is accurate within the following tolerances:
no more than one percent or £1, whichever is the greater, below the actual figures charged by the mortgage lender for the following:
the amount payable for every £1 borrowed in Section 5 of the illustration;
the amount by which the regular instalment (or the total amount payable for loans without a term or a regular repayment plan) would increase following a one percentage point increase in interest rates in Section 7;1
except in the case of conveyancing fees and insurance premiums (where estimates may be used), is accurate in respect of other figures quoted in the illustration including fees payable to the mortgage lender or mortgage intermediary in Section 8 of the illustration and cash examples of early repayment charges, calculated in accordance with the rules in MCOB 5.6.84 R to MCOB 5.6.88 R, in Section 10.1
Given that the APR is presented as a percentage, and must be rounded to one decimal place in accordance with MCOB 10 (Annual Percentage Rate), firms should note that the tolerance allowed for the APR in MCOB 5.4.3 R(1)(b) means that, for example, where the actual APR is 5.0% the quoted APR must be no lower than 4.9%, or where the actual APR is 16.0%, the quoted APR must be no lower than 15.9%.
It is the responsibility of a mortgage intermediary to ensure compliance with MCOB 5.4.3 R. However, where a firm can show that it was reasonable for it to rely on information provided to it by another person, other than the mortgage lender, that an illustration was within the tolerances described in MCOB 5.4.3 R, he may be able to rely on MCOB 2.5.2 R, if this turns out not to be the case.
An offer document may not always exactly match the illustration provided before application even when the loan requirements have not changed. For example, where a fixed rate has a defined end date, the total amount payable may be different because the number of payments at the fixed rate has reduced assuming a later date at which the regulated mortgage contract will start.
The purpose of MCOB 5.4.8 R is not to require a firm to ascertain whether a customer is eligible for a particular regulated mortgage contract before providing an illustration. Instead, the purpose is to ensure that the firm takes into account the information it has obtained from the customer before providing an illustration to the customer.
A firm may satisfy MCOB 5.4.10 R by drawing the customer's attention orally to the importance of reading and understanding the illustration, for example in a face-to-face meeting, or by referring to its importance in a covering letter or electronic communication or other written information that accompanies the illustration.
3MCOB 53 places no restrictions on the provision of information that is not specific to the amount the customer wants to borrow, for example, marketing literature including generic mortgage repayment tables or graphs illustrating the benefits of making a regular overpayment on a flexible mortgage. Such literature may, however, constitute a financial promotion2 and be subject to the provisions of MCOB 3 (Financial promotion).2
3Whenever a firm provides a customer with information specific to the amount that the customer wants to borrow on a particular regulated mortgage contract following an assessment of the customer's needs and circumstances in order to comply with MCOB 4.7A.2 R, it must give, clearly and prominently, the following information:
3Whenever, as part of an execution-only sale (or potential execution-only sale), a customer provides a firm with the information in MCOB 4.8A.14R (1), (2) or (3) the firm must inform the customer, clearly and prominently, that the customer has the right to request an illustration for any regulated mortgage contract which the firm is able to offer the customer.
Whenever, as part of an execution-only sale (or potential execution-only sale), a high net worth mortgage customer or customer who would be entering into a regulated mortgage contract solely for a business purpose is provided with information specific to the amount that the customer wants to borrow on a particular regulated mortgage contract, the firm must inform the customer, clearly and prominently, that the customer has the right to request an illustration for any regulated mortgage contract which the firm is able to offer the customer.
3In order to demonstrate compliance with MCOB 5.4.18AR (1), a firm may wish to consider, for example, doing one or more of the following: give the messages to the customer in a durable medium; build the requirements into the firm's training of staff, as evidenced by its training and compliance manuals; insert appropriate prompts into paper-based or automated sales systems; have procedures in place to monitor compliance by its staff with that rule. What is required in each case will depend on all the circumstances.
The reference in the template illustration at MCOB 5 Annex 1 R to the possibility of obtaining other illustrations is not sufficient to comply with the obligations in MCOB 5.4.18AR (1)(b) and MCOB 5.4.18B R. A firm may, however, satisfy those obligations in a number of ways; for example, by drawing the customer's attention to the right to request an illustration orally in a face-to-face meeting, or by referring to it in a letter or electronic communication or other written information.
Where the illustration provided to the customer does not contain an accurate quotation or a reasonable estimate of the payments the customer will need to make in connection with any tied product that the customer must take out with the regulated mortgage contract, and the customer applies for that regulated mortgage contract:
the quotation for the tied product must be accompanied by a notice explaining that the customer can withdraw his application and receive a full refund of any fees paid in connection with the application for that regulated mortgage contract (excluding any fees paid in respect of the regulated activity of arranging or advising on a regulated mortgage contract by a mortgage lender or a mortgage intermediary) for a period of seven days from receipt of the quotation or acceptance of the mortgage lender's offer if sooner; and
the firm must refund any fees paid by the customer (excluding any fees paid in respect of any advice provided by a mortgage lender or a mortgage intermediary) if the customer decides to exercise his right to withdraw his application in accordance with (2).
The rules on the content of an illustration at MCOB 5.6 (Content of illustrations) mean that if the regulated mortgage contract requires the customer to take out a tied product, the illustration must include an accurate quotation or a reasonable estimate of the payments the customer would need to make for the tied product (see MCOB 5.6.52 R (2) where the tied product is a repayment strategy and MCOB 5.6.74 R where the tied product is insurance).3 If it is not possible to include this cost information in the illustration, MCOB 5.4.23 R requires that the customer be provided with an accurate quotation of the payments associated with the tied product as soon as possible. If the quotation is provided after the customer has applied for the regulated mortgage contract the customer has the right to a refund of fees if he withdraws his application.3