than changes which come within MCOB 7.6.2 R) to the terms and conditions of the regulated mortgage contract, where that change is permitted without the customer's prior consent.
A firm must notify a customer, as soon as the details are known, of who will be responsible for setting interest rates and charges on the regulated mortgage contract if any interest in the regulated mortgage contract is to be sold, assigned, or transferred, and the firm will no longer be responsible for this.
Where the customer has, in accordance with the terms of the regulated mortgage contract, taken up an additional tranche of borrowing on a mortgage that is released in tranches and this did not require any further approval of the mortgage lender, a firm must provide confirmation as soon as possible of:(1) the new amount owed by the customer under the regulated mortgage contract; (2) the amount of each payment that is due; and(3) the interest rate charged.
Before a customer submits an application to a firm for a further advance on an existing regulated mortgage contract or for a further advance that is a new regulated mortgage contract, if the further advance requires the approval of the mortgage lender, the firm must provide the customer with either8(1) an illustration that complies with the requirements of MCOB 5 (Pre-application disclosure) and MCOB 7.6.9R to MCOB 7.6.17R; or8(2) an ESIS that complies with MCOB 5A (MCD pre-application
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
For the purposes of MCOB 7.6.9 R(3) and (4):(1) a customer's existing mortgage includes a mortgage entered into prior to 31 October 2004 as well as a regulated mortgage contract;(2) the frequency of payments is that in MCOB 5.6.40 R; and (3) a firm may generally rely on information provided by the customer unless, taking a common-sense view of this information, it has reason to doubt it.
Before a customer submits an application to a firm to change all or part of a regulated mortgage contract from one interest rate to another (for example, a transfer from a variable rate regulated mortgage contract to a fixed rate regulated mortgage contract, or from one fixed rate regulated mortgage contract to another fixed rate regulated mortgage contract), the firm must provide the customer with either:77(1) an illustration for the whole loan that complies with the requirements
9Where a firm proposes to vary the term of a regulated mortgage contract so that it becomes a retirement interest-only mortgage: (1) MCOB 7.6.18R to MCOB 7.6.21G apply as though references to a rate switch were references to such a contract variation; and(2) MCOB 5.4 applies as though a reference to entering into a home finance transaction included such a contract variation.
Before a customer submits an application to add or remove a party to a regulated mortgage contract, a firm must provide any customer who will remain or become a party to the contract with either:717(1) an illustration for the whole loan that complies with the requirements of MCOB 5 (Pre-application disclosure); or7(2) an ESIS for the whole loan which complies with the requirements of MCOB 5A (MCD Pre-application disclosure).7
The FCA would not view: (1) a simple notification of the death of a party to the regulated mortgage contract as an application for the purposes of MCOB 7.6.22 R; or1(2) a guarantor as a party to a regulated mortgage contract;1so MCOB 7.6.22 R does not mean that someone becoming a surviving joint borrower on or a guarantor to the regulated mortgage contract should receive an illustration.1
MCOB 7.6.25R (1) and (2) allow7 the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading to the customer. For example, a firm may choose not to include a property valuation in the 'What you have told us' section of the illustration if the property value does not have a bearing on the terms of the regulated mortgage contract. 7
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
(1) A firm must provide the consumer with an ESIS for an MCD regulated mortgage contract before the consumer submits an application for that MCD regulated mortgage contract to an MCD mortgage lender, unless an ESIS for that MCD regulated mortgage contract has already been provided.(2) Except in the circumstances in MCOB 5A.4.2 R, a firm must provide the consumer with an ESIS for an MCD regulated mortgage contract when any of the following occurs, unless an ESIS for that MCD regulated
The effect of MCOB 5A.2.1 R and MCOB 5A.4.1R (1) is that, if a consumer's application to enter into an MCD regulated mortgage contract with a MCD mortgage lender, made through an MCD credit intermediary, is subsequently passed by that firm to another MCD mortgage lender, then the firm must ensure that the application is amended and the consumer is provided with an ESIS for the other MCD mortgage lender'sMCD regulated mortgage contract before the application is passed to the other
The effect of MCOB 5A.4.1R (1) and MCOB 5A.4.7 R is that a consumer will be deemed to be committed to an application if, for example, they pay a product-related fee (including a valuation fee) or provides electronic or verbal authority to process an application. It is not necessary for a consumer to provide an MCD mortgage lender with a completed application form to submit an application for an MCD regulated mortgage contract.
Where a firm has already provided an ESIS under MCOB 5A.4.1 R and the terms for the proposed regulated mortgage contract are subsequently materially altered or different, the firm must ensure that the consumer is provided with a revised ESIS, before acting on the amendment, when the change occurs at the point that a consumer submits an application for the MCD regulated mortgage contract.
What constitutes “materially altered” or “different” requires consideration of the facts of each individual case. For example, a change of product such that the underlying terms and conditions of the MCD regulated mortgage contract have changed should normally be regarded as material or different, as would an additional charge, such as a higher lending charge, applying to the MCD regulated mortgage contract when it did not previously.
(1) If, at the point an ESIS must be provided under MCOB 5A.4.1 R, a firm is uncertain whether the contract will be an MCD regulated mortgage contract, the firm must:(a) provide an ESIS; or (b) seek to obtain from the consumer, information that will enable the firm to ascertain whether the contract will be an MCD regulated mortgage contract.(2) Where (1)(b) applies, an ESIS must be provided, unless, on the basis of the information provided by the consumer, the firm has reasonable
Where the consumer requests an ESIS for a particular MCD regulated mortgage contract (see MCOB 5A.4.1R (2)(b)), the purpose of MCOB 5A.4.14 R, MCOB 5A.4.15 R and MCOB 5A.4.16 G is to ensure that the consumer receives an ESIS without unnecessary delay. These requirements do not restrict the information that the firm may obtain from the consumer after it has provided the consumer with an ESIS.
In meeting a request for an ESIS under MCOB 5A.4.1R (2)(b), the firm must not delay the provision of the ESIS by requesting information other than:(1) such information as is necessary to complete the ESIS in accordance with MCOB 5A.5.2 R and MCOB 5A.5.3 R, if the firm does not already know it;(2) where the firm acts in accordance with MCOB 5A.4.12R (2), such information as is necessary to ascertain whether or not the contract will be an MCD regulated mortgage contract;(3) where
If, on the basis of the information obtained from the consumer or, on the basis of information that the firm already holds on the consumer, the firm would do business with the consumer but not on the terms requested, the firm may provide the consumer with an ESIS for a different MCD regulated mortgage contract, if it chooses to do so.
3(1) This sourcebook applies to activities carried out in respect of regulated mortgage contracts, equity release transactions, home purchase plans, and regulated sale and rent back agreements. Together, these products are referred to as home finance transactions.5555377(2) Lifetime mortgages and home reversion plans are together referred to as equity release transactions.3(3) The application of most of this sourcebook is expressed by reference to four types of firm: lenders/providers,
In relation to a regulated mortgage contract for a business purpose(1) MCOB applies if the customer is not a large business customer; and(2) if MCOB applies, a firm must either:(a) comply with MCOB in full (disregarding the tailored provisions for regulated mortgage contracts for a business purpose in the remainder of MCOB); or(b) comply with MCOB in full, but taking account of all7 those tailored provisions, including MCOB 1.2.7 R.7
7In relation to a regulated mortgage contract with a high net worth mortgage customer, a firm must either:(1) comply with MCOB in full (disregarding the tailored provisions for regulated mortgage contracts with high net worth mortgage customers in the remainder of MCOB); or(2) subject to MCOB 1.2.9C R, comply with MCOB in full, but taking account of all those tailored provisions, including MCOB 1.2.7 R.
(1) In order for a loan to fall within the definition of a regulated mortgage contract, at least 40% of the total of the land to be given as security must be used as or in connection with a dwelling. Therefore, the variation in approach provided for in MCOB 1.2.3 R(2) can only apply where the loan being used for a business purpose is secured against a property at least 40 per cent of which is used as a dwelling. It cannot apply to a loan secured on property that is used solely
In relation to a regulated mortgage contract for a business purpose or with a high net worth mortgage customer7, if a firm has opted for the tailored route, it must adopt the following modifications to the sourcebook:333(1) 11substitute an alternative description of the facility provided under the regulated mortgage contract for 'mortgage' where that term is used in any disclosure;733337(2) substitute the term 'illustration' for ‘Key facts illustration’ when opting to use the
The disclosure rules in MCOB place particular emphasis on the description of borrowing. Where the regulated mortgage contract is for a business purpose or with a high net worth mortgage customer7 who is not a consumer under an MCD regulated mortgage contract8, a firm should reflect this emphasis in any disclosure by first describing any borrowing before addressing the other facilities provided under the regulated mortgage contract.
10Where the regulated mortgage contract is a legacy CCA mortgage contract, the firm should not treat the customer as a high net worth mortgage customer for the purposes of MCOB unless it is aware from evidence in its possession that the customer satisfied the definition of high net worth mortgage customer at the time the contract was entered into.
- (1)
8The provisions in the table in (2) apply only in relation to an MCD regulated mortgage contract.
- (2)
This table belongs to (1).
Chapter
Provisions
Whole chapter
MCOB 3A.2.4R(2) and MCOB 3A.5
Whole chapter
MCOB 4.4A.4R (1)(a) and (3), MCOB 4.4A.8R (1)(d) and MCOB 4.4A.8R (2)(e)
Whole chapter
Whole chapter
Whole chapter
Whole chapter
Whole chapter
Whole chapter
Whole chapter
- (1)
8In the table in (2), the provisions in column (1) apply in relation to an MCD regulated mortgage contract instead of the provisions in column (2).
- (2)
This table belongs to (1).
(1) MCD requirement
(2) Non-MCD requirement
MCOB 7.6.7R to 7.6.17
(1) 8 For any regulated mortgage contract which is not an MCD regulated mortgage contract, a firm may elect to comply with any part of MCOB as if the contract was an MCD regulated mortgage contract. (2) Where the contract in (1) is an MCD exempt lifetime mortgage that is not a retirement interest-only mortgage12, the firm must continue to provide an illustration in accordance with the relevant requirements in MCOB, rather than an ESIS.
8The purpose of MCOB 1.2.16 R is to allow a firm to apply provisions of MCOB which implement the MCD for an MCD regulated mortgage contract to regulated mortgage contracts that are not MCD regulated mortgage contracts, save in respect of MCD exempt lifetime mortgages (other than retirement interest-only mortgages)12 where the firm must continue to provide an illustration in accordance with the relevant requirements in MCOB, rather than an ESIS.
8A firm that makes the election in MCOB 1.2.16 R to treat an MCD exempt bridging loan as if it were an MCD regulated mortgage contract must calculate the APRC for the MCD exempt bridging loan by applying the following additional assumptions:(1) the total amount of credit must be deemed to be drawn down in full and for the duration of the MCD exempt bridging loan; and (2) if the duration of the MCD exempt bridging loan is not known, the APRC must be calculated on the assumption
(1) 8To meet the definition of an MCD credit agreement (including a foreign currency loan), a contract must come within the definition at the time it is entered into.(2) The effect of (1) is that: (a) a contract which, at the time it is entered into, comes within the definition of an MCD regulated mortgage contract (and a foreign currency loan where applicable) remains an MCD regulated mortgage contract (and a foreign currency loan where applicable) throughout its remaining term,
(1) 10By virtue of amendments to articles 60B, 60C and 61 of the Regulated Activities Order which came into force on 21 March 2016, certain regulated credit agreements became regulated mortgage contracts (but see the transitional provisions described in (3) below). The provisions of MCOB that apply to these regulated mortgage contracts include:(a) MCOB 7 (Disclosure at start of contract and after sale);(b) MCOB 12 (Charges); and(c) MCOB 13 (Arrears, payment shortfalls and repossessions:
(1) 1MCOB 8.5A sets out standards to be observed by firms when advising a particular customer on equity release transactions.(2) The rules at MCOB 8.6A require firms selling equity release transactions to provide advice to the customer, subject to the customer's right to reject advice which has been given and to proceed on an execution-only basis.
For the purposes of MCOB 8.5A.2 R: (1) an equity release transaction will not be suitable for a customer unless the equity release transaction is appropriate to the needs and circumstances of the customer; (2) a firm must base its determination of whether an equity release transaction is appropriate to a customer's needs and circumstances on the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware;(3) no
When a firm assesses whether the equity release transaction is appropriate to the needs and circumstances of the customer for the purposes of MCOB 8.5A.5 R, the factors it must consider include the following:(1) whether the benefits to the customer outweigh any adverse effect on:(a) the customer's entitlement (if any) to means-tested benefits; and(b) the customer's tax position (for example the loss of an Age Allowance);(2) alternative methods of raising the required funds such
If for any reason a customer: (1) declines to seek further information on means-tested benefits, tax allowances or the scope for local authority (or other) grants; or(2) rejects the conclusion of a firm that alternative methods of raising the required funds are more suitable;a firm can advise the customer (in accordance with the remaining requirements of this chapter) to enter into an equity release transaction where there is an equity release transaction (or more than one equity
In relation to MCOB 8.5A.5R (1), when a firmadvises a customer in relation to entering into an equity release transaction where the main purpose for doing so is the consolidation of existing debts by the customer, it must also take account of the following in assessing whether the equity release transaction is suitable for the customer: (1) the costs associated with increasing the period over which a debt is to be repaid; (2) whether it is appropriate for the customer to secure
Where the customer is looking to increase the borrowing secured on the property which is the subject of an existing regulated mortgage contract, a firm must inform the customer (either orally or in writing) that it may be possible, and more appropriate, for the customer to take a further advance with the existing lender rather than entering into an equity release transaction with another provider.
When advising a customer on the suitability of an equity release transaction, a firm must explain to the customer that the assessment of whether the equity release transaction is appropriate to his needs and circumstances is based on the customer's current circumstances, which may change in the future.
MCOB 8.5A.5R (3) means that where the advice provided is based on a selection of equity release transactions from a single or limited number of providers, the assessment of suitability should not be limited to the types of equity release transactions which the firm offers. A firm cannot recommend the 'least worst' equity release transaction where the firm does not have access to products appropriate to the customer's needs and circumstances. This means, for example, that if a
(1) A firm must make and retain a record: (a) of the customer information, including that relating to the customer's needs and circumstances and the customer's apparent satisfaction of the equity release provider's known eligibility criteria, that it has obtained for the purposes of MCOB 8.5A; (b) that explains why the firm has concluded that any advice given to a customer complies with MCOB 8.5A.2 R and satisfies the suitability requirement in MCOB 8.5A.5R (1); (c) of any advice
The exclusions in article 72(5A) to (5F) of the Regulated Activities Order (Overseas persons) provide that an overseas person does not carry on the regulated activities of:(1) arranging (bringing about) or making arrangements with view to a regulated mortgage contract;(2) entering into a regulated mortgage contract; or(3) administering a regulated mortgage contract;of the borrower (and each of them, if more than one) is an individual and is normally resident outside the United
An overseasperson might advise a person in the United Kingdom on an endowment assurance at the same time as advising on a regulated mortgage contract. If so, whilst the overseas person exclusion in article 72(5) will apply in relation to the advice on the endowment assurance, there will be no 'overseas persons exclusion' for the advice on the regulated mortgage contract.
There may also be situations where a lender, who does not maintain an establishment in the United Kingdom, provides services in the United Kingdom. For instance, a lender might attend a property exhibition in the United Kingdom at which he sets up a loan with a borrower. A lender might also attend the offices of its UK-based lawyers, or appoint them as its agent, to enter into a contract with a borrower. In these cases, the overseas lender would only be carrying on a regulated
When a person is arranging (bringing about) regulated mortgage contracts or making arrangements with a view to regulated mortgage contracts from overseas, the question of whether he will be carrying on regulated activities in the United Kingdom will depend on the relevant circumstances. In the FCA's view, factors to consider include:(1) the territorial limitation in the definition of regulated mortgage contract so that regulation only applies if the land is in the EEA;44(2) the
In the FCA's view:(1) if the borrower is normally resident in the United Kingdom and the land is in the United Kingdom4, the clear territorial limitation in the definition of regulated mortgage contract carries most weight in determining where regulation should apply; it is likely that the arranger will be carrying on regulated activities in the United Kingdom;(2) if the borrower is normally resident overseas, the arrangements are excluded by the overseas persons exclusion if
In the FCA's view, advising on regulated mortgage contracts is carried on where the borrower receives the advice. Accordingly:(1) if the borrower is located in the United Kingdom, a person advising that borrower on regulated mortgage contracts is carrying on a regulated activity in the United Kingdom; but(2) if the service provider and borrower are both located overseas, the regulated activity is not carried on in the United Kingdom.
In the FCA's view, in circumstances other than those excluded by article 72(5D) of the Regulated Activities Order, the need for an overseas lender to be authorised or to have an exemption will depend on the location of the land.4 This is because of:4(1) the territorial limitation in the definition of regulated mortgage contract so that regulation applies only if the land is in the EEA;44(2) the general principle and practice that contracts relating to land are usually governed
The effect of article 72(5E) and (5F) of the Regulated Activities Order is that an overseas person who administers a regulated mortgage contract, where the borrower was resident overseas at the time that the contract was entered into, does not carry on the regulated activity of administering a regulated mortgage contract.
In the FCA's view, in circumstances other than those excluded by article 72(5E) of the Regulated Activities Order, the need for an overseas administrator to be authorised or to have an exemption will depend on the location of the land.4 This is because:4(1) the territorial limitation in the definition of regulated mortgage contract means that regulation applies only if the land is in the EEA;44(2) when administrators notify borrowers resident in the United Kingdom or the other
In most cases, there will be no preliminary agreement to enter into a regulated mortgage contract in advance of entering into the contract itself. Moreover, the exclusions relevant to a regulated activity are taken into account to determine whether a person is agreeing to carry on that regulated activity. So, for example, agreeing to arrange regulated mortgage contracts in cases where borrower and service provider are overseas, would not be regulated activities because the activities
1This section sets out the conditions which must be satisfied for a firm to enter into or vary a regulated mortgage contract with a customer, or arrange such a transaction for a customer, without giving advice, or where the advice given by the firm has been rejected. As explained in MCOB 4.7A.1 G, it does not prohibit the giving of pre-contract or preliminary information which does not amount to advice to the particular customer. If a firm intends (where permitted under this
Interactive dialogue includes SMS, mobile instant messaging, email and communication via social media sites; this list is not exhaustive. Where a sale is carried out entirely on the internet, a firm merely permitting the customer to input details about the matters specified in MCOB 4.8A.14R (1), (2) or (3) in order to select from the firm's product range the regulated mortgage contract he wishes to purchase, or the variation he wishes to enter into, would not be engaging in interactive
Firms are not prohibited from entering into or arrangingexecution-only sales for regulated mortgage contracts for customers to whom they have provided product information (where otherwise permitted under this section), but MCOB 2.5A.1 R and MCOB 4.8A.5 R (The customer’s best interests) mean the information they provide should not steer the customer to elect to enter into an execution-only sale.
A firm must not enter into or arrange an execution-only sale for a regulated mortgage contract2 if:2(1) the customer is intending to use it to exercise a statutory “right to buy” the customer's home; or(2) the main purpose of the customer's entering into it is to raise funds for debt consolidation; or(3) there is spoken or other interactive dialogue between the firm and the customer at any point during the sale; or2(4) the regulated mortgage contract is a shared equity credit
(1) MCOB 4.8A.7 R does not apply in the case of a variation of a regulated mortgage contract, provided that:(a) the variation would not involve the customer taking on additional borrowing beyond the amount currently outstanding under the existing regulated mortgage contract, other than to finance any product fee or arrangement fee for the proposed new or varied contract; and(b) where the variation will (in whole or part) change from one interest rate to another, the firm has presented
(1) If a firm wishes to be able to apply the exception in MCOB 4.8A.9 R for a high net worth mortgage customer, it should first consider the provision in MCOB 1.2.9C R (Requirement for evidence before treating a loan as being solely for business purposes, or a customer as a high net worth mortgage customer or a professional customer).(2) Where a firm's business model is such that it does not offer advice on regulated mortgage contracts to particular customers, it should ensure
A firm must not enter into or arrange an execution-only sale for a regulated mortgage contract unless, except as provided in MCOB 4.8A.15 R:(1) for a new regulated mortgage contract not falling within MCOB 4.8A.10 R, the customer has identified the regulated mortgage contract he wishes to purchase, specifying to the firm at least the following information:(a) the name of the mortgage lender;(b) the rate of interest;(c) the interest rate type (that is, whether fixed, variable or
A firm which intends to transact execution-only sales in regulated mortgage contracts must have in place and operate in accordance with a clearly defined policy which:(1) sets out the amount of business the firm reasonably expects to transact by way of execution-only sales and the steps to be taken by the firm if that business exceeds the expected levels; and(2) sets out its processes and procedures for ensuring compliance with the rules in MCOB 4.8A; in particular:(a) how it
(1) Whenever a firmenters into or arranges an execution-only sale for a regulated mortgage contract, it must make and maintain a record of:(a) the information provided by the customer which satisfies MCOB 4.8A.14R (1), (2) or (3);(b) the information in durable medium in MCOB 4.8A.14R (4);(c) (where applicable) the confirmation by the customer in MCOB 4.8A.14R (5); and(d) any advice from the firm which the customer rejected, including the reasons why it was rejected, before deciding
(1) If a firm offers to enter into an MCD regulated mortgage contract with a consumer, it must provide the consumer with a binding offer set out in an offer document. (2) The firm may also provide an ESIS. (3) The firm's offer in the offer document must be on the basis of the information in the ESIS relevant to that offer.(4) When an MCD mortgage lender provides the consumer with a binding offer, that offer must be accompanied by an ESIS where the characteristics of the offer
(1) If a firm offers to vary an MCD regulated mortgage contract with a consumer, it must provide the consumer with an offer document.(2) The firm may also provide an ESIS. (3) The firm's offer in the offer document must be on the basis of the information in the ESIS relevant to that offer. (4) When an MCD mortgage lender offers to vary an MCD regulated mortgage contract with a consumer, the offer document must be accompanied by an ESIS where:(a) the characteristics of the offer
(1) MCOB 6A.3.1 R does not prevent a binding offer from being subject to lawful conditions, including conditions which make the binding offer subject to one or more of the matters listed below:(a) there being no material change to the facts and circumstances relating to the binding offer which occurs after the date on which the binding offer is made;(b) the fact that the consumer has not knowingly provided incomplete or inaccurate information for the purpose of the assessment
A firm must ensure that the offer document contains a prominent statement explaining:(1) the period for which the offer is valid;(2) where the MCD regulated mortgage contract contains features, such as additional unsecured borrowing facilities, which could result in the consumer borrowing more money that, where such features are used, the amount of the consumer's debt will increase;(3) when any interest rate change on the MCD regulated mortgage contract takes effect. This statement
In addition to the information required by MCOB 6A.3.9 R, a firm may include information about how to complain to any other firm about the services that firm provided to the consumer in relation to the MCD regulated mortgage contract. For example, where the consumer received advice from another firm, an MCD mortgage lender may include contact details for the firm that provided the advice.
If the firm knows, at the point that the offer is made to the consumer, that its interest in the MCD regulated mortgage contract will be assigned (by sale or transfer) and the firm will no longer be responsible for setting interest rates and charges, the offer document must:(1) state this; and(2) state, where known, who will be responsible for setting interest rates and charges after the sale or transfer.
(1) The limitations in MCOB 4.4A.1 R include any limitations on the regulated mortgage contracts the firm will consider from within the relevant market. A firm which is offering services to a customer in respect of more than one type of relevant market must describe its services in relation to each such relevant market.(2) For these purposes, there are two relevant markets for regulated mortgage contracts (apart from lifetime mortgages): one for regulated mortgage contracts that
(1) If a firm is not offering to the customer products from an unlimited range from across the relevant market, in2 its disclosure on product range in MCOB 4.4A.1 R, the firm must:22(a) where it is an MCD mortgage credit intermediary,2 list the names of all the mortgage lenders whose products it is offering; or(b) where it is not an MCD mortgage credit intermediary, either22(i) comply with (a); or2(ii) inform the customer of the number of mortgage lenders whose products it is
A firm may be able to describe its product range as unlimited even if it offers its customers only a selection of the regulated mortgage contracts available from the relevant market, or uses ‘panels’. The firm would need to ensure that any panel, or selection of products, is sufficiently broad in its composition that it is representative of products from across the market, that it is reviewed regularly, and that its use does not materially disadvantage any customer. In such a
(1) Firms are reminded that, in the light of the rules and guidance in SYSC, they should have adequate systems and controls in place to ensure that the disclosure they make to a customer about their service reflects the service the customer is actually offered.(2) Firms are also reminded that Principle 7 (Communications with clients) and MCOB 3A.2.1R (Fair, clear2 and not misleading communications) are also relevant to how they describe their services, including in any business
(1) The information about the basis of remuneration required by MCOB 4.4A.1R (2) must include all relevant information, including the following details:(a) any fees which the firm will charge to the customer;(b) when any such fees will be payable and, if applicable, reimbursable; and(c) whether the firm will receive commission from the mortgage lender or another third party and, if applicable, whether any commission will be offset against any fees charged and the arrangements
2Where a customer is looking to increase the borrowing secured on a property which is the subject of an existing regulated mortgage contract, the firm must first inform the customer, either orally or in writing, that the following alternative finance options may be available and more appropriate for the customer:(1) a further advance from the existing lender, unless the firm knows that the existing lender will not make a further advance to the customer;(2) (a) a second charge
The information required by MCOB 4.4A.1 R, MCOB 4.4A.2 R, MCOB 4.4A.4R (1),2MCOB 4.4A.8 R and MCOB 4.4A.8A R2 must be communicated clearly and prominently, and in doing so:(1) an MCD mortgage adviser, or any other firm that is8 an MCD mortgage lender or an MCD mortgage arranger that provides advisory services within the meaning of article 4(21) of the MCD,8 must provide the information in MCOB 4.4A.1R(1) and (2) and MCOB 4.4A.8R(1)(a) and (2)(e)8 in a durable medium;22(a) [deleted]82(b)
(1) In many cases, MCOB 4.4A.12 R means that information will be given at the time of the first contact between the firm and the customer. However, there may be circumstances, for example in relation to a loan for a business purpose, where the possibility of the customer entering into, or varying the terms of, a regulated mortgage contract is only identified after preliminary discussions. The relevant disclosure is only required once this possibility is identified.(2) MCOB 4.4A.12
The information requirements in MCOB 4.4A.1 R, MCOB 4.4A.2 R, MCOB 4.4A.4R (1) and MCOB 4.4A.8 R do not apply where:(1) the information has already been provided by the firm and the firm has good reason to believe that it is still accurate and appropriate for the customer; or(2) the information has already been provided by the firm which first made contact with the customer in respect of the particular regulated mortgage contract, and the firm subsequently making contact with
(1) 2An MCD mortgage lender or an MCD credit intermediary may comply with MCOB 4.4A.18R (3) and (5) to MCOB 4.4A.18R (9) by providing an ESIS to the consumer prior to the conclusion of the MCD regulated mortgage contract. (2) Provided that the provisions of MCOB 4.4A on the methods and timing of disclosure are complied with, an MCD mortgage lender or an MCD credit intermediary may comply with MCOB 4.4A.18R (1), (2) and MCOB 4.4A.18R (4) by providing the necessary information in
(1) If at the point that initial disclosure must be made in accordance with MCOB 4.4A.1 R, MCOB 4.4A.2 R, MCOB 4.4A.4 R,2MCOB 4.4A.8 R and MCOB 4.4A.8A R2 a firm is uncertain whether the contract will be a regulated mortgage contract, the firm must:(a) make the initial disclosure; or(b) seek to obtain from the customer information that will enable the firm to ascertain whether the contract will be a regulated mortgage contract.(2) Where (1)(b) applies, the initial disclosure must
An agreement for qualifying credit includes the following types of loan in addition to those that would be a regulated mortgage contract, but in each case only if the lender carries on the regulated activity of entering into regulated mortgage contracts:(1) [deleted]66(2) secured loans for buy-to-let or other purely investment purposes;(3) loans secured on land situated outside the United Kingdom;(4) loans that include some unsecured credit such as a flexible mortgage that includes
Arranging qualifying credit is a controlled activity under paragraph 10A of Schedule 1 to the Financial Promotion Order; that is, making arrangements:(1) for another person to enter as borrower into an agreement for qualifying credit; or(2) for a borrower under a regulated mortgage contract entered into on or after 31 October 2004 or a borrower under a legacy CCA mortgage contract7 to vary the terms of that contract in such a way as to vary that person’s7 obligations under that
Advising on qualifying credit is8 a controlled activity under paragraph 10B of Schedule 1 to the Financial Promotion Order; that is, advising a person if the advice is:8(1) given to the person in his capacity as a borrower or potential borrower; and(2) advice on the merits of that person’s7 doing any of the following:(a) entering into an agreement for qualifying credit; or(b) varying the terms of a regulated mortgage contract entered into by that person’s7 on or after 31 October
The exemptions in Part IV of the Financial Promotion Order (Exempt communications: all controlled activities) will apply to financial promotions about qualifying credit . Some of the exemptions in Part VI of the Financial Promotion Order (Exempt communications: certain controlled activities) will also apply. Those of particular note are referred to in PERG 8.17.10 G to PERG 8.17.12 G.2
Article 46 (Qualifying credit to bodies corporate) exempts any financial promotion about providing qualifying credit (or relevant consumer credit or consumer hire)4 if it is:(1) made to or directed at bodies corporate only; or(2) accompanied by an indication that the qualifying credit to which it relates is only available to bodies corporate.
Article 28B (Real time communications: introductions) exempts a real time financial promotion that relates to one or more of the controlled activities about regulated mortgage contracts, as well as home reversion plans, home purchase plans,4regulated sale and rent back agreements3, certain consumer hire agreements and relevant credit agreements4. The exemption is subject to the following conditions being satisfied:224(1) the financial promotion must be made for the purpose of,
4Rights under a relevant credit agreement are also a controlled investment. A relevant credit agreement is a credit agreement other than a regulated mortgage contract or a regulated home purchase plan. Entering into a relevant credit agreement as lender, or exercising or having the rights to exercise the rights of the lender under such an agreement, is a controlled activity under paragraph 10BA of Schedule 1 to the Financial Promotion Order, except where the agreement is for the
4Guide to potential application of MCOB 3A5 and CONC 3 to financial promotion of credit. This table belongs to PERG 8.17.20 G.
5Subject of promotion |
5 | CONC 3 may apply |
|
(1) |
Yes |
No |
|
(2) |
credit agreements secured on land where the lender also enters into regulated mortgage contracts as lender |
Yes |
No |
(3) |
credit agreements not secured on land, whether or not the lender also enters into regulated mortgage contracts as lender |
No |
Yes |
(4) |
credit agreements secured on land where the lender does not enter into regulated mortgage contracts as lender |
No |
Yes |
(5) |
credit agreements partly secured on land that include some unsecured credit and where the lender enters into regulated mortgage contracts as lender |
Yes |
No |
(6) |
credit agreements with features as in (1), (2) or (5) promoted in combination with other unsecured credit agreements |
Yes |
Yes |
Where an MCD regulated mortgage contract relates to a foreign currency loan, at the time the MCD regulated mortgage contract is entered into the MCD mortgage lender must ensure:(1) the consumer has a right to convert the MCD regulated mortgage contract into an alternative currency under specified conditions; or(2) there are other arrangements in place to limit the exchange rate risk to which the consumer is exposed under the MCD regulated mortgage contract.[Note: article 23(1)
Where:(1) an MCD regulated mortgage contract is denominated in the currency of the EEA State in which the consumer is resident ("currency A"); and(2) the consumer receives income or holds assets in currency A but also receives income or holds assets in another currency ("currency B");the MCD regulated mortgage contract will not be a foreign currency loan unless the credit is to be repaid wholly or in part from the income received or assets held in currency B.
The alternative currency referred to in MCOB 2A.3.1R (1) must be either:(1) the currency in which the consumer primarily receives income or holds assets from which the credit is to be repaid, as indicated at the time that the most recent affordability assessment in relation to the regulated mortgage contract was made; or(2) the currency of the EEA State in which the consumer either was resident at the time that the MCD regulated mortgage contract was entered into or is currently
Where a consumer has a right to convert the MCD regulated mortgage contract into an alternative currency in accordance with MCOB 2A.3.1R (1), the exchange rate at which the conversion is carried out must be the market exchange rate applicable on the day of application for conversion, unless otherwise specified in the MCD regulated mortgage contract. [Note: article 23(3) of the MCD]
Subject to MCOB 7.5.2 R, a firm must provide the customer with a statement at least once a year (or, in relation to the first statement, within the first 13 months)2:(1) covering the regulated mortgage contract and any tied product purchased through the firm; and(2) giving information about the existence of any linked borrowing or linked deposits, or any other products purchased through the firm where the payments for those products are combined with the payments on the regulated
Where a tied product is operated separately from the regulated mortgage contract, for example where the premiums on a tied insurance product are not combined with payments on the regulated mortgage contract, the statement required by MCOB 7.5.1 R in relation to the tied product may be provided in a separate communication.
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.
Whether a firm is likely to provide the information set out in MCOB 7.5.3 R(2) more frequently than once a year will depend on the nature of the regulated mortgage contract. In determining how frequently to provide that information, a firm should take into account the need to keep the customer informed of any changes in the amount they owe, the customer's expectations and, where appropriate, the duration of the loan. For example, for a mortgage credit card the information might
If the tariff of charges has changed since the last annual statement was sent to the customer (or, where the annual statement is the first statement, since the customer entered into the regulated mortgage contract) and a firm has not already sent a revised tariff of charges to the customer, it must include one with the annual statement.
A business illustration or high net worth illustration3provided to a customer must:(1) use the headings and prescribed text in MCOB 5 Annex 1 (except as provided in MCOB 5.7) but need not follow the format;(2) include the content required by MCOB 5.6.3 R to MCOB 5.6.128 R4 (except MCOB 5.6.5 R, MCOB 5.6.101 R, MCOB 5.6.109 R to MCOB 5.6.112 G, MCOB 5.6.120 R and MCOB 5.6.121 R);14(3) use the key facts logo followed by the text 'about this [term used by the firm to describe the
(1) MCOB 5.7.2 R(1) means that firms do not have to follow the ordering of sections set down in MCOB 5.6, although they may choose to do so.(2) In accordance with MCOB 5.7.2 R(8) an example of an appropriate variation to the risk warning would be:'Your home may be repossessed if you are unable to fulfil the terms of this secured overdraft'.(3) A firm may also choose to include other information beyond that required by MCOB 5.6. However, when adding additional material a firm should
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 providing a business illustration or high net worth illustration3in accordance with MCOB 5.7.2 R a firm should describe facilities provided under the regulated mortgage contract that are not a loan within section 12 (Additional features) of the business illustration or high net worth illustration3.(2) In complying with (1), a firm should follow the requirements in MCOB 5.6.92 RMCOB 5.6.108 G where these are relevant. Where the facility is of a type not considered in MCOB
(1) In accordance with MCOB 5.7.6 R(1), where the regulated mortgage contract includes a loan, the facilities described in section 12 of the business illustration or high net worth illustration3 should include the existence of, and a simple explanation of, any all monies charge, any contingent liabilities such as guarantees and so on.(2) Where the regulated mortgage contract includes more than one loan facility (such as a secured loan and a separate secured overdraft facility)
The purpose of MCOB 5A.3.3 R is not to require a firm to ascertain whether a consumer is eligible for a particular MCD regulated mortgage contract before providing an ESIS. Instead, the purpose is to ensure that the firm takes into account the information it has obtained from the consumer before providing an ESIS to the consumer.
(1) Whenever a firm provides a consumer with information specific to the amount that the consumer wants to borrow on a particular MCD regulated mortgage contract, following an assessment of the consumer's needs and circumstances to comply with MCOB 4.7A.2 R, it must give, clearly and prominently, the following information:(a) the same information on the firm's product range as is required by MCOB 4.4A.1 R, MCOB 4.4A.2 R and MCOB 4.4A.4R (1) (which require firms to provide information
(1) Whenever, as part of an execution-only sale (or potential execution-only sale), a consumer provides a firm with the information in MCOB 4.8A.14R (1), MCOB 4.8A.14R (2) or (3), the firm must inform the consumer, clearly and prominently, that the consumer has the right to request an ESIS for any MCD regulated mortgage contract which the firm is able to offer the consumer.(2) A firm need not give the information in (1) if it has previously given that information in compliance