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Status: You are viewing the version of the handbook as on 2005-06-30.

MCOB 11.3 Responsible lending

Customer's ability to pay

MCOB 11.3.1R
  1. (1)

    A firm must be able to show that before deciding to enter into a regulated mortgage contract with a customer, or making a further advance on a regulated mortgage contract, account was taken of the customer's ability to repay.

  2. (2)

    A firm must make an adequate record to demonstrate that it has taken account of the customer's ability to repay for each regulated mortgage contract that it enters into and each further advance that it provides on a regulated mortgage contract. The record must be retained for a year from the date at which the regulated mortgage contract is entered into or the further advance is provided.

Self-certification of income

MCOB 11.3.2R

In taking account of a customer's ability to repay a loan for the purposes of MCOB 11.3.1 R(1), a firm may rely upon self-certification of income by the customer in circumstances where the firm considers it to be appropriate, having regard to the interests of the customer, and where the firm has no reasonable grounds for doubting the information provided.

MCOB 11.3.3G
  1. (1)

    Examples of the circumstances where the firm may consider self-certification of income to be appropriate for the purposes of MCOB 11.3.2 R include:

    1. (a)

      where the customer is an existing customer of the firm, with an established and good payment history;

    2. (b)

      where proof of income is not readily available by virtue of the nature of the customer's employment, the basis of their remuneration, or the sources of their income; or

    3. (c)

      where the customer has a deadline for entering into the regulated mortgage contract (for example, in an auction sale) and therefore there is insufficient time for the firm to complete its usual enquiries.

  2. (2)

    The examples in (1) are not exhaustive. There may be other circumstances in which a firm may consider self-certification to be appropriate. It will depend on the circumstances of each case. However, in considering whether self-certification is appropriate, a firm should have regard to its responsibilities to its customers and, in particular, should guard against taking any action that would be contrary to Principle 6 and in breach of MCOB 11.3.1 R and MCOB 11.3.2 R.

Responsible lending policy

MCOB 11.3.4R
  1. (1)

    A firm must put in place, and operate in accordance with, a written policy setting out the factors it will take into account in assessing a customer's ability to repay.

  2. (2)

    A firm must make and keep up-to-date an adequate record of the policy in (1). When the policy is changed, a record of the previous policy must be retained for a year from the date of change.

MCOB 11.3.5G
  1. (1)

    In determining the written policy in accordance with MCOB 11.3.4 R(1), a firm should assume (in the absence of evidence to the contrary) that any regular payments under a regulated mortgage contract will be met from the customer's income. A firm should therefore take account of the customer's actual or reasonably anticipated income, or both, in reaching a decision on whether to enter into a regulated mortgage contract with that customer or make a further advance.

  2. (2)

    Other factors that the FSA would expect to be considered by a firm in taking account of the customer's ability to repay include:

    1. (a)

      the level of both initial and subsequent repayments, where known (including, for interest-only mortgages, the cost of any associated repayment vehicle). This means, for example, that where the mortgage cost is significantly discounted for the initial period of a regulated mortgage contract, a mortgage lender should also consider the level of repayments the customer is expected to make at the end of that period, based on interest rates applicable at the time the mortgage lender is considering whether to enter into the regulated mortgage contract or make a further advance; and

    2. (b)

      whether the customer has the ability to, and intends to, repay, either wholly or partly, from resources other than income. Such resources could include the realisation of investments, or the planned sale of the mortgaged property as in the case of a regulated lifetime mortgage contract.

MCOB 11.3.6G

Where the regulated mortgage contract is an interest-only mortgage, and the firm is unable to establish the cost of the associated repayment vehicle, the repayments described in MCOB 11.3.5 G(2)(a) may be based on an equivalent repayment mortgage.

MCOB 11.3.7G

Where MCOB 11.3.5 G(2)(b) applies, the firm should be able to demonstrate the customer's intention to repay (for example, by reference to information given by the customer on an application form or to correspondence with the customer).

MCOB 11.3.8G

The record maintained in accordance with MCOB 11.3.1 R(2) should include or provide reference to matters such as:

  1. (1)

    what checks, if any, the firm has carried out, regarding the customer's ability to repay; or

  2. (2)

    evidence that demonstrates the customer's ability and intention to repay the loan, from resources other than income.