Related provisions for MCOB 7.6.6
An example of how the information required by MCOB 5.6.52 R (1), MCOB 5.6.52 R (3) and MCOB 5.6.52 R (5) may be presented is as follows:
Cost of repaying the capitalYou will still owe £Z 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 money that you may need to pay into a separate savings plan to build up a lump sum to repay this amount. 

Savings plan that you do not have to take out through [insert name of mortgage lender or mortgage intermediary] 
Monthly payments 
XYZ savings plan (see separate product disclosure document) 
£C 
What you will need to pay each month including the cost of a savings plan to repay the capital 

36 payments at a fixed rate currently x% followed by: 
£(A+C) 
264 payments at a variable rate currently y%. 
£(B+C) 
12Table of examples of typical redress calculations
Example 1 
Capital shortfall and higher endowment outgoings 
Example 2 
Capital shortfall partially offset by lower endowment mortgage outgoings 
Example 3 
Capital shortfall more than offset by lower endowment mortgage outgoings 
Example 4 
Capital surplus more than offset by higher endowment mortgage outgoings 
Example 5 
Capital surplus partially offset by higher endowment mortgage outgoings 
Example 6 
Capital surplus and lower endowment mortgage outgoings 
Example 7 
Low start endowment mortgage 
Example 1 

Capital shortfall and higher endowment mortgage outgoings 

Background 

Capital sum of £50,000 

25 year endowment policy 

Duration to date: 5 years 

Established facts 

Endowment surrender value: 
£3,200 
Capital repaid under equivalent repayment mortgage: 
£4,200 
Surrender value less capital repaid: 
(£1,000) 
Cost of converting from endowment mortgage to repayment mortgage: 
(£200) 
Total outgoings to date 

Equivalent repayment mortgage (capital + interest + DTA life cover): 
£21,950 
Endowment mortgage (endowment premium + interest): 
£22,250 
Difference in outgoings (repayment  endowment): 
(£300) 
Basis of compensation 

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid and also because of the higher total outgoings to date of the endowment mortgage relative to the repayment mortgage. The two losses and the conversion cost are therefore added together in order to calculate the redress. 

Redress 

Loss from surrender value less capital repaid: 
(£1,000) 
Loss from total extra outgoings under endowment mortgage: 
(£300) 
Cost of converting to repayment mortgage: 
(£200) 
Total loss: 
(£1,500) 
Therefore total redress is: 
£1,500 
Example 2 

Capital shortfall partially offset by lower endowment mortgage outgoings 

Background 

Capital sum of £50,000 

25 year endowment policy 

Duration to date: 5 years 

Established facts 

Endowment surrender value: 
£2,500 
Capital repaid under equivalent repayment mortgage 
£4,200 
Surrender value less capital repaid under equivalent repayment mortgage: 
(£1,700) 
Cost of converting from endowment mortgage to repayment mortgage 
(£300) 
Total outgoings to date: 

Repayment mortgage (capital + interest + DTA life cover): 
£21,950 
Endowment mortgage (endowment premium + interest): 
£21,350 
Difference in outgoings (repayment  endowment): 
£600 
Basis of Compensation 

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained form the lower outgoings of the endowment mortgage to date. In calculating the redress the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. 

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings 

Loss from surrender value less capital repaid: 
(£1,700) 
Gain from total lower outgoings under endowment mortgage: 
£600 
Cost of converting to repayment mortgage: 
(£300) 
Net loss: 
(£1,400) 
Therefore total redress is: 
£1,400 
Redress if it is unreasonable to take account of gain from lower outgoings 

Loss from surrender value less capital repaid: 
(£1,700) 
Gain from total lower outgoings under endowment mortgage: 
Ignored* 
Cost of converting to repayment mortgage: 
(£300) 
Net loss taken into account: 
(£2,000) 
Therefore total redress is: 
£2,000 
* In this example, and also in Examples 3, 7, 8 and 9, the complainant's circumstances are assumed to be such as to make it unreasonable to take account of any of the gain from lower outgoings. 
Example 3 

Capital shortfall more than offset by lower endowment mortgage outgoings 

Background 

Capital sum of £50,000 

25 year endowment policy 

Duration to date: 8 years 

Established facts 

Endowment surrender value: 
£7,300 
Capital repaid under equivalent repayment mortgage: 
£7,600 
Surrender value less capital repaid: 
(£300) 
Cost of converting from endowment mortgage to repayment mortgage: 
(£200) 
Total outgoings to date: 

Repayment mortgage (capital + interest + DTA life cover): 
£34,510 
Endowment mortgage (endowment premium + interest): 
£33,990 
Difference in outgoings (repayment  endowment): 
£520 
Basis of Compensation 

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained from the lower total outgoings of the endowment mortgage. In calculating redress the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. 

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings 

Loss from surrender value less capital repaid: 
(£300) 
Gain from total lower outgoings under endowment mortgage: 
£520 
Cost of converting to repayment mortgage: 
(£200) 
Net gain: 
£20 
Therefore, there has been no loss and no redress is payable. 

Redress if it is unreasonable to take account of gain from lower outgoings 

Loss from surrender value less capital repaid: 
(£300) 
Gain from total lower outgoings under endowment mortgage: 
Ignored 
Cost of converting to repayment mortgage: 
(£200) 
Net loss taken into account: 
(£500) 
Therefore total redress is: 
£500 
Example 4 

Capital surplus more than offset by higher endowment mortgage outgoings 

Background 

Capital sum of £50,000 

25 year endowment policy 

Duration to date: 8 years 

Established facts 

Endowment surrender value: 
£7,800 
Capital repaid under equivalent repayment mortgage: 
£7,600 
Surrender value less capital repaid: 
£200 
Cost of converting from endowment mortgage to repayment mortgage: 
(£250) 
Total outgoings to date: 

Repayment mortgage (capital + interest + DTA life cover): 
£34,510 
Endowment mortgage (endowment premium + interest): 
£34,950 
Difference in outgoings (repayment  endowment): 
(£440) 
Basis of Compensation 

In this example, the complainant has suffered loss because of the higher total outgoings to date of the endowment mortgage but has gained because the surrender value of the endowment is greater than the capital repaid. Since the sum of the loss and the conversion cost is greater than the gain, the redress is calculated as the difference between the two. 

Redress 

Gain from surrender value less capital repaid: 
£200 
Loss from total extra outgoings under endowment mortgage: 
(£440) 
Cost of converting to repayment mortgage: 
(£250) 
Net loss: 
(£490) 
Therefore total redress is: 
£490 
Example 5 

Capital surplus partially offset by higher endowment mortgage outgoings 

Background 

Capital sum of £50,000 

25 year endowment policy 

Duration to date: 10 years 

Established facts 

Endowment surrender value: 
£11,800 
Capital repaid under equivalent repayment mortgage 
£9,700 
Surrender value less capital repaid: 
£2,100 
Cost of converting from endowment mortgage to repayment mortgage: 
(£300) 
Total outgoings to date: 

Repayment mortgage (capital + interest + DTA life cover): 
£46,800 
Endowment mortgage (endowment premium + interest): 
£47,500 
Difference in outgoings (repayment  endowment): 
(£700) 
Basis of Compensation 

In this example, the complainant has suffered loss because of the higher total outgoings to date of the endowment mortgage relative to the repayment mortgage. However the sum of this and the conversion cost is less than the complainant's gain from the difference between the surrender value of the endowment and the capital repaid. Thus no redress is payable. 

Redress 

Gain from surrender value less capital repaid: 
£2,100 
Loss from total extra outgoings under endowment mortgage: 
(£700) 
Cost of converting to repayment mortgage: 
(£300) 
Net gain: 
£1,100 
Therefore, there has been no loss and no redress is payable. 
Example 6 

Capital surplus and lower endowment mortgage outgoings 

Background 

Capital sum of £50,000 

25 year endowment policy 

Duration to date: 10 years 

Established facts 

Endowment surrender value: 
£10,100 
Capital repaid under equivalent repayment mortgage 
£9,700 
Surrender value less capital repaid: 
£400 
Cost of converting from endowment mortgage to repayment mortgage: 
(£200) 
Total outgoings to date: 

Repayment mortgage (capital + interest + DTA life cover): 
£46,800 
Endowment mortgage (endowment premium + interest): 
£46,300 
Difference in outgoings (repayment  endowment): 
£500 
Basis of Compensation 

In this example, the complainant has gained both because the surrender value of the endowment is greater than the capital repaid and because of the lower total outgoings of the endowment mortgage. These gains are larger than the cost of converting to a repayment mortgage. Thus no further action is necessary. 

Redress 

As there has been no loss, no redress is payable. 
Example 7 

Low start endowment mortgage 

Background 

Capital sum of £50,000 

25 year endowment policy 

Duration to date: 10 years 

Endowment premium per month: starting at £35 in first year, increasing by 20% simple on each policy anniversary, reaching £70 after five years and then remaining at that level. 

Established facts: 

Endowment surrender value: 
£8,200 
Capital repaid under equivalent repayment mortgage: 
£9,700 
Surrender value less capital repaid: 
(£1,500) 
Cost of converting from endowment mortgage to repayment mortgage: 
(£250) 
Total outgoings to date 

Repayment mortgage (capital + interest + DTA life cover): 
£46,800 
Endowment mortgage (endowment premium + interest): 
£45,640 
Difference in outgoings (repayment minus endowment): 
£1,160 
Of this difference in outgoings, £800 arose in the five year period when the complainant was paying a low endowment premium. 

Basis of compensation 

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained from the lower total outgoings of the endowment mortgage. As in Example 3, in calculating redress the whole of the gain should be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to do so. However, unlike Example 3, in a low start endowment mortgage the complainant may have chosen to pay a lower than usual premium in the early years (this would need to be established on the facts of the case). Where it has been established that the complainant chose to make lower payments, even if it is unreasonable to take account of the whole of the gain from total outgoings, the gain from paying a lower premium during the low start period is normally taken into account. In such cases the redress is calculated as the capital loss plus the conversion cost minus the total amount by which repayment mortgage outgoings would have exceeded the actual low start endowment mortgage outgoings during the five year low start period. 

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings 

Loss from surrender value less capital repaid: 
(£1,500) 
Gain from total lower outgoings under endowment mortgage: 
£1,160 
Cost of converting to repayment mortgage: 
(£250) 
Net loss: 
(£590) 
Therefore total redress is: 
£590 
Redress if it is unreasonable to take account of gain from lower outgoings 

Loss from surrender value less capital repaid: 
(£1,500) 
Gain from total lower outgoings during low start period of endowment mortgage: 
£800 
Cost of converting to repayment mortgage: 
(£250) 
Net loss taken into account: 
(£950) 
Therefore total redress is: 
£950 
12Example of assessment set out at 1.3.10
The following example illustrates the position: 

Surrender value 
£10,000 
TEP value 
£16,000 
Loss calculated by standard approach 
£5,000 

Remortgaging costs 
£300 

Total 
£15,300 

Complainant receives £16,000 all ultimately funded from the TEP sale. 

Surrender value 
£10,000 
TEP value 
£13,000 
Redress calculated by standard approach 
£5,000 

Remortgaging costs 
£300 

Total 
£15,300 

Complainant receives £15,300, £13,000 ultimately funded from the TEP sale and £2,300 ultimately funded from the firm. 
Typical recommendations and whether they will be regulated as advice under article 53A of the Regulated Activities Order
This table belongs to PERG 4.6.5 G and PERG 4.6.6 G.
Recommendation 
Regulated or not? 
I recommend you take out the ABC Building Society 2 year fixed rate mortgage at 5%. 
Yes. This is advice which steers the borrower in the direction of a particular mortgage which the borrower could enter into. 
I recommend you do not take out the ABC Building Society 2 year fixed rate mortgage at 5%. 
Yes. This is advice which steers the borrower away from a particular mortgage which the borrower could have entered into. 
I recommend that you take out either the ABC Building Society 2 year fixed rate mortgage at 5% or the XYZ Bank standard variable rate mortgage. 
Yes. This is advice which steers the borrower in the direction of more than one particular mortgage which the borrower could enter into. 
I recommend you take out (or do not take out) an ABC Building Society fixed rate mortgage. 
This will depend on the circumstances. If, for example, the society only offers one such mortgage, this would be a recommendation intended implicitly to steer the borrower in the direction of that particular mortgage which the borrower could enter into and therefore would be advice. 
I suggest you take out (or do not take out) a mortgage with ABC Building Society. 
No. This is not advice which steers the borrower in the direction of a particular mortgage which the borrower could enter into. However, if the society only offers one mortgage, this would be a recommendation intended implicitly to steer the borrower in the direction of that particular mortgage which the borrower could enter into and therefore would be advice. 
I suggest you change (or do not change) your current mortgage from a variable rate to a fixed rate. 
No in respect of the advice about rate type, as this does not steer the borrower in the direction of a particular mortgage which the borrower could enter into. Yes in respect of the advice about varying the terms of the particular mortgage that the borrower had already entered into. 
I suggest you take out (or do not take out) a variable rate mortgage. 
No. This is not advice which steers the borrower in the direction of a particular mortgage which the borrower could enter into. 
I recommend you take out (or do not take out) a mortgage. 
No. This is not advice which steers the borrower in the direction of a particular mortgage which the borrower could enter into. 
I would always recommend buying a house and taking out a mortgage as opposed to renting a property. 
No. This is an example of generic advice which does not steer the borrower in the direction of a particular mortgage that he could enter into. 
I recommend you do not borrow more than you can comfortably afford. 
No. This is an example of generic advice. 
If you are looking for flexibility with your mortgage I would recommend you explore the possibilities of either a flexible mortgage or an offset mortgage. There are a growing number of lenders offering both. 
No. This is an example of generic advice. 
Example 8 

Term extends beyond retirement age and policy reconstruction 

Background 

45 year old male nonsmoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th policy anniversary. 

It has always been the intention of the complainant to retire at State retirement age 65. 

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is 5 years after retirement. 

Established facts 

Established premium paid by investor on policy of original term (25 years): 
£81.20 
Premium that would have been payable on policy with term from sale to retirement (20 years): 
£111.20 
Actual policy value at time complaint assessed: 
£12,500 
Value of an equivalent 20year policy at time complaint assessed: 
£21,300 
Difference in policy values at time complaint assessed: 
£8,800 
£4,320 

Basis of compensation 

The policy is reconstructed as if it had been set up originally on a term to mature at retirement age, in this example, a term of 20 years. The difference in the current value of the policy actually sold to the complainant and the current value of the reconstructed policy, as if the premium on the reconstructed policy had been paid from outset, is calculated. The complainant has gained from lower outgoings (lower premiums) of the actual endowment policy to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. 

Redress generally if it is not unreasonable to take account of the whole of the gain from lower outgoings 

Loss from current value of reconstructed policy less current value of actual policy: 
(£8,800) 
Gain from total lower outgoings under actual policy: 
£4,320 
Net loss: 
(£4,480) 
Therefore total redress is: 
£4,480 
Redress if it is unreasonable to take account of gain from lower outgoings 

Loss from current value of reconstructed policy less current value of actual policy: 
(£8,800) 
Gain from total lower outgoings under actual policy: 
Ignored 
Therefore total redress is: 
£8,800 
Additional Information 

If the policy is capable of reconstruction, the complainant must now fund the higher premiums himself for the remainder of the term of the shortened policy until maturity. In this example the higher premium could be £111.20. However the firm should provide the complainant with a reprojection letter based on the reconstructed policy such that the actual monthly payment required to achieve the target sum could be even higher, say £130. The reprojection letter should set out the range of options facing the complainant to deal with the projected shortfall, if any. 
Example 9 

Term extends beyond retirement age: example of failure to explain investment risks 

Background 

45 year old male nonsmoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th anniversary. 

It has always been the intention of the complainant to retire at state retirement age 65. 

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is five years after retirement. 

In addition, an endowment does not meet the complainant's attitude to investment risk and a repayment mortgage would have been taken out if properly advised. 

Established facts 

Surrender value (on the 25 year policy) at time complaint assessed: 
£12,500 
Capital repaid under repayment mortgage of term to retirement date (20 years): 
£21,000 
Surrender value less capital repaid: 
(£8.500) 
Difference in outgoings (repayment  endowment): 
£5,400 
Cost of converting from endowment mortgage to repayment mortgage: 
£200 
Basis of compensation: 

The surrender value of the (25 year term) endowment policy is compared to the capital that would have been repaid to date under a repayment mortgage arranged to repay the loan at retirement age, in this example, a repayment mortgage for a term of 20 years. The complainant has gained from lower outgoings of the endowment mortgage to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. The conversion costs are also taken into account in calculating the redress. 

Redress generally 

Loss from surrender value less capital repaid: 
(£8,500) 
Gain from total lower outgoings under endowment mortgage: 
£5,400 
Cost of converting to a repayment mortgage: 
(£200) 
Net loss: 
(£3,300) 
Therefore total redress is: 
£3,300 
Redress if it is unreasonable to take account of gain from lower outgoings 

Loss from surrender value less capital repaid: 
(£8,500) 
Gain from total lower outgoings under endowment mortgage: 
Ignored 
Cost of converting to a repayment mortgage: 
(£8,700) 
Therefore total redress is: 
£8,700 
This table belongs to MCOB 4.1.1 R
(1) Category of firm 
(2) Applicable section 
MCOB 4.1 to MCOB 4.4, and MCOB 4.8 to MCOB 4.94 43 

MCOB 4.1, MCOB 4.2 and MCOB 4.10 (except MCOB 4.10.5 G to MCOB 4.10.7 G). MCOB 4.3, MCOB 4.4 and MCOB 4.8 in accordance with MCOB 4.10 

MCOB 4.1, MCOB 4.2, MCOB 4.5, MCOB 4.6 and MCOB 4.10.MCOB 4.3, MCOB 4.4, MCOB 4.7 and MCOB 4.8 in accordance with MCOB 4.10 

As for a home purchase adviser exceptMCOB 4.10.5 G to MCOB 4.10.7 G and MCOB 4.7 do not apply 

see MCOB 8for the application of this chapter 