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Status: You are viewing the version of the handbook as on 2016-02-03.

MCOB 4.7A Advised sales

MCOB 4.7A.1GRP
  1. (1)

    1MCOB 4.7A sets out standards to be observed by firms when advising a particular customer on regulated mortgage contracts.

  2. (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. (3)

    The rules at MCOB 4.8A also provide that advice must be given wherever the sales process involves spoken or other interactive dialogue (except for high net worth mortgage customers, professional customers and loans solely for a business purpose). They do not prohibit the giving of pre-contract or preliminary information which does not amount to advice to the particular customer, but means that advice must be given before a firm enters into or arranges a regulated mortgage contract, or variation of such contract, unless the requirements there are satisfied. Firms may wish to refer to PERG (particularly PERG 4.6) for guidance on the regulatory perimeter in relation to advising on home finance transactions.

  4. (4)

    The rules at MCOB 4.8A provide for an exception which permits certain execution-only sales which do not involve additional borrowing.

Suitability

MCOB 4.7A.2RRP

If a firm gives advice to a particular customer to enter into a regulated mortgage contract, or to vary an existing regulated mortgage contract, it must take reasonable steps to ensure that the regulated mortgage contract is, or after the variation will be, suitable for that customer.

MCOB 4.7A.3RRP

In MCOB 4.7A, a reference to advice to enter into a regulated mortgage contract is to be read as including advice to vary an existing regulated mortgage contract.

MCOB 4.7A.4GRP
  1. (1)

    A firm should take reasonable steps to obtain from a customer all information likely to be relevant for the purposes of MCOB 4.7A.

  2. (2)

    For the purposes of MCOB 4.7A.2 R, if for any reason a customer rejects (in whole or in part) advice given by a firm, the firm is not precluded from advising him to enter into a different regulated mortgage contract (in accordance with the requirements of MCOB 4.7A) provided the firm has taken reasonable steps to ensure that that different contract is suitable for the customer.

MCOB 4.7A.5RRP

For the purposes of MCOB 4.7A.2 R:

  1. (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. (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. (3)

    no advice must be given to a customer to enter into a regulated mortgage contract if there is no regulated mortgage contract which is suitable from the product range offered by the firm; and

  4. (4)

    if a mortgage lender is dealing with an existing customer with a payment shortfall and has concluded that there is no suitable replacement regulated mortgage contract, the firm must nonetheless have regard to MCOB 13.3.

MCOB 4.7A.6RRP

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. (1)

    whether the customer's requirements appear to be within the mortgage lender's known eligibility criteria for the regulated mortgage contract;

  2. (2)

    whether it is appropriate for the customer to have an interest-only mortgage, a repayment mortgage, or a combination of the two;

  3. (3)

    whether it is appropriate for the customer to take out a regulated mortgage contract for a particular term;

  4. (4)

    whether it is appropriate for the customer to have stability in the amount of required payments, especially having regard to the impact on the customer of significant interest rate changes in the future;

  5. (5)

    whether it is appropriate for the customer to have their payments minimised at the outset;

  6. (6)

    whether it is appropriate for the customer to make early repayments;

  7. (7)

    whether it is appropriate for the customer to have any other features of a regulated mortgage contract;

  8. (8)

    whether the regulated mortgage contract is appropriate, based on the information provided by the customer as to his credit history; and

  9. (9)

    whether it is appropriate for the customer to pay any fees or charges in relation to the regulated mortgage contract up front, rather than adding them to the sum advanced (see also MCOB 4.6A.2 R).

MCOB 4.7A.7GRP

Firms are reminded that the list in MCOB 4.7A.6 R is not exhaustive. For certain customers there may be additional considerations to explore beyond those described in that rule; for example, in the case of a business loan or a regulated mortgage contract for a high net worth mortgage customer.

MCOB 4.7A.8GRP

Examples of criteria in MCOB 4.7A.6R (1) are: the expected affordability criteria of the mortgage lender; and whether the mortgage lender will lend in respect of properties of a non-standard construction.

Interest-only

MCOB 4.7A.9RRP

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).

MCOB 4.7A.10GRP

MCOB 4.7A.9 R does not require a firm to advise the customer on a credible repayment strategy or assess the adequacy of a customer's existing repayment strategy.

Bridging loans

MCOB 4.7A.11RRP

When a firm assesses whether a bridging loan 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, in addition to the factors listed at MCOB 4.7A.6 R:

  1. (1)

    whether it is appropriate for the customer to make regular payments; and

  2. (2)

    whether it is appropriate for the customer to access finance quickly.

MCOB 4.7A.12RRP

Where a firm has identified a bridging loan as appropriate for a customer, the firm must ensure that the customer is aware that he will have to demonstrate to themortgage lender that he has a clearly understood and credible repayment strategy in place.

MCOB 4.7A.13RRP

Where a firm is considering giving advice to a customer to enter into a bridging loan, the reasonable steps in MCOB 4.7A.2 R include considering why it is not appropriate for the customer to take out a regulated mortgage contract which is not a bridging loan.

MCOB 4.7A.14ERP

If a firm advises 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).

Debt consolidation

MCOB 4.7A.15RRP

When a firm advises 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. (1)

    the costs associated with increasing the period over which a debt is to be repaid;

  2. (2)

    whether it is appropriate for the customer to secure a previously unsecured loan; and

  3. (3)

    where the customer is known to have payment difficulties, whether it would be appropriate for the customer to negotiate an arrangement with his creditors rather than to take out a regulated mortgage contract.

MCOB 4.7A.16ERP

An attempt by the firm to misdescribe the customer's purpose or to encourage the customer to tailor the amount he wishes to borrow so that MCOB 4.7A.15 R does not apply may be relied on as tending to show contravention of MCOB 2.5A.1 R (The customer’s best interests).

Further advances

MCOB 4.7A.17R

Where the customer is looking to increase the borrowing secured on the property which is the subject of an existing regulated mortgage contract, unless the firm knows that the existing lender will not make a further advance to the customer, the firm must inform the customer, either orally or in writing, that it may be possible, and more appropriate, to do so rather than to enter into a regulated mortgage contract with another lender.

MCOB 4.7A.18G

Firms are not under any obligation to explore whether a further advance with the existing lender is, in fact, more appropriate for the customer.

Other considerations when advising

MCOB 4.7A.19RRP

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.

MCOB 4.7A.20GRP

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 contract.

MCOB 4.7A.21GRP

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. (1)

    purchase a property by using his own resources, rather than by borrowing under a regulated mortgage contract; or

  2. (2)

    rent a property, rather than purchase one; or

  3. (3)

    delay entering into a regulated mortgage contract until a later date (on the grounds that property prices would have fallen in the intervening period, or that the interest rate in relation to the regulated mortgage contract may be lower, or both).

MCOB 4.7A.22GRP

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 market should not recommend one of these regulated mortgage contracts if approached for advice by a customer who is not a credit-impaired customer.

MCOB 4.7A.23GRP

A firm may generally rely on any information provided by the customer for the purposes of MCOB 4.7A.5R (1) unless, taking a common sense view of this information, it has reason to doubt it.

Rejected advice

MCOB 4.7A.24RRP

If a customer has rejected the advice given by a firm and instead wishes to enter into a different regulated mortgage contract as an execution-only sale, the firm may enter into or arrange that contract as an execution-only sale provided the requirements in MCOB 4.8A.14 R are satisfied.

Record keeping

MCOB 4.7A.25RRP
  1. (1)

    A firm must make and retain a record:

    1. (a)

      of the customer information, including that relating to the customer's needs and circumstances, that it has obtained for the purposes of MCOB 4.7A;

    2. (b)

      that explains why the firm has concluded that any advice given to a customer complies with MCOB 4.7A.2 R and satisfies the suitability requirement in MCOB 4.7A.5R (1); and

    3. (c)

      of the customer's positive choice in MCOB 4.6A.2 R (Rolling up of fees or charges into loan) where applicable.

  2. (2)

    The records in (1) must be retained for a minimum of three years from the date on which the advice was given or, in the case of (1) (d), the making of the choice.