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MCOB 7.1 Application

Who?

MCOB 7.1.1 R

Subject to MCOB 7.1.2A R, this4 chapter applies to a firm in a category listed in column (1) of the table in MCOB 7.1.2 R in accordance with column (2) of that table.

4
MCOB 7.1.2A R
MCOB 7.1.2B G

What?

MCOB 7.1.3 R

This chapter applies if a firm:

  1. (1)

    enters into a home finance transaction2 with a customer; or

    2
  2. (2)

    administers a home finance transaction2which was entered into with a customer; or

    2
  3. (3)

    arranges or advises on or makes a further advance or other variation to the terms of a home finance transaction2entered into with a customer.

    2
MCOB 7.1.4 R

This chapter applies in relation to further advances and other variations (as specified in MCOB 7.6.7 R - MCOB 7.7.4 R in relation to a regulated mortgage contract2) regardless of whether they are variations to an existing home finance transaction2or are such that they involve the customer entering into a new home finance transaction2.

2 2
MCOB 7.1.5 R

This chapter also applies in relation to regulated mortgage contracts in circumstances where the original mortgage lender has passed on ownership of the loan to a third party through securitisation. In such a case, the rules in MCOB 7.5 - MCOB 7.7.4 R will apply to the firm which administers the regulated mortgage contract.

MCOB 7.1.6 R

In MCOB 7.6.7 R (Further advances), MCOB 7.6.18 R (Rate switches) and MCOB 7.6.22 R (Addition or removal of a party to the contract), if a customer submits an informal application as his first contact with a firm, the illustration required to be provided to a customer in accordance with those rules must be provided and the transaction must not proceed until the customer has made a formal application confirming that it should proceed.

MCOB 7.1.7 G

[deleted]2

2
MCOB 7.1.8 R

In relation to a lifetime mortgage2, this chapter is modified by MCOB 9 (Equity release2: product disclosure).1

2 2 2

MCOB 7.2 Purpose

MCOB 7.2.1 G
  1. (1)

    This chapter amplifies Principle 6 and Principle 7.

    2
  2. (1A)

    2This chapter requires information to be supplied to customers at the start of a2regulated mortgage contract to enable them to check that the regulated mortgage contract has been set up in accordance with their requirements and to notify them of the first and subsequent payments.

    2
  3. (2)

    Where a firm provides services to a customer in relation to a further advance, rate switch, or addition or removal of a party to a regulated mortgage contract, this chapter also requires that the customer is provided with an illustration to make clear the price and features associated with that variation.1

  4. (3)

    This chapter also ensures that customers are supplied with information which enables them to check the payments and charges on a home finance transaction2, to keep track of the transactions on, and the features of, a home finance transaction2and to be kept informed of material changes.

    22
  5. (4)

    To ensure that a customer has a record of the information required by this chapter, MCOB 7.3.2 R requires the information to be provided to the customer in a durable medium.

MCOB 7.3 General

MCOB 7.3.1 G

MCOB 3A.2.1 (Fair, clear1 and not misleading communication) applies to information provided to a customer by a firm in accordance with this chapter.

1
MCOB 7.3.2 R

A firm must provide all of the information required by this chapter in a durable medium.

Information provided in more than one document

MCOB 7.3.3 R

The information required by this chapter, MCOB 7, may be provided in more than one document, provided the use of several documents does not materially diminish the significance of any information the firm is required to give the customer, or the ease with which this can be understood.

MCOB 7.4 Mortgages: disclosure at the start of the contract2

Disclosure requirements

MCOB 7.4.1 R

(Subject to MCOB 7.7.5 R) a firm that enters into a regulated mortgage contract with a customer must provide the customer with the following information before the customer makes the first payment under that regulated mortgage contract:1

  1. (1)

    the amount of the first payment required;

  2. (2)

    the amount of the subsequent payment(s) if different from the first payment;

  3. (3)

    the method by which the payment will be collected (for example, by direct debit) and the date of collection of the first and subsequent payment;

  4. (4)

    confirmation of whether, in connection with the regulated mortgage contract, insurance or investments (such as a repayment strategy3, term assurance, buildings and contents insurance or payment protection insurance) have been purchased through the firm;

    3
  5. (5)

    the first premium (and subsequent premium where different) for any insurance or investments purchased through the firm in connection with the regulated mortgage contract;

  6. (6)

    confirmation of whether the insurance or investment premiums in (5) are to be collected with the mortgage payment or separately (where the latter applies, the firm must give details or state that these will be confirmed separately);

  7. (7)

    confirmation of whether the regulated mortgage contract is a repayment mortgage or interest-only mortgage, or a combination of both;

  8. (8)

    if all or part of the regulated mortgage contract is an interest-only mortgage, a reminder to the customer to check that a repayment strategy3 is in place, if the repayment strategy3 is not provided by the firm;

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  9. (9)

    what to do if the customer falls into a payment shortfall3, explaining the benefit of making early contact with the firm, providing the address and telephone number of a contact point for the firm, and drawing the customer's attention to the arrears charges set out in the tariff of charges;

    3
  10. (10)

    confirmation of any linked borrowing and linked deposits; and

  11. (11)

    whether the regulated mortgage contract permits the customer to make any overpayments or underpayments of the amounts due.

MCOB 7.4.2 R

The information in MCOB 7.4.1 R must be provided to the customer in a single communication, except (4), (5) and (6) which may be provided separately.

MCOB 7.4.3 G

In the case of a regulated mortgage contract under which the loan is advanced to the customer in separate tranches, the amount required under MCOB 7.4.1 R(1) will be the repayment relating to the first tranche. The amount(s) required under MCOB 7.4.1 R(2) will need to reflect the fact that when each subsequent tranche is advanced, the payment that the customer will need to make will change.

Record keeping

MCOB 7.4.4 R
  1. (1)

    A firm must make and retain an adequate record of the information that it provides to each customer at the start of the regulated mortgage contract in accordance with this section.

  2. (2)

    The record required by (1) must be maintained for a year from the date that the information is provided to the customer.

MCOB 7.5 Mortgages: statements3

Annual statement: requirement

MCOB 7.5.1 R

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. (1)

    covering the regulated mortgage contract and any tied product purchased through the firm; and

  2. (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 mortgage contract.

MCOB 7.5.2 R

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.

Annual statement: content

MCOB 7.5.3 R

The statement required by MCOB 7.5.1 R must contain the following:

  1. (1)

    except in the case of mortgage credit cards, information on the type of regulated mortgage contract, including:

    1. (a)

      a clear statement of whether the regulated mortgage contract is an interest-only mortgage, or repayment mortgage, or a combination of both; and

    2. (b)

      a prominent reminder, where all of the regulated mortgage contract is an interest-only mortgage, that:

      1. (i)

        the customer's payments to the firm do not include any costs of the repayment strategy5 (if that is the case); and

        5
      2. (ii)

        the customer should have in place arrangements to pay off the capital, and should check the performance of any investments they might have in place for this purpose;

      using the following text:'This is an interest-only mortgage. Your mortgage payments [include the costs of a savings plan/an investment that you] [do not include the costs of any savings plan or other investment you may] have arranged to build up a lump sum to repay the amount you borrowed. It is important to check regularly that your savings plan or other investment is on track to repay this mortgage at the end of the term.'

    3. (c)

      a prominent reminder, where only part of the regulated mortgage contract is an interest-only mortgage, that:

      1. (i)

        the customer's payments to the firm do not include any costs of the repayment strategy5 (if that is the case); and

        5
      2. (ii)

        the customer should have in place arrangements to pay off the amount of the loan that is on an interest-only basis, and should check the performance of any investments they might have in place for this purpose;

      using the following text:'This mortgage includes [insert amount] borrowed on interest-only terms. Your mortgage payments [include the costs of a savings plan/an investment that you] [do not include the costs of any savings plan or other investment you may] have arranged to build up a lump sum to repay this amount. It is important to check regularly that your savings plan or other investment is on track to repay the interest-only part of your mortgage at the end of the term.'

  2. (2)

    details of the following transactions and information on the regulated mortgage contract during the period since the last statement (or, where the statement is the first statement, since the customer entered into the regulated mortgage contract):

    1. (a)

      the date and amount of each payment made;

    2. (b)

      the amount of each payment that was due during the statement period;

    3. (c)

      the rate(s) of interest applicable to the regulated mortgage contract during the statement period and, if applicable, the date(s) on which the rate(s) of interest changed;

    4. (d)

      the amount of interest charged under the regulated mortgage contract during the statement period; and

    5. (e)

      any other amounts charged under the regulated mortgage contract during the statement period, including fees and any amounts due in relation to tied products;

  3. (3)

    a reminder that the customer should contact the firm if they are unable to make their regular payments under the regulated mortgage contract; and

  4. (4)

    information at the date the statement is issued on:

    1. (a)

      the amount owed by the customer under the regulated mortgage contract;

    2. (b)

      the actual remaining term of the regulated mortgage contract (but if the term of the regulated mortgage contract is open-ended this should be clearly stated);

    3. (c)

      the date at which any early repayment charges on the regulated mortgage contract cease to apply;

    4. (d)

      where applicable, the early repayment charge that applies, expressed as a monetary amount (see MCOB 5.6.84 R);

    5. (e)

      the cost of redeeming the regulated mortgage contract (this must be shown as the sum of MCOB 7.5.3 R(4)(a) and MCOB 7.5.3 R(4)(d) plus any linked borrowing that cannot be retained (including the outstanding balances) plus any other charges that can be quantified at the date the statement is issued); if additional charges are payable that cannot be quantified at the point that the statement is issued (for example if the customer is in arrears5) a warning must be included to that effect; and1

      5
    6. (f)

      where applicable, the date on which the requirement for the customer to purchase any tied products from the firm comes an end.

MCOB 7.5.3A R
  1. (1)

    4MCOB 7.5.3 R (1)(b) does not apply where as a result of the customer having payment difficulties:

    1. (a)

      the regulated mortgage contract has changed to an interest-only mortgage; and

    2. (b)

      interest is being deferred and capitalised by the firm.

  2. (2)

    Paragraph (1) applies only where the customer continues to have payment difficulties.

MCOB 7.5.4 R

Where payments are not being made for5 a repayment strategy5 (for example, for a bridging loan5) the text in MCOB 7.5.3 R(1)(b)(ii) or MCOB 7.5.3 R(1)(c)(ii) is replaced with the following: "As all or part of your mortgage is an interest-only mortgage, it assumes that you pay back the total amount borrowed on an interest-only basis as a lump sum at the end of the mortgage term."

5 5 5
MCOB 7.5.5 R

Where a firm provides a customer with a statement containing the information set out in MCOB 7.5.3 R(2) more frequently than once a year, the information set out in MCOB 7.5.3 R(1), MCOB 7.5.3 R(3) and MCOB 7.5.3 R(4) may be provided in a separate communication, but must be provided at least once a year.

MCOB 7.5.6 G

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 be provided monthly.

MCOB 7.5.7 R

[deleted]1

Annual statement - additional content for customers in arrears

MCOB 7.5.8 G

If a firm chooses to use the annual statement to provide a customer with a regular written statement in accordance with MCOB 13.5.1 R (Statements of charges), as described in MCOB 13.5.2 G(4), it will need to include the actual payment shortfall5in the annual statement.

5
MCOB 7.5.9 G

In some circumstances, a firm may agree a temporary payment plan with a customer that does not involve the customer paying the full amount he owes in each payment period. Where an account in arrears is subject to such a payment plan, and the amount that falls due each payment period is greater than the agreed payment, the firm will still need to show the payments that were due in accordance with MCOB 7.5.3 R(2)(b). However, in these circumstances, the firm may wish to add information to acknowledge that a temporary payment plan is in place.

Annual statement: additional content if tariff of charges has changed

MCOB 7.5.10 R

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.

MCOB 7.6 Mortgages: event-driven information3

Notification of payment changes and other material changes to terms and conditions

MCOB 7.6.1 R

A firm must give the customer reasonable notice, in advance, of:

  1. (1)

    any changes to the payments that the customer is required to make resulting from interest rate changes; and

  2. (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.

Notification where the regulated mortgage contract is sold, assigned or transferred

MCOB 7.6.2 R

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.

MCOB 7.6.3 R

For the purposes of MCOB 7.6.2 R the firm may be treated as continuing to be responsible for setting interest rates and charges if, under the terms of the sale, assignment or transfer, it is expected that the rates and charges will continue to be set by reference to, and be no higher than, those set by the firm for other contracts of the same kind.

MCOB 7.6.4 G

MCOB 7.6.2 R and MCOB 7.6.3 R may be relevant where a regulated mortgage contract is transferred to a third party through securitisation.

Notification where additional borrowing taken up

MCOB 7.6.5 R

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. (1)

    the new amount owed by the customer under the regulated mortgage contract;

  2. (2)

    the amount of each payment that is due; and

  3. (3)

    the interest rate charged.

MCOB 7.6.6 G

Examples of where MCOB 7.6.5 R will apply are the release of tranches of money to the customer in relation to a self-build mortgage or other instalment mortgage.

Further advances

MCOB 7.6.7 R

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. (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. (2)

    an ESIS that complies with MCOB 5A (MCD pre-application disclosure) and MCOB 7B.1.4R (MCD: further advances);8

unless:8

  1. (3)

    such an illustration or ESIS has already been provided; or8

  2. (4)

    the regulated mortgage contract is for a business purpose and the firm has chosen to comply with the tailored provisions for regulated mortgage contracts for a business purpose; or8

  3. (5)

    the regulated mortgage contract is with a high net worth mortgage customer and the firm has chosen to comply with the tailored provisions for loans to high net worth mortgage customers;8

(see MCOB 7.7 (Business loans and loans to high net worth mortgage customers: tailored provisions)).8

6 5 5
MCOB 7.6.8 G

If a number of different firms are involved in relation to the transaction referred to in MCOB 7.6.7 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the illustration or ESIS8 required by MCOB 7.6.7 R.

MCOB 7.6.9 R

An8illustration provided in accordance with MCOB 7.6.7R(1)8 must:

  1. (1)

    be based on the amount of the further advance only;

  2. (2)

    use the term 'additional borrowing' in place of the term 'mortgage' where appropriate throughout the titles and text of the illustration;

  3. (3)

    include an additional section headed: 'Total borrowing' and numbered '7a' after Section 7, including the following text:

    1. (a)

      "This section gives you information about how your mortgage will be affected by taking out this additional borrowing. Talk to [your mortgage lender] [insert name of mortgage lender] if you are not sure of the details of your current mortgage."; and

    2. (b)

      a clear statement explaining the total amount that the customer will owe if he takes out the additional borrowing and what the customer's new payments will be.

  4. (4)

    include a clear statement, where all or part of the regulated mortgage contract is an interest-only mortgage and the amount paid in each instalment does not include the cost of a repayment strategy5, to indicate that these payments do not include the cost of any savings plan or other investment.

    5
MCOB 7.6.10 G

In order to comply with MCOB 7.6.9 R(1), a firm should calculate the APR required by MCOB 5.6.34 R on the basis of the further advance amount only.

MCOB 7.6.11 G

For the purposes of MCOB 7.6.9 R(3) and (4):

  1. (1)

    a customer's existing mortgage includes a mortgage entered into prior to 31 October 2004 as well as a regulated mortgage contract;

  2. (2)

    the frequency of payments is that in MCOB 5.6.40 R; and

  3. (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.

MCOB 7.6.12 G

An example of the total borrowing section referred to in MCOB 7.6.9 R(3) is in MCOB 7 Annex 1.

MCOB 7.6.13 R

Where not all of the mortgage interest rates described in accordance with MCOB 5.6.25 R(2)(a) apply for the term of the loan part to which they apply, the firm must disclose the amount that will be paid in each instalment when complying with MCOB 7.6.9 R(3)(b), including the following information:

  1. (1)

    when a change in payment will occur;

  2. (2)

    the reason for the change in payment; and

  3. (3)

    confirmation that the payment illustrated assumes rates will not change.

MCOB 7.6.14 R
  1. (1)

    The illustration provided in accordance with MCOB 7.6.7R(1) may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so in order to reflect the fact that the illustration is being provided for a further advance.8

  2. (2)

    The ESIS provided under MCOB 7.6.7R(2) may diverge from the requirements of MCOB 5A where it is necessary to do so to reflect that the ESIS is being provided for a further advance.8

MCOB 7.6.15 G

MCOB 7.6.14 R allows the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading for the customer. For example, the firm may add text to let the customer know if conditions applying to the original mortgage do not apply to the additional borrowing, such as 'The early repayment charges applying to your existing loan do not apply to this additional borrowing.'

MCOB 7.6.16 R
  1. (1)

    (In the case of a business illustration), MCOB 5.6.16 R is replaced with the following: "Section 1: 'About this illustration' Under the section heading 'About this illustration', the following text must be included:'We are required by the Financial Conduct Authority (FCA) - the independent watchdog that regulates financial services - to provide you with this illustration.' "

  2. (2)

    (In the case of any other illustration8 ), MCOB 5.6.16 R is replaced with the following; "Section 1: 'About this illustration' Under the section heading 'About this illustration, the following text must be included: 'We are required by the Financial Conduct Authority (FCA) - the independent watchdog that regulates financial services - to provide you with this illustration. All firms selling mortgages are required to give illustrations like this one, that contain similar information presented in the same way.' "

MCOB 7.6.17 R
  1. (1)

    Where the further advance for which the customer has applied is in the form of an annual insurance premium secured by a first legal charge, a firm:

    1. (a)

      may, instead of providing an illustration or ESIS8 in accordance with MCOB 7.6.7 R, provide confirmation of the matters required by MCOB 7.6.5 R; and

    2. (b)

      where (a) applies use the following text:"Your annual insurance premium has been/will be added to your mortgage account [unless you pay it by dd/mm/yy]. If you choose to pay it in full on or before dd/mm/yy there will be no extra cost. If you do not, interest will be charged on the amount outstanding at [insert details of the applicable interest rate e.g. 'the same rate as your mortgage' or 'the standard variable rate which is currently x%']."

  2. (2)

    If the insurance premium described in (1) is not an annual premium, (1)(a) and (b) apply but a firm must amend the text in (1)(b) to reflect the length of the contract.

Rate switches

MCOB 7.6.18 R

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:7

7
  1. (1)

    an illustration for the whole loan that complies with the requirements of MCOB 5 (Pre-application disclosure); or7

  2. (2)

    an ESIS for the whole loan that complies with the requirements of MCOB 5A (MCD Pre-application disclosure),7

unless such an illustration or ESIS has already been provided.7

MCOB 7.6.19 G

If a number of different firms are involved in relation to the transaction referred to in MCOB 7.6.18 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the illustration or ESIS7 required by MCOB 7.6.18 R.

MCOB 7.6.20 R
7
  1. (1)

    The illustration provided in accordance with MCOB 7.6.18 R may diverge from the requirements of MCOB 5 where it is necessary to do so to reflect the fact that the illustration is being provided for a rate switch.7

  2. (2)

    The ESIS provided under MCOB 7.6.18R (2) may diverge from the requirements of MCOB 5A where it is necessary to do so to reflect that the ESIS is being provided for a rate switch.7

MCOB 7.6.21 G

MCOB 7.6.20R (1) and (2) allow7 a 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 could replace the statement in Section 3 of the illustration, explaining that if information provided by the customer changes, the illustration may be affected, with a statement explaining that the illustration is based on information gathered in the past, which may no longer be accurate.

7

Addition or removal of a party to the contract

MCOB 7.6.22 R

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:7

1 7
  1. (1)

    an illustration for the whole loan that complies with the requirements of MCOB 5 (Pre-application disclosure); or7

  2. (2)

    an ESIS for the whole loan which complies with the requirements of MCOB 5A (MCD Pre-application disclosure).7

MCOB 7.6.23 G

The FCA would not view:

  1. (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. (2)

    a guarantor as a party to a regulated mortgage contract;1

so 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 7.6.24 G

If a number of different firms are involved the transaction referred to in MCOB 7.6.22 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the illustration or ESIS7 required by MCOB 7.6.22 R.

7
MCOB 7.6.25 R
7
  1. (1)

    The illustration provided in accordance with MCOB 7.6.22 R may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so to reflect the fact that the illustration is being provided in respect of the addition or removal of a party to the contract.7

  2. (2)

    The ESIS provided under MCOB 7.6.22R (2) may diverge from the requirements of MCOB 5A (MCD Pre-application disclosure) where it is necessary to do so to reflect that the ESIS is being provided for the addition or removal of a party to the contract.7

MCOB 7.6.26 G

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
MCOB 7.6.27 R

[deleted]2

2

Changes to the amount of each payment due

MCOB 7.6.28 R

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. (1)

    the amount outstanding on the regulated mortgage contract at the date the change is requested;

  2. (2)

    the payment due and the frequency of payments; where it is known that the payment will change (for example at the end of a fixed rate period), the new payment and the date of the change must also be shown;

  3. (3)

    the rate of interest applying to the regulated mortgage contract; where it is known that the rate of interest will change, the new rate and the date of the change must also be shown;

  4. (4)

    the type of interest rate (for example fixed, or discounted); where it is known that the type of interest rate will change the new type and the date of the change must also be shown;

  5. (5)

    where the regulated mortgage contract will change to an interest-only mortgage, a prominent reminder that the customer should have in place arrangements to repay the capital, using the following text:'You will still owe [insert amount borrowed or, where part of the regulated mortgage contract is an interest-only mortgage, insert the amount borrowed under the interest-only mortgage] at the end of the mortgage term. You will need to make separate arrangements to repay this. When comparing the new payments on this mortgage with your previous payments, remember to add any money you may need to pay into a separate savings plan to build up a lump sum to repay the amount you have borrowed.'; and1

  6. (6)

    details of any charges that apply for changing the regulated mortgage contract.

MCOB 7.6.28A R
  1. (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. (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 contract takes effect.

  3. (3)

    The reminder in (2) may be provided in a separate communication.

MCOB 7.6.29 G

Examples of where MCOB 7.6.28 R will apply are where the customer requests a change from an interest-only mortgage to a repayment mortgage, requests a change to the term of his mortgage or agrees to his arrears being capitalised.

MCOB 7.6.30 G

If a number of different firms are involved in relation to the transaction referred to in MCOB 7.6.28 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the information required by MCOB 7.6.28 R.

Use of illustrations or ESISs in place of information under MCOB 7.6.28R7

MCOB 7.6.31 R

Where MCOB 7.6.28 R applies, a firm may issue either:7

7
  1. (1)

    an illustration in accordance with MCOB 5 (Pre-application disclosure) in place of the information set out in MCOB 7.6.28 R; or7

  2. (2)

    an ESIS in accordance with MCOB 5A (MCD Pre-application disclosure),7

in place of the information set out in MCOB 7.6.28 R.7

MCOB 7.6.31A R
  1. (1)

    7The illustration provided under MCOB 7.6.31R (1) may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so to reflect the circumstances in which it is being provided.

  2. (2)

    The ESIS provided under MCOB 7.6.31R (2) may diverge from the requirements of MCOB 5A (MCD Pre-application disclosure) where it is necessary to do so to reflect the circumstances in which it is being provided.

MCOB 7.6.31B G

MCOB 7.6.31AR (1) and (2) allow the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading to the customer.

MCOB 7.6.32 R

Where MCOB 7.6.28 R applies and the customer simultaneously requests a rate switch or the addition or removal of a party to the contract, a firm will not be required to provide the information in accordance with MCOB 7.6.28 R where it is provided as part of:7

7
  1. (1)

    an illustration issued in accordance with MCOB 7.6.18R (1) or MCOB 7.6.22R (1); or7

  2. (2)

    an ESIS issued under MCOB 7.6.18R (2) or MCOB 7.6.22R (2).7

Simultaneous request for a rate switch and addition or removal of a party to a contract

MCOB 7.6.33 G
7
  1. (1)

    Where a customer simultaneously requests a rate switch and the addition or removal of a party to the loan, a firm will not be required to provide the customer with a separate illustration for each in accordance with MCOB 7.6.18R (1) and MCOB 7.6.22R (1). The firm may provide the customer with a single illustration that complies with the requirements of MCOB 5(Pre-application disclosure) for both.7

  2. (2)

    Where a customer simultaneously requests a rate switch and the addition or removal of a party to the loan, a firm will not be required to provide the customer with a separate ESIS for each under MCOB 7.6.18R (2) and MCOB 7.6.22R (2). The firm may provide the customer with a single ESIS that complies with the requirements of MCOB 5A (MCD Pre-application disclosure) for both.7

European Standardised Information Sheet (ESIS): additional APRC

MCOB 7.6.34 R

7Where a firm is required to provide a customer with an ESIS under MCOB 7.6.18R (2) or MCOB 7.6.22R (2), or a firm chooses to provide a customer with an ESIS under MCOB 7.6.31R (2), the firm need not include the additional APRC required under MCOB 10A.1.6 R, Section 4 of MCOB 5A Annex 1 and MCOB 5A Annex 2, 6.2R to 6.8R.

MCOB 7.6.35 R

7Where a firm provides a customer with an ESIS under MCOB 7.6.18R (2), MCOB 7.6.22R (2) or MCOB 7.6.31R (2), that includes an additional APRC, the firm must either:

  1. (1)

    base that additional APRC on the APRC previously provided to the customer under MCOB 5A (MCD Pre-application disclosure); or

  2. (2)

    calculate that additional APRC in accordance with MCOB 10A.1.6 R, Section 4 of MCOB 5A Annex 1 and MCOB 5A Annex 2, 6.2R to 6.12R.

MCOB 7.6.36 G

7When considering whether to apply MCOB 7.6.35R (1) or MCOB 7.6.35R (2), a firm should consider its obligations under MCOB 3A.2.1R(2) to communicate in a way that is fair, clear and not misleading.

MCOB 7.7 Business loans and loans to high net worth mortgage customers: tailored provisions3

1Further advances

MCOB 7.7.1 R
  1. (1)

    Where, in relation to a regulated mortgage contract for a business purpose or a high net worth mortgage customer3 who is not a consumer under an MCD regulated mortgage contract4, a customer either:

    1. (a)

      seeks an immediate increase in the borrowing provided under the regulated mortgage contract; or

    2. (b)

      overdraws on the borrowing under the regulated mortgage contract;

    the further advance rules in MCOB 7.6.7 R to MCOB 7.6.17 R do not apply.

  2. (2)

    Where (1) applies, the firm must within five business days (for a loan for a business purpose) or in good time before the customer is bound by the regulated mortgage contract (for a high net worth mortgage customer)3 provide the customer with either:

    1. (a)

      a business illustration or high net worth illustration (as applicable)3 for the new total borrowing; or

    2. (b)

      the following information, in a single communication:

      1. (i)

        the new amount outstanding on the regulated mortgage contract;

      2. (ii)

        details of any changes in the repayment arrangements or interest rate charged as a result of the change;

      3. (iii)

        where there is a new early repayment charge or a change to the existing early repayment charge, the maximum amount payable as an early repayment charge in respect of the regulated mortgage contract; and

      4. (iv)

        details of any charges that apply for changing the regulated mortgage contract.

MCOB 7.7.1A G

2 Firms are reminded that in accordance with MCOB 1.2.3 R, they should comply in full with MCOB, but in doing so may opt to take account of3 all tailored provisions in MCOB that relate to business loans or loans to high net worth mortgage customers3. Therefore, a firm may only follow the tailored provisions in MCOB 7.73 in relation to one of these sectors3 if it also follows all other tailored provisions in MCOB that relate to that sector. In either case, the rest of MCOB applies in full3.

3 3
MCOB 7.7.2 G

Where a customer remains in breach, for more than one month, of an agreed borrowing limit MCOB 7.7 or of an obligation to repay where the regulated mortgage contract does not have a regular repayment plan, firms are reminded that MCOB 13 (Arrears and repossessions) applies.

MCOB 7.7.3 R

Where a customer applies for a further advance that is a regulated mortgage contract for a business purpose or a high net worth mortgage customer3 who is not a consumer under an MCD regulated mortgage contract4 and MCOB 7.7.1 R does not apply:

  1. (1)

    the business illustration or high net worth illustration3must be based upon the total borrowing; and

  2. (2)

    MCOB 7.6.9 R to MCOB 7.6.10 G and MCOB 7.6.12 G do not apply.

1Arrangements to repay capital

MCOB 7.7.4 R

Where MCOB 7.6.28 R(5) applies, a firm may omit the final sentence of the required text where it is aware, in the context of an interest-only mortgage, that the customer's intention is not to use a savings plan as a repayment strategy3.

3

1Disclosure

MCOB 7.7.5 R

1 MCOB 7.4 (Disclosure at the start of the contract) does not apply in relation to a regulated mortgage contract that is for a business purpose or a high net worth mortgage customer3.

MCOB 7.8 1Home purchase plans

MCOB 7.9

General

Note: The rules in this chapter regarding how a firm must provide information required by this section apply (see MCOB 7.3).

Post-sale disclosure

MCOB 7.8.1 R

A firm that enters into a home purchase plan with a customer must ensure that before making the first payment the customer is provided with a prominent reminder that the customer should check that his right to occupy the property has been properly safeguarded.

MCOB 7.8.2 G

A firm is reminded of its obligation to ensure that its customer's interests are protected to a reasonable standard (see MCOB 2.6A).

Annual statement

MCOB 7.8.3 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 of the plan term) covering the home purchase plan and including information about:

  1. (1)

    payments due and made during the period since the last statement (or, where the statement is the first statement, since the customer entered into the home purchase plan), including:

    1. (a)

      whether the payment is a rental payment or a purchase payment;

    2. (b)

      the applicable rental rate(s);

    3. (c)

      where relevant, the customer's beneficial interest in the property;

  2. (2)

    the remaining acquisition amount;

  3. (3)

    the actual remaining term;

  4. (4)

    the ability of the customer to terminate it early and sell the property, together with any charges that would apply.

Annual statement - additional content for customers in arrears

MCOB 7.8.4 G

If a firm uses the annual statement to provide a customer with a written statement relating to arrears, it will need to include the actual payment shortfall2 in the annual statement (see MCOB 13.5.2 G (4)).

2
MCOB 7.8.5 G

In some circumstances, a firm may agree a temporary payment plan with a customer that does not involve the customer paying the full amount he owes in each payment period. Where an account in arrears is subject to such a payment plan, and the amount that falls due each payment period is greater than the agreed payment, the firm will still need to show the payments that were due during the period since the last statement. However, in these circumstances, the firm may wish to add information to acknowledge that a temporary payment plan is in place.

Tariff of charges

MCOB 7.8.6 R

A firm must include a tariff of charges with the annual statement if it has changed since the previous version provided.

Event-driven information

MCOB 7.8.7 G

When a post-sale variation of the home purchase plan is proposed or takes place, a firm should have regard to the Principles (in particular, Principles 6 and 7) in determining the action it should take and what information to provide to the customer.

MCOB 7.9 Post-sale disclosure for regulated sale and rent back agreements

MCOB 7.9.1 R

1Where the terms of a regulated sale and rent back agreement include a provision conferring upon the SRB agreement seller a right to receive any sum, or exercise any option, in relation to the transaction after it has been concluded, the SRB agreement provider must take reasonable steps to inform the SRB agreement seller in good time of any steps which the SRB agreement seller must take if he wishes to receive the sum or exercise the option.

MCOB 7 Annex 1 An example of the Total Borrowing section.

MCOB 7 Annex 1 G

This Annex belongs to MCOB 7.6.12G

7a. Total Borrowing

This section gives you information about how your mortgage will be affected by taking out this additional borrowing. Talk to your mortgage lender if you are not sure of the details of your current mortgage.

When this additional borrowing is added to your existing mortgage, the total amount you owe will be £ x and your monthly payments based on this amount will be

Monthly Payment

Initial monthly payment

£a

After 12 months the discount period on your further borrowing will end, and assuming rates do not change, your new monthly payment will be

£b

After 26 months the fixed rate period on a portion of your mortgage will end, and assuming rates do not change, your new monthly payment will be

£c

Remember to add the cost of any savings plan to these monthly payments