Pre-application disclosure

(a) makes a personal recommendation to a customer to enter into a home finance transaction; or
(b) provides information to a customer that is specific to the amount to be provided on a particular home finance transaction, including information provided in response to a request from a customer; or
(c) provides the means for a customer to make an application to it;

in connection with entering into, or agreeing to enter into, a home finance transaction provided by a home finance provider, other than an equity release transaction or a variation to an existing home finance transaction.
(2) In relation to further advances and other variations, MCOB 5 is modified by MCOB 7 (Disclosure at start of contract and after sale), regardless of whether they are variations to an existing home finance transaction, or are such that they involve the customer entering into a new home finance transaction.
(3) In relation to an equity release transaction, MCOB 5 is modified by MCOB 9 (Equity release: product disclosure).

06/04/2007

MCOB 5.1.4

The table in MCOB 5.1.5 G shows how the relevant rules and guidance in MCOB 5.6 apply to certain types of regulated mortgage contracts.

31/10/2004

MCOB 5.1.5

This table belongs to MCOB 5.1.4G

Type of mortgage

Requirements that do not apply

Additional or alternative requirements

Multi-part mortgages

MCOB 5.6.42 R (3)
MCOB 5.6.46 R

MCOB 5.6.28 R
MCOB 5.6.54 R - MCOB 5.6.57 G

Foreign currency mortgages

N/A

MCOB 5.6.127 R - MCOB 5.6.128 R

Shared appreciation mortgages

N/A

MCOB 5.6.129 R - MCOB 5.6.131 R

Deferred interest rate mortgages

N/A

MCOB 5.6.132 R

Mortgages without a term or regular payment plan

MCOB 5.6.31 R
MCOB 5.6.40 R - MCOB 5.6.57 G
MCOB 5.6.59 R - MCOB 5.6.65 R

MCOB 5.6.32 R
MCOB 5.6.134 R - MCOB 5.6.145 R

31/10/2004

MCOB 5.1.6

In this chapter, references to a home finance transaction include, where the context requires, references to arrangements which are capable of becoming a home finance transaction.

06/04/2007

MCOB 5.1.7

(1) MCOB 5.1.3 R means that this chapter applies where the customer can apply to enter into a home finance transaction. This includes circumstances where, for example, the means to apply is provided in person, by telephone, through a website or through an application pack sent through the post.
(2) The effect of this chapter is to require a customer to be provided with key information about a home finance transaction before he submits an application to a home finance provider.

06/04/2007

MCOB 5.1.8

Although an illustration is a financial promotion, the effect of MCOB 3.2.5 R(1), section 145(3) of the Act (Financial promotion rules) and article 28 of the Financial Promotion Order (One-off non-real time communications and solicited real time communications) is that an illustration is exempt from the provisions of MCOB 3 (Financial promotion). However, the general requirement to communicate information in a way which is clear, fair and not misleading applies to both an illustration and (in relation to a home purchase plan) a financial information statement (see MCOB 5.8.1 R).

06/04/2007

MCOB 5.1.9

In relation to a regulated mortgage contract, where part of the loan is not a regulated mortgage contract, for example it is a linked unsecured loan, the details of this loan can be shown in Section 12 of the illustration as an additional feature. It should not be added to the regulated mortgage contract loan amount in MCOB 5.6.6 R(2).

06/04/2007

MCOB 5.1.10

A firm that finds any rule in MCOB 5.6 (Content of illustrations) inappropriate for the particular kind of regulated mortgage contract that the mortgage lender provides will need to seek from the FSA a waiver of that rule. SUP 8 contains details of the waiver procedure.

31/10/2004

MCOB 5.2

Purpose

01/12/2004

MCOB 5.2.1

(1) MCOB 5 amplifies Principle 6 and Principle 7.
(2) The purpose of MCOB 5 is to ensure that, before a customer submits an application for a particular home finance transaction, he is supplied with information that makes clear:

(a) (in relation to a regulated mortgage contract) its features, any linked deposits, any linked borrowing and any tied products; and
(b) the price that the customer will be required to pay under that home finance transaction, to enable the customer to assess whether it is affordable to him.
(c) [deleted]

(3) MCOB 5 requires information to be disclosed in a consistent way to facilitate comparison between products of different providers.

06/04/2007

MCOB 5.3

Applying for a home finance transaction

06/04/2007

MCOB 5.3.1

A home finance provider must not enter into a home finance transaction, or agree to do so, with a customer unless the customer has submitted an application for that particular home finance transaction.

06/04/2007

MCOB 5.3.2

(1) The purpose of MCOB 5.3.1 R, taken in conjunction with other rules in this chapter, is to ensure that the customer has received details of the particular home finance transaction for which he has applied, and has had the opportunity to satisfy himself that it is appropriate for him.
(2) In relation to a regulated mortgage contract, the application should identify the type of interest rate, rate of interest, and the mortgage lender at the point it is submitted by the customer (for how to describe interest rates see MCOB 5.6.26 R and MCOB 5.6.27 R).

06/04/2007

MCOB 5.4

Mortgage illustrations: general

06/04/2007

Clear, fair and not misleading

MCOB 5.4.1

A firm must be able to show that it has taken reasonable steps to ensure that any illustration it issues is clear, fair and not misleading.

31/10/2004

Accuracy

MCOB 5.4.2

An illustration on a particular regulated mortgage contract issued by, or on behalf of, a mortgage lender, must be an accurate reflection of the costs of the regulated mortgage contract.

31/10/2004

MCOB 5.4.3

A mortgage intermediary must take reasonable steps to ensure that an illustration which it issues, or which is issued on its behalf, other than that provided by a mortgage lender:

(1) is accurate within the following tolerances:

(a) no more than one percent or £1, whichever is the greater, below the actual figures charged by the mortgage lender for the following:

(i) the total amount payable in Section 5 of the illustration;
(ii) the amount payable for every £1 borrowed in Section 5 of the illustration;
(iii) the amounts that the customer must pay by regular instalment in Section 6 of the illustration (or in Section 7 of the illustration for an interest rate with a floor or a ceiling); and
(iv) 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;

(b) the APR in Section 5 of the illustration cannot be understated by more than 0.1%; and]

(2) 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.

31/10/2004

MCOB 5.4.4

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%.

31/10/2004

MCOB 5.4.5

There are no restrictions on figures which are quoted as higher than those actually charged by the mortgage lender although this should not be purposely done in order to make one regulated mortgage contract look more expensive than another.

31/10/2004

MCOB 5.4.6

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.

31/10/2004

MCOB 5.4.7

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.

31/10/2004

Illustrations where customer ineligible

MCOB 5.4.8

A firm must not issue an illustration to a customer for a regulated mortgage contract for which the customer is clearly ineligible on the basis of the information that the firm has obtained from the customer or the mortgage lender's lending criteria.

31/10/2004

MCOB 5.4.9

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.

31/10/2004

Explaining the importance of an illustration

MCOB 5.4.10

In providing an illustration to a customer, a firm must explain to the customer the importance of reading the illustration and understanding it.

31/10/2004

MCOB 5.4.11

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.

31/10/2004

Form of an illustration

MCOB 5.4.12

Any illustration provided to a customer by a firm must be in a durable medium.

31/10/2004

Restriction on provision of information

MCOB 5.4.13

A firm must not provide a customer with information that is specific to the amount that the customer wants to borrow on a particular regulated mortgage contract except in the following circumstances:

(1) when it is in the form of an illustration;
(2) when it is provided on screen, for example a computer screen;
(3) when supplementary information which is not contained within an illustration is provided after or at the same time as an illustration; or
(4) when it is provided orally, for example by telephone.

31/10/2004

MCOB 5.4.14

Where MCOB 5.4.13 R(2) applies:

(1) if the customer initiates the accessing of quotation information on screen (for example, by using the internet or interactive television), the following warning must be displayed prominently on each page on screen: 'This information does not contain all of the details you need to choose a mortgage. Make sure that you read the separate key facts illustration before you make a decision.'; and
(2) a firm must not provide a customised print function where the information on the screen would not be in the form of an illustration if the information were printed in hard copy.

31/10/2004

MCOB 5.4.15

Where MCOB 5.4.13 R(3) applies, supplementary information must only be provided when it does not significantly duplicate information provided in the illustration.

31/10/2004

MCOB 5.4.16

MCOB 5.4.13 R 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 promotion and be subject to the provisions of MCOB 3 (Financial promotion).

06/04/2007

MCOB 5.4.17

Where MCOB 5.4.13 R(2) and MCOB 5.4.13 R(4) apply, firms should encourage the customer to obtain a copy of an illustration in a durable medium. This could be done, for example, if the information was contained on the firm's website, by a prompt which asked the customer whether he wished to print off an illustration.

31/10/2004

MCOB 5.4.18

(1) Unless (2) applies, where MCOB 5.4.13 R(2) or MCOB 5.4.13 R(4) apply, a firm must provide the means for the customer to obtain an illustration as soon as practicable, through a delivery channel acceptable to the customer.
(2) A firm does not need to provide an illustration if the customer refuses to disclose key information (for example, in a telephone conversation, his name or a communication address) or where the provision of an illustration is not appropriate, for example, because on the basis of discussions undertaken the customer is ineligible given the mortgage lender's lending criteria, or is not interested in pursuing the enquiry.

31/10/2004

Record keeping

MCOB 5.4.19

A firm must make an adequate record of each illustration that it issues to a customer in accordance with MCOB 5.5.1 R where the customer applies for that particular regulated mortgage contract.

31/10/2004

MCOB 5.4.20

The record required by MCOB 5.4.19 R must be retained for a year from the date of the application made by the customer.

31/10/2004

MCOB 5.4.21

MCOB 5.4.19 R does not require a firm to keep records of illustrations that are issued to a customer where the customer does not apply to enter into that particular regulated mortgage contract.

31/10/2004

MCOB 5.4.22

The record maintained in accordance with MCOB 5.4.19 R should contain or refer to matters such as:

(1) the date on which the illustration was provided to the customer;
(2) the date of the application made by the customer; and
(3) details of the medium through which the illustration was provided.

31/10/2004

Tied products

MCOB 5.4.23

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:

(1) the firm must provide the customer with an accurate quotation as soon as possible after he has applied, and in good time before the offer document is provided;
(2) the customer has a right to withdraw his application for the regulated mortgage contract for a period of seven days from receipt of the quotation referred to in (1);
(3) 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
(4) 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).

31/10/2004

MCOB 5.4.24

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) on a repayment vehicle that is a tied product and MCOB 5.6.74 R on insurance that is a tied product). 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.

31/10/2004

MCOB 5.5

Provision of illustrations

01/12/2004

Timing

MCOB 5.5.1

(1) A firm must provide the customer with an illustration for a regulated mortgage contract before the customer submits an application for that particular regulated mortgage contract to a mortgage lender, unless an illustration for that particular regulated mortgage contract has already been provided.
(2) A firm must provide the customer with an illustration for a regulated mortgage contract when any of the following occurs, unless an illustration for that regulated mortgage contract has already been provided:

(a) the firm makes a personal recommendation to the customer to enter into one or more regulated mortgage contracts, in which case an illustration must be provided at the point the recommendation is made (and illustrations for all recommended regulated mortgage contracts must be provided), unless the personal recommendation is made by telephone, in which case the firm must provide an illustration within 5 business days;
(b) the firm provides written information that is specific to the amount that the customer wants to borrow on a particular regulated mortgage contract; or
(c) the customer requests written information from the firm that is specific to the amount that the customer wants to borrow on a particular regulated mortgage contract, unless the firm does not wish to do business with the customer.

(3) Subject to MCOB 5.5.4 R, the firm may comply with (1) and (2) by providing an offer document containing an illustration, if this can be done as quickly as providing an illustration.

31/10/2004

MCOB 5.5.2

The effect of the requirements at MCOB 5.3.1 R and MCOB 5.5.1 R(1) is that if a customer's application to enter into a regulated mortgage contract with a mortgage lender, made via a mortgage intermediary, is subsequently passed by that mortgage intermediary to another mortgage lender, then the mortgage intermediary must ensure that the application is amended and the customer is provided with an illustration for the other mortgage lender's regulated mortgage contract before the application is passed to the other mortgage lender.

31/10/2004

MCOB 5.5.3

If a firm chooses to issue an offer document in place of an illustration in accordance with MCOB 5.5.1 R(3), it will need to comply with MCOB 6.4 (Content of the offer document), and in particular with MCOB 6.6 (Offer documents in place of illustrations).

31/10/2004

MCOB 5.5.4

A firm must not accept fees, commission a valuation, or undertake any other action that commits the customer to an application until the customer has had the opportunity to consider an illustration.

31/10/2004

MCOB 5.5.5

The effect of the requirements at MCOB 5.5.1 R(1) and MCOB 5.5.4 R is that a customer will be deemed to be committed to an application if, for example, he pays a product related fee (including a valuation fee) or provides electronic or verbal authority to process an application. It is not necessary for a customer to provide a mortgage lender with a completed application form to submit an application for a regulated mortgage contract.

31/10/2004

MCOB 5.5.6

Subject to MCOB 5.5.1 R and MCOB 5.5.15 R when an illustration is requested without delay, a firm may perform an internal credit score and obtain information on the customer's credit record from a credit reference agency (subject to the consent of the customer), in order to provide a customer with an approval in principle for a regulated mortgage contract, without having to provide an illustration.

31/10/2004

MCOB 5.5.7

The firm dealing directly with the customer is responsible for ensuring compliance with the content and timing requirements, that is, a mortgage lender is not responsible for ensuring that a customer has received an illustration before accepting an application from a mortgage intermediary.

31/10/2004

MCOB 5.5.8

Where a firm has already provided an illustration in accordance with MCOB 5.5.1 R and the terms for the proposed regulated mortgage contract are subsequently materially altered, the firm must ensure that the customer is provided with a revised illustration, before acting on the amendment, when the change occurs at the point at which a customer submits an application for the regulated mortgage contract.

31/10/2004

MCOB 5.5.9

What constitutes 'materially altered' requires consideration of the facts of each individual case. For example, a change of product such that the underlying terms and conditions of the regulated mortgage contract have changed should normally be regarded as material, as would an additional charge, such as a higher lending charge, applying to the regulated mortgage contract when it did not previously.

31/10/2004

MCOB 5.5.10

Unless the customer requests a revised illustration, a firm is not required to provide one if the customer has already submitted an application, and an amendment is made subsequently. The mortgage lender should however ensure that any amendment is reflected in the offer document.

31/10/2004

Uncertainty whether a mortgage is regulated

MCOB 5.5.11

(1) If, at the point an illustration must be provided in accordance with MCOB 5.5.1 R, a firm is uncertain whether the contract will be a regulated mortgage contract, the firm must:

(a) provide an illustration; or
(b) seek to obtain from the customer information that will enable the firm to ascertain whether the contract will be a regulated mortgage contract.

(2) Where (1)(b) applies, an illustration must be provided, unless, on the basis of the information the customer provides, the firm has reasonable evidence that the contract is not a regulated mortgage contract.

31/10/2004

MCOB 5.5.12

If the firm has reasonable evidence that the contract is not a regulated mortgage contract and has not provided an illustration before a customer submits an application, and it is subsequently found that the contract is a regulated mortgage contract, there is no requirement to provide a separate illustration at that stage. However, the requirement to integrate an illustration into the offer document at MCOB 6.4.1 R will apply.

31/10/2004

No preference between repayment and interest-only

MCOB 5.5.13

If the customer expresses no preference between a repayment mortgage and an interest-only mortgage, the firm must:

(1) provide an illustration for a repayment mortgage (except where the firm does not provide repayment mortgages, in which case it must provide only an illustration for an interest-only mortgage); and
(2) make the customer aware that it has provided the illustration on this basis.

31/10/2004

Providing an illustration without delay in response to a customer request

MCOB 5.5.14

Where the customer requests written information from the firm that is specific to the amount that the customer wants to borrow on a particular regulated mortgage contract under MCOB 5.5.1 R (2)(c), the purpose of MCOB 5.5.15 R, MCOB 5.5.16 R and MCOB 5.5.17 G is to ensure that the customer receives an illustration without unnecessary delay. These requirements do not restrict the information that the firm may obtain from the customer after it has provided the customer with an illustration.

31/10/2004

MCOB 5.5.15

In meeting a request under MCOB 5.5.1 R (2)(c), the firm must not delay the provision of the illustration by requesting information other than:

(1) the information necessary to personalise the illustration in accordance with MCOB 5.6.6 R, if the firm does not already know it;
(2) where the firm acts in accordance with MCOB 5.5.11 R(2), such information as is necessary to ascertain whether or not the contract will be a regulated mortgage contract;
(3) where the regulated mortgage contract involves any linked deposits and the firm chooses to provide an example in the illustration in accordance with MCOB 5.6.109 R(2) or MCOB 5.6.110 R(2), or both, such information as is necessary to produce the example;
(4) where the interest rates, payments or any other terms and conditions to be included in the illustration are dependent on the customer's credit record, such information as is necessary to produce an illustration;
(5) where the firm includes a quotation for any tied products or compulsory insurance in the illustration, such information as is necessary to produce those quotations;
(6) where the customer agrees to receive a quotation for insurance in the illustration (other than that provided for in (5)), such information as is necessary to produce those quotations; and
(7) any of the following information where it affects the availability of the regulated mortgage contract that the customer has requested information on or affects the information to be included in the illustration:

(a) whether the customer is a first-time buyer, a subsequent buyer moving home or entering into a regulated mortgage contract without moving home;
(b) whether the regulated mortgage contract is required for a right-to-buy purchase or for a shared ownership purchase;
(c) whether the customer needs to self-certify his income;
(d) the location of the property to be purchased, where known; and
(e) whether the terms are dependent on a third party guarantee.

31/10/2004

MCOB 5.5.16

Where MCOB 5.5.15 R(4) applies:

(1) a firm must ask the customer relevant questions about his credit history or obtain information on his credit record from a credit reference agency;
(2) a credit reference agency must not be used unless:

(a) it would be quicker than asking the customer the relevant questions about his credit history; or
(b) the customer is not able to provide sufficient information on his credit history.

31/10/2004

MCOB 5.5.17

A firm may use information that it already holds on the customer for the purpose of producing the illustration (for example, if it already holds the customer's credit record), providing the use of this information does not delay the customer receiving the illustration and the customer's consent is obtained where appropriate.

31/10/2004

MCOB 5.5.18

If, on the basis of the information obtained from the customer or on the basis of information that the firm already holds on the customer, the firm would do business with the customer, but not on the terms requested, the firm may provide the customer with an illustration in respect of a different regulated mortgage contract if it chooses to do so.

31/10/2004

MCOB 5.6

Content of illustrations

01/12/2004

Purpose

MCOB 5.6.1

MCOB 5.6 sets out the required content of an illustration provided to a customer by a firm.

31/10/2004

Content, order, format etc

MCOB 5.6.2

An illustration provided to a customer must:

(1) contain the material set out in MCOB 5 Annex 1 in the order and using the numbered section headings, sub-headings and prescribed text in MCOB 5 Annex 1, except where provided for in MCOB 5.6;
(2) follow the layout of the template in MCOB 5 Annex 1 with:

(a) prominent use of the keyfacts logo followed by the text 'about this mortgage';
(b) each section clearly separated;
(c) all the amounts to be paid in Sections 5, 6, 8 and 9 in columns that make the amounts of the payments clear; and
(d) no section split across different pages except where it is impractical not to do so;

(3) use font sizes and typefaces consistently throughout the illustration which are sufficiently legible so that the illustration can be read easily by a typical customer;
(4) ensure that the information within each section is clearly laid out (for example, through the use of bullet points or similar devices to separate information);
(5) include prominent headings with the numbered section headings clearly differentiated in some way from the other text in the illustration (for example, through the use of larger and more prominent fonts, the use of shading or colour);
(6) replace '[name of mortgage lender]' with the name of the mortgage lender providing the regulated mortgage contract: a trading name used by the mortgage lender may be stated, as long as the name of the mortgage lender is also disclosed in Section 4 of the illustration in accordance with MCOB 5.6.25 R(1);
(7) describe any early repayment charge as an 'early repayment charge' and not use any other expression to describe such charges; and
(8) describe any higher lending charge as a 'higher lending charge' and not use any other expression to describe such charges.

06/11/2006

MCOB 5.6.3

Section 13 in MCOB 5 Annex 1 is required only where the illustration is provided to the customer by, or on behalf of, a mortgage intermediary. If this is not the case, Section 14 must be renumbered Section 13.

31/10/2004

MCOB 5.6.4

(1) Further requirements regarding the use of the keyfacts logo and the location of specimens are set out in GEN 5.1 and GEN 5 Annex 1 G.
(2) MCOB 5.6.2 R(3) does not prevent the use of different fonts and typefaces for headings and risk warnings. Its purpose is to prevent particular sections of the illustration from being made less prominent than other sections through the inconsistent use of font sizes and typefaces.
(3) The illustration can contain the mortgage lender's or mortgage intermediary's logo and other 'brand' information, so long as the requirements of MCOB 5.6 are satisfied.
(4) The illustration can contain page numbers and other references that aid understanding, record keeping and identification of a particular illustration, such as the date and time an illustration is produced or a unique reference number, provided these do not detract from the content of the illustration.
(5) Firms are reminded of their general obligation for communications to customers to be clear, fair and not misleading. Sections of the illustration may be split across pages where it is practical to do so. When splitting sections, firms should split the section at an appropriate place, for example at the end of a sub-section, and not split tables or risk warnings.

06/11/2006

Content: required information

MCOB 5.6.5

The illustration provided to customers must:

(1) contain only the material prescribed in MCOB 5.6 and no other material except where provided for elsewhere in MCOB 5.6; and
(2) be in a document separate from any other material that is provided to the customer.

31/10/2004

MCOB 5.6.6

As a minimum the illustration must be personalised to reflect the following requirements of the customer:

(1) the specific regulated mortgage contract in which the customer is interested;

(2) the amount of the loan required;

(3) the price or value of the property on which the regulated mortgage contract would be secured (estimated where necessary);

(4) the term of the regulated mortgage contract (where the customer is unable to suggest a date at which he expects to repay the loan, for example in the case of an open-ended secured bridging loan, secured overdraft or mortgage credit card, then a term of 12 months must be assumed and this assumption stated); and

(5) whether the regulated mortgage contract is to be an interest-only mortgage or a repayment mortgage or a combination of the two.

31/10/2004

MCOB 5.6.7

A firm should not illustrate more than one regulated mortgage contract in the same illustration, for example by using one illustration to compare alternative products, repayment methods or repayment terms.

31/10/2004

MCOB 5.6.8

In relation to MCOB 5.6.6 R(3), in order for the firm to comply with the principle of 'clear, fair and not misleading' in MCOB 2.2.6, an estimated valuation, where the estimated valuation is not that provided by the customer, must be a reasonable assessment based on all the facts available at the time. For example, an overstated valuation could enable a more attractive regulated mortgage contract to be illustrated on the basis of a lower ratio of the loan amount to the property value - for example, one with a lower rate of interest, or without a higher lending charge.

31/10/2004

MCOB 5.6.9

The amount referred to in MCOB 5.6.6 R(2) is:

(1) in cases where on the basis of the information obtained from the customer before providing the illustration it is clear that the customer would not be eligible to borrow the amount he requested, an estimate of the amount that the customer could borrow based on the information obtained from the customer; or
(2) where the regulated mortgage contract is a revolving credit agreement such as a secured overdraft or mortgage credit card:

(a) (if it provides for an initial drawdown and linked borrowing facilities that would allow the customer to increase the amount of the loan without any further approval from the mortgage lender) the amount of the initial drawdown; or
(b) (in all other cases) the total borrowing that the firm is willing to provide under the regulated mortgage contract; or

(3) where it is known that the loan will be released in instalments, for example in the case of a self-build mortgage, the total amount of the loan required and not the amount of the initial instalment.

31/10/2006

MCOB 5.6.10

Firms are reminded that they must comply with MCOB 7.6.5 R in respect of the release of loan instalments after the start of the regulated mortgage contract.

31/10/2004

MCOB 5.6.11

MCOB 5.6.6 R sets out minimum requirements. The illustration may be personalised to a greater degree if the mortgage lender or mortgage intermediary wishes, subject to the restrictions on the information that can be obtained from the customer in MCOB 5.5.15 R when the illustration is provided in accordance with MCOB 5.5.1 R(2)(c).

31/10/2004

MCOB 5.6.12

MCOB 5.6.9 R(1) does not require information to be obtained from the customer before providing an illustration in order to ascertain the amount the customer is eligible to borrow. Instead, its purpose is to avoid a firm being in a position where it would otherwise have to provide a customer with an illustration for an amount it knew the customer would not be eligible for, based on whatever information it had obtained from the customer before providing the illustration.

31/10/2004

MCOB 5.6.13

Where the illustration relates to a regulated mortgage contract that is sub-divided into different parts with different types of interest rate or different rates of interest or different conditions, or a combination of these, the requirements in MCOB 5.6 may be adapted to accommodate this. The adaptations made must be limited to those that are necessary.

31/10/2004

MCOB 5.6.14

(1) MCOB 5.6.13 R applies where, for example, the illustration covers a regulated mortgage contract that is:

(a) divided so that a certain amount of the loan is payable on a fixed interest rate, and a certain amount on a discounted interest rate; or
(b) a combination of a repayment mortgage and an interest-only mortgage and the loan is subdivided into different types of interest rate and/or different rates of interest.

(2) MCOB 5.6.13 R does not apply where an illustration covers a regulated mortgage contract that is a combination of a repayment mortgage and an interest-only mortgage and the rate of interest charged, mortgage term and other conditions are the same. The treatment of such mortgages is covered in the relevant rules.

31/10/2004

Information to be included at the head of the illustration

MCOB 5.6.15

At the head of the illustration, the following information must be included:

(1) the customer's name;
(2) the date of issue of the illustration;
(3) details of how long the illustration is valid and whether there is any date by which the regulated mortgage contract covered by the illustration needs to commence (for example, where a fixed interest rate is only available if the regulated mortgage contract commences before a certain date); and
(4) the prescribed text at the head of the illustration in MCOB 5 Annex 1.

31/10/2004

Section 1: 'About this illustration'

MCOB 5.6.16

Under the section heading 'About this illustration', the prescribed text in MCOB 5 Annex 1 under this heading must be included.

31/10/2004

Section 2: 'Which service are we providing you with?'

MCOB 5.6.17

(1) Unless (2) applies, under the section heading 'Which service are we providing you with?' the prescribed text in MCOB 5 Annex 1 under this heading must be included, with a 'check box' for each statement, one of which must be marked prominently to indicate the level of service provided to the customer.
(2) If the level of service described in the illustration is provided by another firm, (1) may be replaced by the following: Under the section heading 'Which service are we providing you with?' the following text should be presented as two options, with a 'check box' for each option, one of which must be marked prominently to indicate the level of service provided to the customer: '[name of firm] recommends, having assessed your needs, that you take out this mortgage. [name of firm] is not recommending a particular mortgage for you. However, based on your answers to some questions, it is giving you information about this mortgage so that you can make your own choice'.

31/10/2004

Section 3: 'What you have told us'

MCOB 5.6.18

(1) Under the section heading 'What you have told us', the illustration must state the information that has been obtained from the customer under MCOB 5.6.6 R (apart from MCOB 5.6.6 R(1) which is provided for in Section 4 of the illustration), and can include brief details of any other information that has been obtained from the customer and used to produce the illustration.
(2) If the amount on which the illustration is based includes the amount that the customer wants to borrow plus charges and other payments that have been added to the loan:

(a) except where (b) applies, this section must include the following text after the loan amount from MCOB 5.6.6 R(2):'plus £[insert total amount of fees and other charges added to the loan] for fees that will be added to the loan - see Section 8 for details.'; or
(b) where there are other fees or charges that the customer must pay that have not been added to the loan, this section must include the following text after the loan amount from MCOB 5.6.6 R(2): 'plus £[insert total amount of fees and other charges added to the loan] for fees that will be added to the loan. These and the additional fees that you need to pay are shown in Section 8.'

(3) If the amount on which the illustration is based includes the amount that the customer wants to borrow plus insurance premiums or insurance-related charges (other than a higher lending charge) that have been added to the loan:

(a) except where (b) applies, this section must include the following text after the loan amount from MCOB 5.6.6 R(2) (which may be combined with the prescribed text in (2) if applicable): 'plus £[insert amount of premium or charges, or both, to be added to the loan] for insurance [premiums] [and] [charges] that will be added to the loan - see Section 9 for details.'; or
(b) where there are other insurance premiums or insurance-related charges, or both, that the customer must pay that have not been added to the loan, this section must include the following text after the loan amount from MCOB 5.6.6 R(2) (which may be combined with the prescribed text in (2) if applicable): 'plus £[insert amount of premium or charges, or both, to be added to the loan] for insurance [premiums] [and] [charges] that will be added to the loan. These and any additional insurance [premiums] [and] [charges] that you need to pay are shown in Section 9.'

(4) If the amount on which the illustration is based does not involve any charges or payments being added to the amount to be borrowed, but there are charges that must be paid by the customer, Section 3 of the illustration must include the following text after the loan amount from MCOB 5.6.6 R(2): 'No fees have been added to this amount but the fees you need to pay are shown in Section 8. For details of any insurance charges, see Section 9.'
(5) If the regulated mortgage contract on which the illustration is based has no charges that must be paid by the customer, and no insurance premiums are being added to the loan, Section 3 of the illustration must include the following text after the loan amount from MCOB 5.6.6 R(2):
'We do not charge any fees for this mortgage.'

31/10/2004

MCOB 5.6.19

Where the same illustration covers a regulated mortgage contract that is a combination of a repayment mortgage and an interest-only mortgage, either:

(1) Section 3 of the illustration must state the amount the customer wishes to borrow as a repayment mortgage and the amount required as an interest-only mortgage; or
(2) Section 3 of the illustration must summarise the repayment method as partly an interest-only mortgage and partly a repayment mortgage, and Section 4 of the illustration must state the amount the customer wishes to borrow as a repayment mortgage and the amount required as an interest-only mortgage.

31/10/2004

MCOB 5.6.20

Where the same illustration covers a regulated mortgage contract that has different parts of the loan over a different term (that is, the final repayment date of the loan parts are different), either:

(1) Section 3 of the illustration must state the amount repayable over each term; or
(2) Section 3 of the illustration must state the longest term that applies and Section 4 of the illustration must state the amount repayable over each term.

31/10/2004

MCOB 5.6.21

For the purpose of illustrating to the customer the repayment method in Section 3 or Section 4 of the illustration, or the cost of the regulated mortgage contract in Section 5 of the illustration, if the illustration covers a regulated mortgage contract that is a combination of more than one interest-only part on the same product terms but with different repayment dates, the illustration must either treat it as one part by assuming the longest term, or alternatively treat it as a multi-part loan.

31/10/2004

MCOB 5.6.22

At the end of Section 3 of the illustration a statement must be included making clear that changes to any of the information obtained from the customer, and where appropriate to the valuation of the property, could alter the details elsewhere in the illustration, and encouraging the customer to ask for a revised illustration in this event.

31/10/2004

MCOB 5.6.23

An example of the type of statement that would satisfy MCOB 5.6.22 R is: 'The valuation that will be carried out on the property and changes to any of the information you have given us could alter the information in this illustration. If this is the case please ask for a revised illustration.'

31/10/2004

MCOB 5.6.24

The purpose of the illustration is to provide the customer with details of the cost of borrowing the amount required over the term specified in MCOB 5.6.6 R(2) and MCOB 5.6.6 R(4). Section 12 has been designed specifically to illustrate any additional features of the regulated mortgage contract such as a linked current account, a linked savings account or the availability of unsecured lending. These features should therefore be shown in section 12 and not in section 3 of the illustration.

31/10/2004

Section 4: 'Description of this mortgage'

MCOB 5.6.25

Under the section heading 'Description of this mortgage' the illustration must:

(1) state the name of the mortgage lender providing the regulated mortgage contract to which the illustration relates (a trading name used by the mortgage lender may also be stated in accordance with MCOB 5.6.2 R(6)), and the name, if any, used to market the regulated mortgage contract;
(2)

(a) provide a description of the interest rate type and rate of interest that applies in accordance with the format described in MCOB 5.6.26 R and MCOB 5.6.27 R;
(b) where there is more than one interest rate type or rate of interest, specify the amount of the loan to which each interest rate type and rate of interest applies;
(c) unless the interest rate applies for the full term of the loan, confirm what interest rate will apply, when it will apply and for how long it will apply after any initial interest rate ends, in accordance with the format described in MCOB 5.6.26 R and MCOB 5.6.27 R; and
(d) provide a clear explanation of the charging approach where different interest rates are applied to different items of debt (for example, for a mortgage credit card where a different interest rate applies to balances that are transferred from that charged on any additional borrowing);

(3) where MCOB 5.6.20 R(2) applies, state the different amounts repayable and the different terms over which the amounts are repayable;
(4) where MCOB 5.6.19 R(2) applies, state the amount repayable under an interest-only mortgage and the amount repayable under a repayment mortgage;
(5) include the following text if the regulated mortgage contract meets the Government's mortgage CAT standards: 'This mortgage meets the Government's CAT standards.';
(6) if the customer is obliged to buy any tied products or to take out a linked current account, a linked savings account or any linked borrowing under the regulated mortgage contract, include:

(a) details of the products required; and
(b) the following text: 'You are obliged to take out [insert details of the product(s)] through [insert name of mortgage lender or if relevant, name of mortgage intermediary] as a condition of this mortgage. Please refer to Section [insert applicable section number e.g. 6 or 9] of this illustration for further details.'

(7) state very briefly any restrictions that apply to the availability of the regulated mortgage contract (for example, if it is only available to certain types of customer or for certain types of loan);
(8) where the interest rate, payments or terms and conditions of the regulated mortgage contract in the illustration reflect a customer's adverse credit history, include the following text: 'The terms of this mortgage reflect past or present financial difficulties.'; and
(9) where the intention of the regulated mortgage contract is solely to provide the customer with a mortgage credit card (rather than the mortgage credit card being an additional feature of a regulated mortgage contract) include the warning about the loss of statutory rights from MCOB 5.6.102 R(2) in Section 4 of the illustration rather than Section 12.

06/07/2010

MCOB 5.6.26

MCOB 5.6.27 R sets out some examples of descriptions of interest rate types and rates of interest which must be used in the illustration to comply with MCOB 5.6.25 R(2). If an interest rate is not described in MCOB 5.6.27 R, it must be presented in the illustration in a way that is consistent with the descriptions in MCOB 5.6.27 R.

31/10/2004

MCOB 5.6.27

Description of interest rate types and rates of interest. This table belongs to MCOB 5.6.26R:

Description of the interest rate

Amount payable in each instalment

Lender's base mortgage rate - must be described as the [Lender]'s standard variable rate, currently X%, [where applicable insert the date at which the interest rate ends or period for which the interest rate applies].

Amount based on X%.

Fixed rate - must be described as a fixed rate of X% [where applicable insert the date at which the interest rate ends or the period for which the interest rate applies].

Amount based on the fixed rate of X%.

Discounted rate - must be described as a variable rate, currently X%, with a discount of Y% [where applicable insert the date at which the discount ends or the period for which the discount applies], giving a current rate payable of Z%.

Amount based on Z%.

Capped rate - must be described as a variable rate, currently X%, which will not go above a ceiling of Y% [where applicable insert the date at which the capped interest rate ends or the period for which the capped interest rate applies].

Amount based on the current interest rate payable (X%).

Capped and collared - must be described as a variable rate, currently X%, which will not go below a floor of Y%, or above a ceiling of Z% [where applicable insert the date at which the capped and collared interest rate ends or the period for which the capped and collared interest rate applies].

Amount based on the current interest rate payable (X%).

Tracker rate - must be described as a variable rate which is [X% above/X% below/the same as] [insert interest rate tracked, currently Z%,] [where applicable insert the date at which the rate ends or the period for which the interest rate applies], to give a current rate payable of Y%. Details should also be provided of how soon after an interest rate change the mortgage interest rate is adjusted.

Amount based on Y%.

Deferred rate - must be described as a variable rate, currently X%, where Y% is not paid now but is added to your mortgage [where applicable insert the date at which the deferred interest rate ends or the period for which the deferred interest rate applies], to give a current rate payable of Z%.

Amount based on Z%.

Stepped rate where different interest rates apply over different time periods (for example, fixed interest rate in year 1 changes in year 2). Each element should be dealt with individually as above.

Amount for each of the 'steps'.

Combinations of the above must be treated in the same way as the descriptions above, (for example, if a discounted interest rate has a 'floor' then it must be described as such).

Follow the above treatment depending on the combination.

31/10/2004

MCOB 5.6.28

Where the loan under the regulated mortgage contract is divided into more than one part (for example where part of the loan is a fixed interest rate and part of the loan is a discounted variable interest rate) and the firm displays this in a tabular format in the illustration:

(1) the following text must be used to introduce the table 'As this mortgage is made up of more than one part, these parts are summarised below:';
(2) each part must be numbered for ease of reference in the illustration;
(3) the 'initial rate payable' must be displayed separately from the interest rate description;
(4) the loan amounts must be totalled; and
(5) immediately following the table, a statement of what interest rates will apply to each part, (and when they will apply) after any initial interest rate ends in accordance with MCOB 5.6.25 R(2)(c).

31/10/2004

MCOB 5.6.29

Further information about the regulated mortgage contract may be included in Section 4 of the illustration as long as it does not significantly:

(1) duplicate information contained elsewhere in the illustration; and
(2) extend the length of this section.

31/10/2004

MCOB 5.6.30

An example of further information that may be included in accordance with MCOB 5.6.29 R might be that an 'approval in principle' has been granted subject to valuation and satisfactory credit reference.

31/10/2004

Section 5: 'Overall cost of this mortgage'

MCOB 5.6.31

Under the section heading 'Overall cost of this mortgage' where the regulated mortgage contract has an agreed term for repayment and a regular payment plan (that is, it is not a revolving credit agreement such as a secured overdraft or mortgage credit card, or a regulated mortgage contract where all of the interest rolls up, such as an open-ended bridging loan):

(1) the following text must be included in the illustration: 'The overall cost takes into account the payments in Sections 6 and 8 below.';
(2) if all of the regulated mortgage contract to which the illustration relates is an interest-only mortgage, the following text must follow the text in (1): 'However, it excludes any payments that you may need to make into a separate savings plan, to build up a lump sum to repay the amount borrowed, but assumes that you pay off the amount borrowed as a lump sum at the end of the mortgage.';
(3) where all of the regulated mortgage contract is a repayment mortgage, the following text must follow the text in (1): 'With a repayment mortgage you gradually pay off the amount you have borrowed, as well as the interest, over the life of the mortgage.';
(4) if part of the regulated mortgage contract to which the illustration relates is an interest-only mortgage, and part is a repayment mortgage, the following text must follow the text in (1): 'However, it excludes any payments that you may need to make into a separate savings plan to build up a lump sum to repay the amount borrowed on an interest-only basis, but assumes that you pay off the amount borrowed on an interest-only basis, as a lump sum at the end of the mortgage.'; and
(5) reference must be made to any other payments that have been included in the APR but not included in Sections 6 and 8 of the illustration if these are relevant to the regulated mortgage contract that is the subject of the illustration.

31/10/2004

MCOB 5.6.32

Under the section heading 'Overall cost of this mortgage' where the regulated mortgage contract has no agreed term for repayment, (and a 12 month term has been assumed), or no regular payment plan, or both (for example, a revolving credit agreement such as a secured overdraft or mortgage credit card or a regulated mortgage contract where all the interest rolls up such as an open-ended bridging loan):

(1) the following text must be included in the illustration: 'The overall cost takes into account the payments in Sections 6 and 8 below.';
(2) where all the interest on the regulated mortgage contract rolls up and is repaid as a lump sum at the end of the regulated mortgage contract, for example a secured bridging loan, then the following text must follow the text in (1): 'It assumes that you pay back the total amount owing as a lump sum at the end of the mortgage term.';
(3) where the regulated mortgage contract is a revolving credit agreement and no regular payments are made, for example a secured overdraft, then the following text must follow the text in (1): 'It assumes that you borrow the maximum amount available, and pay back the total amount owing, as a lump sum at the end of the mortgage term.';
(4) where the regulated mortgage contract is a revolving credit agreement and regular minimum payments are made, for example, a mortgage credit card, then the following text must follow the text in (1): 'It assumes that you borrow the maximum amount available, make regular payments of the minimum amount, and pay back the remaining amount owing as a lump sum at the end of the mortgage term.'; and
(5) reference must be made to any other payments that have been included in the APR but not included in Sections 6 and 8 of the illustration if these are relevant to the regulated mortgage contract that is the subject of the illustration.

31/10/2004

MCOB 5.6.33

MCOB 5.6.31 R(5) and MCOB 5.6.32 R(5) would require, for example, a reference to the fact that the overall cost takes into account mortgage payment protection insurance where this is required as a condition of the regulated mortgage contract to which the illustration relates. The requirement to take out such insurance must be stated in Sections 4 and 9 of the illustration in accordance with MCOB 5.6.25 R(6), MCOB 5.6.74 R or MCOB 5.6.77 R.

31/10/2004

MCOB 5.6.34

The following text must be included after the text required by MCOB 5.6.31 R or MCOB 5.6.32 R with the relevant cost measures shown in the right-hand column of Section 5 in accordance with the layout shown in MCOB 5 Annex 1:

(1) 'The total amount you must pay back, including the amount borrowed is £[insert total amount payable]';
(2) 'This means you pay back £[insert the total amount payable] divided by the amount on which the illustration is based from MCOB 5.6.6 R(2) plus all fees, charges and insurance premiums added to the loan in accordance with MCOB 5.6.18 R(2) and MCOB 5.6.18 R(3)] for every £1 borrowed'; and
(3) 'The overall cost for comparison is [insert the APR]% APR'.

31/10/2004

MCOB 5.6.35

(1) The APR and the total amount payable in MCOB 5.6.34 R must be calculated on the basis of information obtained from the customer under MCOB 5.6.6 R.
(2) Where there is a charge to be included in the APR and total amount payable and the precise amount of that charge is not known at the time that the illustration is provided, MCOB 10.3 (Formula for calculating the APR) sets out a number of relevant assumptions to be used. If the method for including the charge is not addressed in MCOB 10 (Annual Percentage Rate), the charge must be estimated based on information which is known to be representative of the regulated mortgage contract to which the illustration relates.
(3) [deleted]
(4) Where the regulated mortgage contract is a revolving credit agreement and regular payments are made, for example, a mortgage credit card, then the APR and total amount payable must be based on the maximum amount that the customer could borrow and take into account any amounts that must be paid in regular instalments.

31/10/2004

MCOB 5.6.36

In relation to MCOB 5.6.35 R(2), the cost of conveyancing would be an example of a charge for which representative information may need to be used in the calculation of the APR and the total amount payable.

31/10/2004

MCOB 5.6.37

At the end of Section 5 of the illustration the following text must be included:

(1) unless the interest rate is fixed throughout the term of the regulated mortgage contract: 'The figures in this section will vary following interest rate changes and if you do not keep the mortgage for [insert term from MCOB 5.6.6 R(4)].'; and
(2)

(a) where the regulated mortgage contract is a repayment mortgage: 'Only use the figures in this section to compare the cost with another repayment mortgage.'; or
(b) where the regulated mortgage contract is an interest-only mortgage: 'Only use the figures in this section to compare the cost with another interest-only mortgage.'; or
(c) where the regulated mortgage contract is a combination of a repayment mortgage and an interest-only mortgage: 'Only use the figures in this section to compare the cost with another mortgage that has the same proportions of the loan on repayment and interest-only as this one.'

31/10/2004

MCOB 5.6.38

The purpose of the illustration is to provide the customer with details of the cost of borrowing the amount required over the term specified from MCOB 5.6.6 R(2) and MCOB 5.6.6 R(4). Section 12 has been designed specifically to allow examples of the effect of any additional features of the regulated mortgage contract such as a linked current account or a linked savings account. Examples of these features should therefore be shown in Section 12 and not in Section 5 or Section 6 of the illustration.

31/10/2004

Section 6: 'What you will need to pay each [insert frequency of payments from MCOB 5.6.40R]'

MCOB 5.6.39

MCOB 5.6.40 R to MCOB 5.6.57 G do not apply to loans without a term or regular payment plan where some or all of the interest rolls up, for example secured bridging loans, secured overdrafts or mortgage credit cards. In these cases, MCOB 5.6.134 R to MCOB 5.6.138 G apply.

31/10/2004

MCOB 5.6.40

31/10/2004

MCOB 5.6.41

31/10/2004

MCOB 5.6.42

Section 6 of the illustration must contain the following information:

(1) the loan amount on which the illustration is based. This figure should include all fees, charges and insurance premiums that have been added to the loan in accordance with MCOB 5.6.18 R(2) and MCOB 5.6.18 R(3), and the following text must follow the loan amount: 'and include[s] the [fees] [and] [insurance premiums] that are shown in [Section 8] [and] [Section 9] as being added to your mortgage.'
(2) the assumed start date that has been used in the illustration to estimate the number of payments to be charged at given interest rates;
(3) except where MCOB 5.6.54 R applies, for each of the interest rates charged on the regulated mortgage contract:

(a) the number of payments at that interest rate;
(b) whether the interest rate is fixed or variable;
(c) the interest rate charged on the regulated mortgage contract at the time the illustration is issued; and
(d) the amount that the customer must pay in each instalment at that interest rate, which must be recorded in the right-hand column of this section (see MCOB 5.6.48 R).

31/10/2004

MCOB 5.6.43

Where the illustration covers a regulated mortgage contract that automatically converts from one repayment method to another after a specified period, then the illustration must show the effect of this change on the regular payment, in the same way as the requirements in MCOB 5.6.42 R(3).

31/10/2004

MCOB 5.6.44

If appropriate, the two statements required by MCOB 5.6.42 R(1) and MCOB 5.6.42 R(2) may be merged, for example 'These payments are based on a loan amount of £x and assume that the mortgage will start on [dd/mm/yy]'.

31/10/2004

MCOB 5.6.45

MCOB 5.6.42 R(3) applies to each interest rate charged on the regulated mortgage contract covered by the illustration. This means that it applies to different interest rates charged at different times, for example, where the interest rate changes at the end of any initial discounted, fixed or other special interest rate period.

31/10/2004

MCOB 5.6.46

The following information must be included in the description of the interest rate required by MCOB 5.6.42 R(3)(c) except where MCOB 5.6.54 R applies:

(1) where the interest rate can change, the word 'currently' must be used to illustrate the current interest rate payable; and
(2) where the interest rate changes after a given period the words 'followed by' must be used to indicate this.

31/10/2004

MCOB 5.6.47

An example of how the information required by MCOB 5.6.42 R(3) and MCOB 5.6.46 R may be presented when there is an initial fixed interest rate for a period of 22 months followed by the mortgage lender's standard variable interest rate for a period of 278 months is as follows:'22 payments at a fixed rate of [...]% followed by 278 payments at a variable rate, currently [...]%'.

31/10/2004

MCOB 5.6.48

The information required by MCOB 5.6.42 R(3)(d) must exclude:

(1) the cost of repaying the capital if the regulated mortgage contract is an interest-only mortgage: where part of the regulated mortgage contract is an interest-only mortgage, the cost of repaying the capital must be excluded only for that part; and
(2) the cost of any products which may be sold in conjunction with the regulated mortgage contract (whether tied products or not), unless the cost has been added to the mortgage.

31/10/2004

MCOB 5.6.49

If, because of the assumed start date of the regulated mortgage contract, the initial payment differs from the subsequent payments, the initial payment must be shown in this section in accordance with MCOB 5.6.42 R(3)(d).

31/10/2004

MCOB 5.6.50

Where the illustration covers a regulated mortgage contract that is a combination of a repayment mortgage and an interest-only mortgage, the payment amounts in MCOB 5.6.42 R(3)(d) must be the combination of the amount to be paid on the repayment mortgage and the amount to be paid on the interest-only mortgage, unless MCOB 5.6.13 R or MCOB 5.6.54 R apply in which case they must be stated separately.

31/10/2004

MCOB 5.6.51

Where the interest is deferred on the regulated mortgage contract, the following text must be included under the information on the deferred interest rate included in the illustration in accordance with MCOB 5.6.42 R(3): '"The interest deferred will be added to your mortgage. The table at Section [insert 6a or 6b if MCOB 5.6.55 R applies] of this illustration shows how this will affect the amount you owe.'

31/10/2004

MCOB 5.6.52

Where all or part of the regulated mortgage contract to which the illustration relates is an interest-only mortgage:

(1) the illustration must include the sub-heading 'Cost of repaying the capital' with the following text under it: 'You will still owe [insert amount of loan on an interest-only basis] 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.';
(2) if the regulated mortgage contract requires the customer to take out a repayment vehicle that is a tied product either through the mortgage lender or mortgage intermediary then:

(a) include a sub-heading 'Savings plan that you must take out through [insert name of mortgage lender or mortgage intermediary]';
(b) include an accurate quotation or a reasonable estimate of the payments the customer will need to make for the repayment vehicle; and
(c) if a quotation cannot be provided under (b), state that a quotation is not available at present, that a quotation will be provided as soon as possible and that in the event that this is provided after an application is made, and is found to be unacceptable to the customer, that the application may be cancelled with a full refund of all fees (in accordance with MCOB 5.4.23 R(3)).

(3) if the illustration includes a quotation for the payments that would need to be made into the repayment vehicle by the customer:

(a) unless (2) applies, the illustration must include the sub-heading 'Savings plan that you do not have to take out through [insert name of mortgage lender or mortgage intermediary]';
(b) the illustration must provide a brief description only of the type of repayment vehicle illustrated (full details of the repayment vehicle may be provided separately);
(c) the quotation must be based on the frequency of payments in MCOB 5.6.40 R and must be included in the column for payments alongside the description required by (b); and
(d) the illustration must refer the customer to the individual product disclosure documentation required by the Conduct of Business sourcebook (COBS).

(4) if a quotation for the repayment vehicle is not provided in the illustration, the illustration must include a '£' sign in the column for payments alongside the following text, which follows the text in (1): 'When you have found out what payments you need to make into a savings plan you may find it helpful to add these to your mortgage payments and put the total payment in the column opposite.';
(5) unless MCOB 5.6.55 R applies, if a quotation for the repayment vehicle has been included in the illustration, Section 6 must be extended to illustrate the monthly cost inclusive of the savings plan and must have the sub-heading 'What you will need to pay each [insert frequency of payments from MCOB 5.6.40 R] including the cost of a savings plan to repay the capital' and must include:

(a) the information required by MCOB 5.6.42 R(3) for each interest rate charged on the regulated mortgage contract; and
(b) the sum of what the customer would need to pay in each instalment for the regulated mortgage contract and for the repayment vehicle in the payments column. For example if payments are made monthly, this would be the amount that the customer would need to pay each month for the regulated mortgage contract and the repayment vehicle. Where different interest rates are charged on the regulated mortgage contract the amount payable in each instalment at each interest rate must be shown in the payments column.

01/11/2007

MCOB 5.6.53

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 capital You 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)

31/10/2004

Multi-part mortgages

MCOB 5.6.54

Where the loan under the regulated mortgage contract is divided into more than one part (for example, where part of the loan is on a fixed interest rate and part on a discounted variable interest rate) and the firm displays the initial cost of all parts, and the total cost, in a tabular format in the illustration, MCOB 5.6.42 R(3) and MCOB 5.6.46 R do not apply; instead:

(1) each part must be numbered for ease of reference in the illustration;
(2) the loan amounts must be totalled;
(3) the number and frequency of each payment must be stated;
(4) the repayment method for each part must be stated;
(5) the 'initial interest rate payable' for each part must be stated;
(6) whether the interest rate payable is fixed or variable for each part must be stated; and
(7) the regular payment for each part must be stated and the total payment for all parts highlighted (excluding the information listed in MCOB 5.6.48 R).

31/10/2004

MCOB 5.6.55

Unless all of the interest rates described in MCOB 5.6.54 R(5) apply for the term of the loan part to which they apply, then an additional section numbered as 6a and titled 'What you will need to pay in future' must be included to indicate the future stepped payments (if MCOB 5.6.51 R also applies then the section on deferred interest must be numbered 6b). This section must:

(1) state when a change in payment will occur;
(2) state the reason for the change in payment; and
(3) confirm that the payment illustrated assumes interest rates will not change.

31/10/2004

MCOB 5.6.56

Where MCOB 5.6.55 R applies and part of the regulated mortgage contract is an interest-only mortgage:

(1) if a quotation for the repayment vehicle has been included in the illustration in accordance with MCOB 5.6.52 R(3) then MCOB 5.6.52 R(5) does not apply.
(2) a statement is required to indicate that these payments do not include the cost of any savings plan.

31/10/2004

MCOB 5.6.57

An example of a statement which would meet the requirements of MCOB 5.6.56 R(2) would be 'Remember to add the cost of any savings plan to these monthly payments'.

31/10/2004

Section 7: 'Are you comfortable with the risks?'

MCOB 5.6.58

MCOB 5.6.59 R to MCOB 5.6.65 R do not apply to loans without a term or regular repayment plan where some or all of the interest rolls up, for example, secured bridging loans, secured overdrafts or mortgage credit cards. In these cases MCOB 5.6.140 R to MCOB 5.6.145 R apply.

31/10/2004

MCOB 5.6.59

Under the section heading 'Are you comfortable with the risks?':

(1) under the sub-heading 'What if interest rates go up?' the illustration must include the following:

(a) if the interest rate is fixed throughout the term of the regulated mortgage contract, an explanation that the payments will not vary because the interest rate is fixed;
(b) if the interest rate is fixed for part of the term of the regulated mortgage contract, an explanation of when or how increases in the interest rate charged on the regulated mortgage contract affect the customer's payments;
(c) if the interest rate cannot go above a certain level or below a certain level, or both, and this applies throughout the term of the regulated mortgage contract, an explanation that this is the case;
(d) if the interest rate cannot go above or below a certain level for part of the term of the regulated mortgage contract, an explanation that this is the case and of when or how increases in the interest rate charged on the regulated mortgage contract affect the customer's payments;
(e)

(i) if (c) or (d) apply, the maximum or minimum interest rate, or both, and the payments at each of these interest rates; and
(ii) where a repayment vehicle has been included in the illustration in accordance with MCOB 5.6.52 R(3), the payments quoted in (i) must include the cost of the repayment vehicle and state that this is the case;

(f) if the regulated mortgage contract is made up of a number of different parts including different types of interest rate and different rates of interest, an explanation of when or how increases in the interest rate charged on the regulated mortgage contract affect the customer's payments for each part (or combination of parts);
(g) except where (2)(a) or (2)(b) apply, the following text: 'The [frequency of payments from MCOB 5.6.40 R] payments shown in this illustration could be considerably different if interest rates change. For example, for one percentage point increase in [describe the interest rate that applies], your [insert frequency of payments] payment will increase by around £[insert amount by which payment will increase]'; and
(h) except where (2)(a) or (2)(b) apply, if (f) applies the following additional text after the text in (g), for each part (or combination of parts), where the amounts by which the customer's payments would increase are different:' After the [describe the interest rate that applies, the part (or parts) to which it applies, and date or period for which it applies] then for one percentage point increase in [describe the interest rate that applies], your [insert frequency of payments] payment will increase by around £[insert amount by which payment will increase].'.

(2) paragraphs (1)(g) and (1)(h) do not apply where:

(a) the interest rate is fixed throughout the term of the regulated mortgage contract; or
(b) the difference between the interest rate included in the illustration in accordance with MCOB 5.6.42 R and the maximum interest rate that can be charged on the regulated mortgage contract is less than one percentage point.

(3) under the sub-heading 'What if your income goes down?': 'You will still have to pay your mortgage if you lose your job or if illness prevents you from working. Think about whether you could do this.'

31/10/2004

MCOB 5.6.60

The amount by which the customer's payments would increase in accordance with MCOB 5.6.59 R(1)(g) and (h) must be calculated as follows:

(1) the firm must use the total amount borrowed, or assume that all payments due on the regulated mortgage contract have actually been paid, all additional fees and payments due have been paid, and no underpayments or overpayments have been made;
(2) where all or part of the regulated mortgage contract is a repayment mortgage, the calculation must be based on:

(a) the total amount borrowed; or
(b) the amount of the loan outstanding from the earliest point at which the interest rate charged on the regulated mortgage contract can vary (for example, if the regulated mortgage contract has an initial fixed interest rate, this will be from the point at which the fixed interest rate ends); and

(3) the interest rate from which the increase is calculated must be the variable interest rate charged on the regulated mortgage contract at the date that the illustration is issued (that is, the variable interest rate quoted in Section 4 of the illustration); where the variable interest rate changes after a set period or on a set date, it must be based on the initial variable interest rate charged on the regulated mortgage contract at the date the illustration is issued (for example, if the initial interest rate is discounted, it must be based on the discounted rate).

31/10/2004

MCOB 5.6.61

Although the effect of a one percentage point increase in interest rates on the customer's payments is not completely linear, the purpose of MCOB 5.6.59 R(1)(g) and (h) is to show the approximate effect of such an increase.

31/10/2004

Risk warning

MCOB 5.6.62

Unless MCOB 5.6.59 R(2)(a) or (b) apply, the following words must be prominently displayed at the end of the sub-section 'What if interest rates go up?': 'Rates may increase by much more than this so make sure you can afford the [insert frequency of payments from MCOB 5.6.40 R] payment'.

31/10/2004

MCOB 5.6.63

The following words must be prominently displayed at the end of the sub-section 'What if your income goes down?': 'Make sure you can afford your mortgage if your income falls'.

31/10/2004

MCOB 5.6.64

For guidance on prominence see MCOB 2.2.9 G.

31/10/2004

MCOB 5.6.65

The following text must be included at the end of Section 7 'Are you comfortable with the risks?': The Money Advice Service information sheet "You can afford your mortgage now, but what if...?" will help you consider the risks. You can get a free copy from http://www.moneyadviceservice.org.uk, or by calling 0300 500 5000.'

06/04/2011

Section 8: 'What fees must you pay?'

MCOB 5.6.66

Under the section heading 'What fees must you pay?' the illustration must:

(1) itemise all the fees that are included in the calculation of the APR in accordance with MCOB 10 (Annual Percentage Rate), excluding any charges for insurance set out in Section 9 in accordance with MCOB 5.6.73 R; and
(2) include a statement at the end of the section using the following text: 'You may have to pay other taxes or costs in addition to any fees shown here.'

31/10/2004

MCOB 5.6.67

An example of a fee that would normally be included in Section 8 would be a fee to re-inspect a property after completion of works if it is known that this fee will be charged at the time the illustration is produced. An example of a fee that would not be included would be a fee payable by the customer to insure their property elsewhere (however this would need to be stated in Section 9 of the illustration 'Insurance', as required by MCOB 5.6.77 R(2)). Fees payable upon repayment of the regulated mortgage contract at the end of the mortgage term would need to be included. Where fees are payable only on early repayment of the regulated mortgage contract, they should not be stated here (however these fees would need to be stated in Section 10 of the illustration 'What happens if you do not want this mortgage any more', as required by MCOB 5.6.88 R(2)).

31/10/2004

MCOB 5.6.68

The fees included in this section in accordance with MCOB 5.6.66 R must be itemised under the relevant sub-headings as follows:

(1) the fees that are payable by the customer to the mortgage lender must be itemised under the sub-heading 'Fees payable to [name of mortgage lender]';
(2) the remaining fees must be itemised under the sub-heading 'Other fees'; and
(3)

(a) if there are no fees to be itemised in accordance with (1), the sub-heading must be retained and a statement must be included stating that no fees apply; and
(b) if there are no fees to be itemised in accordance with (2), then the sub-heading must be retained and only the text in MCOB 5.6.66 R(2) applies.

31/10/2004

MCOB 5.6.69

The following information must be provided for each fee included in this section of the illustration in accordance with MCOB 5.6.66 R(1):

(1) a description of the fee;
(2) the amount payable by the customer recorded in a column headed 'Fee amount' on the right-hand side of this section;
(3) for fees included under the sub-heading 'Other fees', to whom the fee is payable;
(4) when the fee is payable;
(5) whether or not the fee is refundable, and if so, the extent to which it is refundable; and
(6) which fees (if any) are estimated in accordance with MCOB 5.6.35 R(2) and based on representative information; and
(7) if any fee is payable after the start of the regulated mortgage contract and subject to change in the future, for example a fee payable on final repayment of the regulated mortgage contract, the amount of that fee, along with a statement that this is the 'current fee'.

31/10/2004

MCOB 5.6.70

(1) If a higher lending charge is payable by the customer, the following text must be used to describe such a charge for the purposes of MCOB 5.6.69 R: 'A higher lending charge is payable because you are borrowing [insert the ratio of the mortgage amount (from MCOB 5.6.6 R(2)) to the property's price or value (from MCOB 5.6.6 R(3))] of the property's [estimated] [price/value].'
(2) If the customer has asked for any fees to be added to the loan, this must be stated alongside each fee.
(3) If the customer has the option of adding to the loan amount any of the fees included in this section, the following text must be included: 'If you wish you can add [this/these/the {type of fee}] fee(s) to the mortgage. This would increase the amount you borrow to [insert amount of the mortgage with the fee(s) included] and would increase the payments shown in Section 6. If you want to do this, you should ask for another illustration that shows the effect of this on your [insert frequency of payments from MCOB 5.6.40 R] payments.'
(4) Any fees that are estimated based on representative information in accordance with MCOB 5.6.35 R(2) must include an appropriate explanation of what the fee represents. For example, if this section includes an estimated fee for the legal work that a customer might be charged by his conveyancer for carrying out work on behalf of the mortgage lender, the illustration must explain that the fee is estimated, and that it only covers part of the costs of legal work that the customer might need to pay.

31/10/2004

MCOB 5.6.71

'Other fees' will include any fee charged by a mortgage intermediary, or another third party, for advising on or arranging a regulated mortgage contract but not commission or procuration fees (which are dealt with in Section 13 of the illustration).

31/10/2004

MCOB 5.6.72

A mortgage lender must provide a tariff of charges to the customer, if the customer so requests.

31/10/2004

Section 9: 'Insurance'

MCOB 5.6.73

(1) Under the section heading 'Insurance' the illustration must include details of:

(a) insurance which is a tied product; and
(b) insurance which is required as a condition of the regulated mortgage contract which is not a tied product.

(2) A firm may also provide details of insurance which it is optional for the customer to take out under this section heading.
(3) It must be clear to the customer which products he is required to purchase under which circumstances (for example, where both a tied product and a mortgage intermediary are involved, whether the policy must be purchased from the mortgage lender or the mortgage intermediary).

31/10/2004

MCOB 5.6.74

Under the sub-heading 'Insurance you must take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]' the following information must be included if the regulated mortgage contract requires the customer to take out insurance that is a tied product either through the mortgage lender or where relevant the mortgage intermediary:

(1) details of which insurance is a tied product;
(2) for how long the customer is obliged to purchase the insurance;
(3) an accurate quotation or a reasonable estimate of any payments the customer needs to make for the insurance;
(4) where a quotation is provided for insurance in accordance with (3) on the basis of an estimated sum insured, because the actual required sum insured is unknown, the fact that it is estimated should be stated along with confirmation of the level of cover that has been assumed;
(5) details of when the customer's payments for such insurance change, for example, if premiums are reviewed annually; and
(6) where a quotation is not provided in accordance with (3) a statement of when and how a quotation will be provided (for example, separately and as soon as possible).

31/10/2004

MCOB 5.6.75

Firms are reminded that MCOB 5.4.23 R requires a firm to provide a customer with an accurate quotation for any tied products. Where the level of cover the firm requires the customer to take up is known at the outset, then the quotation should reflect that level of cover.

31/10/2004

MCOB 5.6.76

If the regulated mortgage contract does not require the customer to take out insurance as a tied product, the sub-heading 'Insurance you must take out through [insert the name of the mortgage lender, and where relevant the name of the mortgage intermediary]' must be retained and a statement must be provided under this heading that the customer is not obliged to take out any insurance through the mortgage lender or, where relevant, the mortgage intermediary.

31/10/2004

MCOB 5.6.77

The following information must be included under the sub-heading 'Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert the name of the mortgage lender, or where relevant the name of the mortgage intermediary, or both]':

(1) if the regulated mortgage contract requires the customer to take out an insurance policy (other than that which is a tied product which the customer is obliged to purchase through the mortgage lender, or where relevant the mortgage intermediary), a brief statement of the type of insurance the firm requires; a quotation for the insurance that the firm issuing the illustration wishes to promote to the customer may be included in the illustration (estimated where necessary);
(2) if the mortgage lender or the mortgage intermediary makes a charge in cases where the customer does not arrange insurance that is a condition of the regulated mortgage contract through the mortgage lender or the mortgage intermediary, this must be stated, together with the amount of the charge and the frequency with which this charge is payable; and
(3) if no insurance policies are required (other than that which is a tied product), the sub-heading 'Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert name(s) of mortgage lender and, where relevant the mortgage intermediary]' must be retained in the illustration and a statement must be provided under this heading that no such insurance is required.

31/10/2004

MCOB 5.6.78

Under the sub-heading 'Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]' the illustration should not include any insurance policy that may be taken out by a mortgage lender itself to protect its own interests rather than the customer's interests, for example, because of the ratio of the loan amount to the property value.

31/10/2004

MCOB 5.6.79

If the cost of any insurance that the mortgage lender might take out to protect its own interests, because of the ratio of the loan amount to the property value, is passed on to the customer, it will be shown elsewhere in the illustration, for example, as a higher lending charge or in the interest rate charged.

31/10/2004

MCOB 5.6.80

A firm may include in the illustration, under the sub-heading 'Optional insurance', quotations (estimated where necessary) for any insurance products (other than the insurance products covered elsewhere in the illustration in accordance with MCOB 5.6.74 R and MCOB 5.6.77 R) that the firm issuing the illustration wishes to promote to the customer.

31/10/2004

MCOB 5.6.81

If no quotations are included in the illustration in accordance with MCOB 5.6.80 R, the sub-heading 'Optional insurance' must not be included in the illustration.

31/10/2004

MCOB 5.6.82

(1) If any quotations for insurance are included in the illustration in accordance with MCOB 5.6.74 R(3), MCOB 5.6.77 R(1) or MCOB 5.6.80 R, the illustration:

(a) must include a brief description only of the type of insurance (full details of the insurance cover may however be provided separately); and
(b)

(i) must include the total price to be paid by the customer in a column on the right hand side of the illustration under the heading '[insert frequency of payments quoted] payments'; and
(ii) may refer the customer to the individual insurance product disclosure documentation.

(2) If the customer has asked to add any insurance premiums or insurance-related charges to the amount borrowed in accordance with MCOB 5.6.18 R(3), the illustration must state that this is the case.

31/10/2004

MCOB 5.6.83

The terms on which an insurance premium has been calculated should be presented to the customer in the format determined by the relevant regulatory requirements.

31/10/2004

Section 10: 'What happens if you do not want this mortgage any more?'

MCOB 5.6.84

Under the heading 'What happens if you do not want this mortgage any more?', the illustration must include the following information on the regulated mortgage contract:

(1) under the sub-heading 'Early repayment charges':

(a) an explanation that the customer cannot repay the regulated mortgage contract early, if this is the case;
(b) an explanation of whether early repayment charges are payable;
(c) an explanation of when early repayment charges are payable;
(d) an explanation of any other fees that are payable if the regulated mortgage contract is repaid early, and the current level of these fees;
(e) a basic explanation of the basis on which early repayment charges are calculated (for example, as a percentage of the loan or as so many months' interest), including where appropriate details of any cashback or other incentives that must be repaid. The illustration may refer to a separate document for full details of all terms and conditions relating to the charges that apply if the regulated mortgage contract is repaid early;
(f) example cash amounts of any early repayment charges indicating the range of charges that apply over the period during which such charges apply calculated in accordance with MCOB 5.6.88 R, which must be described in the illustration as cash examples;
(g) the maximum early repayment charge that the customer could be charged in accordance with MCOB 12.3 (Early repayment charges), plus the cost of any other fees, which must be shown as cash amounts and described in the illustration as 'the maximum charge you could pay' [add if applicable, 'plus (a) fee(s) which (is/are) currently £x']; and

(2) under the sub-heading 'What happens if you move house?': details of whether or not the regulated mortgage contract is portable on moving house and a brief explanation of any conditions or restrictions that apply including whether there are any restrictions on changing the terms of the regulated mortgage contract during the period in which any early repayment charges apply (a reference to another document may be made in order to provide the customer with further details of the conditions or restrictions).

31/10/2004

MCOB 5.6.85

The requirements in MCOB 5.6.84 R(1) may be presented in a tabular format.

31/10/2004

MCOB 5.6.86

Where MCOB 5.6.84 R(1)(f) would result in more than three cash amounts being shown in the illustration, the cash amounts shown in the illustration may be restricted to three examples. These examples must be representative of the full range of charges that apply and not be limited to the lowest charges that apply. These three examples are in addition to:

(1) any statement of the amount of any fees described in MCOB 5.6.84 R(1)(d); and
(2) the maximum early repayment charge required by MCOB 5.6.84 R(1)(g).

31/10/2004

MCOB 5.6.87

An example which would comply with MCOB 5.6.86 R would be if a five year fixed rate mortgage had a charge which reduced linearly by 1% each year from 5% in the first year to 1% in the final year and cash examples were used based on 5% in year 1, 3% in year 3 and 1% in year 5.

31/10/2004

MCOB 5.6.88

(1) In calculating example cash amounts in accordance with MCOB 5.6.84 R(1)(f), it must be assumed that:

(a) the regulated mortgage contract is repaid in full;
(b) unless the original amount borrowed is used, that all payments due on the regulated mortgage contract are actually paid;
(c) additional fees and charges such as insurance premiums have been paid; and
(d) no underpayments or overpayments have been made.

(2) If:

(a) cashbacks or other incentives need to be repaid; or
(b) fees need to be paid;

the amounts that would need to be repaid or paid must be included in the example cash amounts.
(3) Where the calculation of the early repayment charge is based on the interest rate charged on the regulated mortgage contract or on interest rates generally, the interest rates used for the calculation of the example cash amounts must be those in force at the date that the illustration is issued to the customer.
(4) The example cash amounts must reflect the maximum charge in a particular year. Where it is possible to state exact early repayment charges (that is, where all such charges are based on the original amount borrowed), the illustration must do so.

31/10/2004

MCOB 5.6.89

Where the cash examples from MCOB 5.6.88 R included in the illustration would vary either if the interest rate charged on the regulated mortgage contract changed or with changes in interest rates generally, an appropriate warning that the early repayment charges may vary from the cash examples must be included in the illustration.

31/10/2004

Section 11: 'What happens if you want to make overpayments?

MCOB 5.6.90

(1) Under the section heading 'What happens if you want to make overpayments?', the illustration must include details of any restrictions on lump sum and regular overpayments on the regulated mortgage contract, together with a statement as to whether or not the amount on which the interest charged is recalculated is reduced immediately on receipt of any lump sum or regular overpayment.
(2) Where such recalculation does not take place immediately (for example, if an annual rest method is used), then this statement must be accompanied by an explanation of when the amount on which the interest charged is recalculated is reduced following a lump sum or regular overpayment.
(3) Where early repayment charges apply, this section must not repeat the details provided in Section 10 of the illustration, but may refer to Section 10.

31/10/2004

MCOB 5.6.91

Where the interest recalculation described in MCOB 5.6.90 R takes place immediately, firms may add a statement in this section explaining that the customer will get the benefit of the overpayment immediately, and firms may refer to supplementary information to illustrate further, the benefits of making regular overpayments.

31/10/2004

Section 12: 'Additional features'

MCOB 5.6.92

Under the section heading 'Additional features' the illustration must include, where relevant, details of any additional features or facilities under the various sub-headings in MCOB 5.6.94 R.

31/10/2004

MCOB 5.6.93

(1) If none of the features at MCOB 5.6.94 R are applicable to the regulated mortgage contract to which the illustration relates, the section headed 'Additional features' must be retained, but the sub-headings must not be included and a statement must be added to explain that there are no additional features.
(2) Only those features available on the regulated mortgage contract need be included in the illustration.
(3) If a firm provides a customer with supplementary information about any additional features or facilities over and above the information required under MCOB 5.6.92 R to MCOB 5.6.112 G, the firm may include a reference to that supplementary information in Section 12.

31/10/2004

MCOB 5.6.94

The relevant sub-headings are as follows:

(1) 'Underpayments';
(2) 'Payment holidays';
(3) 'Borrow back';
(4) 'Incentives';
(5) 'Additional borrowing available without further approval';
(6) 'Additional secured borrowing';
(7) 'Credit card';
(8) 'Unsecured borrowing';
(9) 'Linked current account'; and
(10) 'Linked savings account'.

31/10/2004

MCOB 5.6.95

Under the sub-heading 'Underpayments', the illustration must include details of circumstances in which the customer can make underpayments and a brief statement of any conditions that apply.

31/10/2004

MCOB 5.6.96

Under the sub-heading 'Payment holidays', the illustration must include details of circumstances in which the customer can take payment holidays and a brief statement of any conditions that apply.

31/10/2004

MCOB 5.6.97

Under the sub-heading 'Borrow back', the illustration must include details of circumstances in which the customer can borrow back any monies overpaid and a brief statement of any conditions that apply.

31/10/2004

MCOB 5.6.98

Under the sub-heading 'Incentives', the illustration must include:

(1) any incentives including cashbacks; and
(2) if a cashback is provided, the amount of the cashback and details of when it is paid to the customer.

31/10/2004

MCOB 5.6.99

Under the sub-heading 'Additional borrowing available without further approval', the illustration must provide details of circumstances in which there are any linked borrowing facilities that would allow the customer to increase the amount of the loan on which the illustration is based without any further approval from the mortgage lender (for example, if there are additional drawdown facilities).

31/10/2004

MCOB 5.6.100

Under the sub-heading 'Additional secured borrowing', the illustration must provide details of circumstances in which additional secured lending is offered with the regulated mortgage contract that would allow the customer, subject to certain conditions, to increase the amount of the loan on which the illustration is based.

31/10/2004

MCOB 5.6.101

Under the sub-heading 'Unsecured borrowing', the illustration must provide details of circumstances in which unsecured lending is offered with the regulated mortgage contract that would allow the customer to increase the amount of the loan on which the illustration is based.

31/10/2004

MCOB 5.6.102

Under the sub-heading 'Credit card', the illustration must:

(1) state if a credit card is offered with the regulated mortgage contract; and
(2) if a credit card is offered and it is a mortgage credit card:

(a) unless (b) applies, include the following text: 'This card will not give you a number of the statutory rights associated with traditional credit cards. Your mortgage offer will tell you more about the differences.'; or
(b) where the mortgage lender provides the customer with contractual rights in relation to a mortgage credit card equal to or greater than those provided under the Consumer Credit Act 1974, include the following text: 'This card will not give you a number of the statutory rights associated with traditional credit cards. However, [insert name of mortgage lender] will ensure that you will be treated no differently from the user of a traditional credit card. Your mortgage offer will tell you more about this.'

31/10/2004

MCOB 5.6.103

Where any of the additional features under MCOB 5.6.99 R to MCOB 5.6.102 R inclusive apply, then the following must also be stated if the amount of additional borrowing that would be available to the customer is stated in the illustration:

(1) the maximum additional amount available;
(2) if the interest rate payable on any additional borrowing is different to the interest rate in Section 4 and Section 6 of the illustration, the interest rate and the APR charged on the additional borrowing. The APR must be calculated in accordance with MCOB 10 (Annual Percentage Rate), based on the maximum amount of additional borrowing that would be permitted for the customer and the term of the loan from MCOB 5.6.6 R(4);
(3) the total resulting debt the customer could incur (including the original loan amount);
(4) (where there is a regular payment plan) the payments on this total debt based on the frequency of payments in MCOB 5.6.40 R and the current interest rate(s) applying on the date the illustration is issued;
(5) whether this additional borrowing must be repaid in full if the original loan is repaid in full, along with details of any conditions that apply;
(6) if early repayment charges apply to the additional amount borrowed:

(a) that early repayment charges are payable;
(b) an explanation of when early repayment charges are payable; and
(c) the maximum early repayment charge that the customer could be charged in accordance with MCOB 12.3 (Early repayment charges) which must be shown as a cash amount; and

(7) if it is the case, that the maximum amount of borrowing available, or the terms and conditions, may change depending on factors such as ratio of the loan amount to the property value.

31/10/2004

MCOB 5.6.104

Where more than one additional borrowing facility from MCOB 5.6.99 R to MCOB 5.6.102 R applies, the total debt and total payments due under all these linked borrowing facilities must be included under a separate sub-section titled 'Total additional borrowing'.

31/10/2004

MCOB 5.6.105

The purpose of MCOB 5.6.104 R is to show the total amount of any additional borrowing facilities that would be available to the customer and the cost of utilising these facilities. It must combine the amount available under any linked borrowing facilities including additional secured lending, credit cards and unsecured lending.

31/10/2004

MCOB 5.6.106

(1) Where additional features are included in accordance with MCOB 5.6.92 R and these are credit facilities that do not meet the definition of a regulated mortgage contract, the relevant parts of Section 12 of the illustration must include the following text:
'This additional feature is not regulated by the FSA'.
(2) Where additional features are included in accordance with MCOB 5.6.92 R and these are credit facilities regulated by the Consumer Credit Act 1974, the relevant parts of Section 12 of the illustration must include the following text after the text in (1): 'but is regulated under the Consumer Credit Act 1974. You will receive a separate credit agreement with any offer document for this additional feature, describing the detailed terms on which this feature is available.'

31/10/2004

MCOB 5.6.107

Where all or part of the maximum amount of additional borrowing is secured on the customer's home, a prominent warning must be included that additional borrowing increases the amount of credit secured on the customer's home.

31/10/2004

MCOB 5.6.108

Suitable wording for the warning contained in MCOB 5.6.107 R would be: 'This will increase the amount of borrowing secured on your home'.

31/10/2004

MCOB 5.6.109

(1) Under the sub-heading 'Linked current account', the illustration must include the following information:

(a) whether a linked current account is a compulsory or optional product (if the current account is a compulsory product this must also be stated in Section 4 of the illustration in accordance with MCOB 5.6.25 R(6));
(b) an explanation of the interest rates that apply under different circumstances to the linked current account, if different from the interest rate charged on the regulated mortgage contract (for example, if a different interest rate applies if the account is overdrawn); and
(c) the firm providing the linked current account if it is not the mortgage lender.

(2) If an example to show the effect of the linked current account on the regulated mortgage contract is included in the illustration, it must be based on the actual or likely amount that the customer intends to pay into the linked current account on a regular basis and the actual or likely expenditure profile of the customer concerned.

31/10/2004

MCOB 5.6.110

(1) Under the sub-heading 'Linked savings account', the illustration must include the following information:

(a) whether a linked savings account is a compulsory or optional product (if the savings account is a compulsory product this must also be stated in Section 4 of the illustration in accordance with MCOB 5.6.25 R(6));
(b) the interest rate paid on the linked savings account if it differs from the interest rate charged on the regulated mortgage contract; and
(c) the firm providing the linked savings account if it is not the mortgage lender.

(2) If an example to show the effect of the linked savings account on the regulated mortgage contract is included in the illustration, it must be based on the actual or likely level of relevant savings for the customer concerned.

31/10/2004

MCOB 5.6.111

If an example is included in the illustration in accordance with MCOB 5.6.109 R(2) or MCOB 5.6.110 R(2), it must be based on information obtained from the customer and the amounts that are intended to be paid into the current or savings account on a regular basis; the amounts that it is intended are saved; and the actual or likely expenditure profile. The amounts involved and the expenditure profile should not be standard assumptions made by the firm, but should be those of the customer or the relevant person who would hold the accounts, or both, and be of a conservative nature. These assumptions should be stated in the illustration. For example, it should not be assumed that the customer will make lump sum payments unless he has indicated that he intends to do so, and in the case of linked current accounts it should not be assumed that the customer or person holding the account leaves monies in the current account at the end of each month unless he actually does so, or intends to do so. In this case, a conservative assumption might be that the customer spends all the money paid into his current account evenly over the month.

31/10/2004

MCOB 5.6.112

If a linked current account and a linked savings account are offered as part of the regulated mortgage contract, the examples in MCOB 5.6.109 R(2) and MCOB 5.6.110 R(2) can be combined into one example.

31/10/2004

Section 13: 'Using a mortgage intermediary'

MCOB 5.6.113

Where the illustration is issued to a customer by, or on behalf of, a mortgage intermediary, Section 13 'Using a mortgage intermediary' must be included in the illustration and must include the following:

(1) unless MCOB 5.6.114 R applies, a clear statement of the amount payable (either directly or indirectly) by the mortgage lender to the mortgage intermediary, or to any third parties; and
(2) the name of the mortgage lender who will make the payment, the name of the mortgage intermediary and the names of any third parties who will be paid.

31/10/2004

MCOB 5.6.114

If the amount payable by the mortgage lender to the mortgage intermediary and to third parties is £250 or less, the mortgage intermediary need only state that the amount of the payment is 'no more than £250', unless the customer requests the actual amount.

31/10/2004

MCOB 5.6.115

If the mortgage intermediary will pass to the customer all or part of the amount payable to the mortgage intermediary under MCOB 5.6.113 R(1) or MCOB 5.6.114 R, that fact may be stated in this section, along with the amount payable to the customer.

31/10/2004

MCOB 5.6.116

If the mortgage lender will make no payment to the mortgage intermediary or any third party, this section may state that the mortgage intermediary will receive no payment.

31/10/2004

MCOB 5.6.117

The amount payable in MCOB 5.6.113 R(1) or MCOB 5.6.114 R must include, but is not limited to:

(1) any procuration fee; and
(2) a cash value for any material non-cash inducements that the mortgage lender provides to a mortgage intermediary or third party, whether payable directly or indirectly.

31/10/2004

MCOB 5.6.118

MCOB 2.3.7 R requires any material inducements provided by a mortgage lender, whether directly or indirectly, to a mortgage intermediary or third party (unless the payment only reflects the cost of outsourcing work relating to the processing of mortgage applications by a firm unconnected to the mortgage intermediary) to be quantified in cash terms, which will enable the cash values to be included in the illustration in accordance with MCOB 5.6.117 R.

31/10/2004

MCOB 5.6.119

An example of a statement which would comply with MCOB 5.6.113 R and MCOB 5.6.117 R would be: '[name of mortgage lender] will pay [name of mortgage intermediary] an amount of £350 in cash and benefits if you take out this mortgage.'

31/10/2004

Section 14: 'Where can you get more information about mortgages?'

MCOB 5.6.120

This section must be renumbered Section 13 if the illustration is not provided by, or on behalf of, a mortgage intermediary.

31/10/2004

MCOB 5.6.121

Under the section heading 'Where can you get more information about mortgages?', the prescribed text under this heading in MCOB 5 Annex 1 must be included.

31/10/2004

Contact details

MCOB 5.6.122

This section must follow the section 'Where can you get further information about mortgages?' and must include the name, address and contact point of the firm providing the illustration.

31/10/2004

MCOB 5.6.123

An example of wording which would comply with MCOB 5.6.122 R would be: 'If you wish to discuss this mortgage illustration please contact [name of firm] at [address] or on [telephone number]'.

31/10/2004

Risk warning

MCOB 5.6.124

(1) The following words must be prominently displayed in the illustration, after the contact details: 'Your home may be repossessed if you do not keep up repayments on your mortgage'.
(2) If the loan may be secured on property which is not the customer's home the statement in (1) may be amended but only to the extent necessary in order to reflect that fact.

31/10/2006

MCOB 5.6.125

For guidance on prominence see MCOB 2.2.9 G.

31/10/2004

Amortisation table

MCOB 5.6.126

(1) An amortisation table may be added to the end of the illustration after the information required by MCOB 5.6.124 R if the mortgage lender or mortgage intermediary wishes. A firm may find that this is particularly appropriate to illustrate certain types of regulated mortgage contract, for example, a regulated mortgage contract with more than one part.
(2) The purpose of (1) is to permit a firm to add an amortisation table in accordance with the European Commission's 'Recommendation of 1 March 2001 on pre-contractual information to be given to consumers by lenders offering home loans' (C(2001) 477 final).

31/10/2004

Foreign currency mortgages

MCOB 5.6.127

If the customer's liability under a regulated mortgage contract is in a currency other than sterling, MCOB 5.6 applies to the illustration for that regulated mortgage contract with the following amendments:

(1) all cash amounts must be given in the relevant currency except where otherwise required in (2)(a) and (3);
(2) the following information must be stated under Section 4 'Description of this mortgage':

(a) the amount in sterling on which the illustration is based from MCOB 5.6.6 R(2) based on the exchange rate in (2)(b);
(b) the exchange rate used; and
(c) when the exchange rate quoted applied;

(3) the following text must be added at the end of Section 4 'Description of this mortgage': 'This illustration is based on the sterling equivalent of [insert details from (2)(a)] based on [insert details from (2)(b)] as at [insert details from (2)(c)]. Exchange rates can vary significantly. The effect of a 5% decrease in the value of sterling to the [insert name of relevant currency] would increase your total borrowing to [insert amount to which the amount borrowed from MCOB 5.6.6 R(2) would increase in sterling]. This would increase your [insert frequency of payments from MCOB 5.6.40 R] payments by the sterling equivalent of £[insert amount in sterling]. 'The following information must be added to this text:

(a) the cash amount to which the amount borrowed would increase in sterling if there was a decline of 5% in the value of sterling when compared to the relevant currency; and
(b) the amount by which (2)(b) would increase the customer's payments based on the frequency of payments from MCOB 5.6.40 R, shown as a sterling equivalent cash amount.

31/10/2004

Risk warning

MCOB 5.6.128

The text at MCOB 5.6.124 R must be immediately followed by the following additional text, prominently displayed (see MCOB 2.2.9 G): 'Changes in the exchange rate may increase the sterling equivalent of your debt.'

31/10/2004

Shared appreciation mortgages

MCOB 5.6.129

If the regulated mortgage contract is a shared appreciation mortgage, MCOB 5.6 applies to the illustration with the following amendments:

(1) Section 4 'Description of this mortgage' must contain the following additional information and text in this order after the details required by MCOB 5.6.25 R to MCOB 5.6.29 R:

(a) 'This mortgage involves [name of mortgage lender] taking a percentage share in any increase in the value of your property [insert details of all occasions when the share will be payable to the mortgage lender, for example, "after x years, or when this mortgage comes to an end or is terminated early"]. The amount [name of mortgage lender] will take depends on any increase in the value of your property.' [Include if relevant: 'If your property falls in value between now and the end of this mortgage you will be required to pay [add details of what the customer will need to pay the mortgage lender if the property falls in value.]';
(b)

(i) a basic explanation of how the amount of the share payable to the mortgage lender is calculated including the proportions of any given increase in the value of the property and whether this is dependent on the level of growth (for example, that the share payable to the mortgage lender is all of the increase in value of the property for the first 5% increase in value, plus half of the additional increase in the value of the property above this);
(ii) a reference to a separate document for full details of the terms and conditions relating to the amount of the share payable followed by: 'The example below shows how this works. EXAMPLE: Based on the current [estimated] value of your property of [insert details from MCOB 5.6.6 R(3)], the example(s) below show(s) what your property value would be and what share of that value [name of mortgage lender] would take after [insert term of the loan in accordance with MCOB 5.6.6 R(4) or the term after which the equity share becomes payable if less] if the value of your property increased. [Include if relevant: "and what would happen if your property decreased in value."] Please note that you should add this payment to the amount of any early repayment charges that may be payable - see Section 10';

(c) except where (g) applies, example cash amounts for the value of the property and the corresponding amount of the equity share payable assuming an average annual increase, in the value of the property secured by the regulated mortgage contract of 1%, 5% and 10% over the term from (i);
(d) if the customer would be required to pay the mortgage lender an amount because the value of the property on which the regulated mortgage contract would be secured had decreased from its value at the start of the term of the regulated mortgage contract, include example cash amounts for the value of the property and the corresponding amount payable assuming an average annual decrease, in the value of the property secured by the regulated mortgage contract of 1%, 5% and 10% over the term from (i);
(e) if the amount of the equity share payable cannot go above or below a certain level, an explanation that this is the case along with a cash example described as 'the maximum amount you could pay';
(f) include this text after the cash examples in (c) (or, if applicable, after the cash examples in (d) or (e)): 'This is not an indication of how the actual value of your property may change.';
(g) where (c) or (d) apply and the maximum percentage equity share payable is less than the example percentages in (c) or (d), only cash examples for those percentages required by (c) or (d) which are below this maximum need be quoted, along with the maximum in accordance with (e);
(h) if there are no restrictions on the amount of the equity share payable, the following text should follow the text in (f): 'The amount you will need to pay could be much higher than this.'; and
(i) for the purposes of the examples required by (c) or (d), the term used must be stated and must be the term of the regulated mortgage contract in accordance with MCOB 5.6.6 R(4) or the term after which the equity share becomes payable, if less;

(2) Section 5 'Overall cost of this mortgage' of the illustration must contain the following text at the end of the section: 'The APR and the total amount you must pay do not take account of the share that [insert name of mortgage lender] takes in any increase in the value of your property as described in Section 4. So you should not use these measures to compare this mortgage with other mortgages that do not involve [insert name of mortgage lender] taking a share in any increase in the value of your property.'; and
(3) Section 10 'What happens if you do not want this mortgage any more?' must contain the following text at the end of the first sub-heading 'Early repayment charges': 'Remember to add the cost of paying any share in the value of the property to [insert name of mortgage lender] - see Section 4.'

31/10/2004

MCOB 5.6.130

The requirements in MCOB 5.6.129 R(1)(c) and (d) may be presented in a tabular format.

31/10/2004

Risk warning

MCOB 5.6.131

The requirements at MCOB 5.6.129 R(1) must be immediately followed by the following additional text, prominently displayed (see MCOB 2.2.9 G):'You will need to pay this share in the value of your property either as a lump sum or through extra loan payments. Think carefully about whether you can afford this.'

31/10/2004

Deferred interest rate mortgages

MCOB 5.6.132

If the interest rate charged on the regulated mortgage contract is deferred, MCOB 5.6 applies with the following additions:

(1) A section headed: 'Effect of deferring interest on the amount you owe' must be included in the illustration after Section 6.
(2) This section must be numbered 6a so that the numbering follows on consecutively from the preceding section unless MCOB 5.6.55 R applies in which case it should be numbered 6b.
(3) Under the section heading the following text must be included: 'This table shows the effect of the deferred interest being added to the amount you owe'; and if the interest rate is variable: 'The amounts shown in this table could be considerably different if the interest rate changes.'
(4) Under the text in (3), a table must be included showing each year or part year that the interest rate charged on the regulated mortgage contract is deferred, in the format set out in MCOB 5 Annex 1 and containing the following information in the columns under the following headings:

(a) 'Year': This must list the years as 1, 2, 3 and so on for each year or part year that the interest charged on the regulated mortgage contract is deferred. Where the interest rate charged on the regulated mortgage contract changes at a particular date rather than annually, the table may be adapted to accommodate this (for example, by including details of more than one interest rate each year).
(b) 'Interest deferred': This must show the percentage of interest deferred based on the rates charged on the regulated mortgage contract at the date the illustration is issued.
(c) 'Amount of deferred interest added to the mortgage': This must show the cumulative amount that is added to the loan as a cash amount as a result of deferring the payment of interest.
(d) 'Remaining debt before deferred interest is added': This must show the amount of loan outstanding on the regulated mortgage contract before any deferred interest is added.
(e) 'Remaining debt with deferred interest added': This must show the amounts from (4)(c) and (4)(d) added together.

31/10/2004

Alternative requirements for loans without a term or a regular repayment plan Section 6: 'What you will need to pay each [insert frequency of payments from MCOB 5.6.40R]'

MCOB 5.6.133

MCOB 5.6.134 R to MCOB 5.6.138 G apply only to loans without a term or regular payment plan where some or all of the interest rolls up, for example secured bridging loans, secured overdrafts or mortgage credit cards.

31/10/2004

MCOB 5.6.134

The heading for Section 6 of the illustration and the heading of the column on the right-hand side of this section must state the frequency with which payments must be made by the customer. (For example, if payments were to be made on a monthly basis, the heading for this section would be 'What you will need to pay each month' and the column would be headed 'Monthly payments'). Where no regular payments are required on the regulated mortgage contract, for example where all interest is rolled-up on a secured bridging loan, then this section must be retained and the frequency of payments assumed must be 'monthly'.

31/10/2004

MCOB 5.6.135

All the payments in Section 6 of the illustration must be calculated based on the frequency used for the purposes of the headings in MCOB 5.6.40 R and must be shown in the column on the right-hand side of this section. If no payments are required, for example on a secured bridging loan or secured overdraft, then this column should be marked on the illustration as nil.

31/10/2004

MCOB 5.6.136

Section 6 of the illustration must contain the following information:

(1) the loan amount on which the illustration is based. Where fees are being added to the loan then this figure should include all fees, charges and insurance premiums that have been added to the loan in accordance with MCOB 5.6.18 R(2) and MCOB 5.6.18 R(3), and the following text must follow the loan amount: 'and include[s] the fees [and insurance premiums] that are shown in Section 8 [and Section 9] as being added to your mortgage.';
(2) the assumed start date that has been used in the illustration must be stated using the following text: 'This illustration assumes that the mortgage will start on [insert assumed start date].';
(3) where no payments are required (or no payments are allowed), for example a secured bridging loan or secured overdraft, then section 6 of the illustration should state if no payments are required or no payments can be made; or
(4) where a minimum payment is required, for example on a mortgage credit card:

(a) a statement that a minimum payment will be required;
(b) an explanation of the basis on which this has been calculated, for example a percentage of the loan amount;
(c) if this monthly payment is insufficient on its own to repay the regulated mortgage contract over the term specified, the following text: 'This payment will not be sufficient to repay the mortgage over the term specified'; and
(d) the amount that the customer must pay, recorded in the right-hand column of this section.

31/10/2004

MCOB 5.6.137

An example of the statement required by MCOB 5.6.136 R(3) would be: 'You [do not need to/cannot] make regular payments on this mortgage.'

31/10/2004

MCOB 5.6.138

An example of MCOB 5.6.136 R(4) would be: 'You need to make minimum payments as follows: 3% of the amount outstanding £x.xx This payment will not be sufficient to repay the mortgage over the term specified.'

31/10/2004

Section 7: 'Are you comfortable with the risks?'

MCOB 5.6.139

MCOB 5.6.140 R to MCOB 5.6.145 R apply only to loans without a term or regular payment plan where some or all of the interest rolls up, for example secured bridging loans, secured overdrafts or mortgage credit cards.

31/10/2004

MCOB 5.6.140

Under the section heading 'Are you comfortable with the risks?':

(1) under the sub-heading 'What if interest rates go up?' the illustration must include the following:

(a) if the interest rate is fixed throughout the term of the regulated mortgage contract, an explanation that the interest rate will not vary because the interest rate is fixed;
(b) if the interest rate is fixed for part of the term of the regulated mortgage contract, an explanation of when or how increases in the interest rate charged on the regulated mortgage contract affect the amount the customer must pay back;
(c) if the interest rate cannot go above or below a certain level, or both, throughout the term of the regulated mortgage contract, an explanation that this is the case;
(d) if the interest rate cannot go above or below a certain level for part of the term of the regulated mortgage contract, an explanation that this is the case and of when or how increases in the interest rate charged on the regulated mortgage contract affect the amount the customer must pay back;
(e) except where (2)(a) or (2)(b) apply, Section 7 of the illustration must include the following text: 'The total amount you must pay back shown in this illustration could be considerably different if interest rates change. For example, for one percentage point increase in [describe the interest rate that applies], the total amount you must pay back will increase by around £[insert amount by which the total amount payable will increase].'.

(2) paragraph (1)(e) does not apply:

(a) where the interest rate is fixed throughout the term of the regulated mortgage contract; or
(b) where the difference between the interest rate included in the illustration in accordance with MCOB 5.6.25 R(2) and the maximum interest rate that can be charged on the regulated mortgage contract is less than one percentage point.

(3) under the sub-heading 'What if your income goes down?': 'You will still have to pay your mortgage if you lose your job or if illness prevents you from working. Think about whether you could do this.'

31/10/2004

MCOB 5.6.141

The amount by which the total amount payable would increase in accordance with MCOB 5.6.140 R(1)(e) must be calculated as follows:

(1) unless the total amount borrowed is used, it must be assumed that all payments due on the regulated mortgage contract have actually been paid, all additional fees and payments due have been paid, and no under or overpayments have been made;
(2) unless the total amount borrowed is used, the calculation must be based on the amount of the loan outstanding from the earliest point at which the interest rate charged on the regulated mortgage contract can vary; for example, if the regulated mortgage contract has an initial fixed interest rate, this will be from the point at which the fixed interest rate ends;
(3) the interest rate from which the increase is calculated must be the variable interest rate charged on the regulated mortgage contract at the date that the illustration is issued (that is, the variable interest rate quoted in Section 4 of the illustration); where the variable interest rate changes after a set period or on a set date, it must be based on the initial variable interest rate charged on the regulated mortgage contract at the date the illustration is issued. (For example, if the initial interest rate is discounted, it must be based on the discounted rate.)

31/10/2004

Risk warning

MCOB 5.6.142

Unless MCOB 5.6.140 R(2)(a) or (b) applies, the following words must be prominently displayed at the end of the sub-section 'What if interest rates go up?': 'Rates may increase by much more than this so make sure you can afford this loan.'

31/10/2004

MCOB 5.6.143

The following words must be prominently displayed at the end of the sub-section 'What if your income goes down?': 'Make sure you can afford your mortgage if your income falls'.

31/10/2004

MCOB 5.6.144

For guidance on prominence see MCOB 2.2.9 G.

31/10/2004

MCOB 5.6.145

06/04/2011

MCOB 5.7

Business loans

01/12/2004

MCOB 5.7.1

Where the regulated mortgage contract is for a business purpose, a firm may choose to provide a business illustration (in compliance with MCOB 5.7.2 R) instead of complying with MCOB 5.6.

31/10/2004

MCOB 5.7.1A

Firms are reminded that, in accordance with MCOB 1.2.3 R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans. Therefore, a firm may only follow the tailored provisions in MCOB 5.7 if it also follows all other tailored provisions in MCOB.

31/10/2004

MCOB 5.7.2

A business illustration provided to a customer must:

(1) use the headings and prescribed text in MCOB 5 Annex 1 (except as provided in MCOB 5.7) but need not follow the format;
(2) include the content required by MCOB 5.6.3 R to MCOB 5.6.130 G (except MCOB 5.6.5 R, MCOB 5.6.101 R, MCOB 5.6.109 R to MCOB 5.6.112 G, MCOB 5.6.120 R and MCOB 5.6.121 R);
(3) use the key facts logo followed by the text 'about this [term used by the firm to describe the borrowing, for example 'mortgage']';
(4) use font sizes and typefaces consistently throughout the business illustration which are sufficiently legible so that the business illustration can be easily read by a typical customer;
(5) ensure that the information is clearly laid out (for example, through the use of bullet points or similar devices to separate information);
(6) describe any early repayment charge as an 'early repayment charge' and not use any other expression to describe such charges;
(7) describe any higher lending charge as a 'higher lending charge' and not use any other expression to describe such charges; and
(8) include the risk warning described in MCOB 5.6.124 R, or an equally clear and effective variation of this reflecting the nature of the regulated mortgage contract.

31/10/2004

MCOB 5.7.3

(1) MCOB 5.7.2 R(1) means that firms do not have to follow the ordering of sections set down in MCOB 5.6, although they may choose to do so.
(2) In accordance with MCOB 5.7.2 R(8) an example of an appropriate variation to the risk warning would be: 'Your home may be repossessed if you are unable to fulfil the terms of this secured overdraft'.
(3) A firm may also choose to include other information beyond that required by MCOB 5.6. However, when adding additional material a firm should have regard to:

(a) the intended use of the business illustration as an aid to comparison by customers; and
(b) the requirement in MCOB 2.2.6 that any communication should be clear, fair and not misleading.

(4) The business illustration provided in accordance with MCOB 5.7.2 R should be based upon the total borrowing that the firm is willing to provide under the regulated mortgage contract. This means that there is no requirement for a firm to provide a further business illustration (or business offer document) where a customer redraws against payments made under the regulated mortgage contract, providing this redrawing does not exceed the borrowing described in the original business offer document.
(5) MCOB 5.6.6 R(4) requires that where the term of the regulated mortgage contract is open-ended, the business illustration must be based on an assumed term of 12 months and that this assumption must be stated. This does not mean that a firm is limited in the actual term of the regulated mortgage contract. A firm is able to include in the business illustration an explanation that while a 12-month term has been assumed for the purpose of the business illustration, the regulated mortgage contract itself will be open-ended.

31/10/2004

MCOB 5.7.4

Any business illustration provided by a firm must be limited to facilities provided under a regulated mortgage contract.

31/10/2004

MCOB 5.7.5

MCOB 5.6.31 R(2), MCOB 5.6.52 R(1) and MCOB 5.6.52 R(4) prescribe text that should be used to remind a customer with an interest-only mortgage that there is a need to separately arrange for the repayment of capital. The options for repayment of capital may be different where the regulated mortgage contract is for a business purpose, and a firm must vary the prescribed wording in the business illustration to reflect this. One approach may be for the firm to revise the wording to reflect how the customer has said he will repay the capital.

31/10/2004

MCOB 5.7.6

(1) When providing a business illustration in accordance with MCOB 5.7.2 R a firm should describe facilities provided under the regulated mortgage contract that are not a loan within section 12 (Additional features) of the business illustration.
(2) In complying with (1), a firm should follow the requirements in MCOB 5.6.92 R MCOB 5.6.108 G where these are relevant. Where the facility is of a type not considered in MCOB 5.6.92 R MCOB 5.6.108 G the firm should provide in section 12:

(a) a brief description of the facility involved;
(b) the term of the facility if different from the term described elsewhere in the business illustration; and
(c) a summary of any charges, including any early repayment charges, which apply to the operation of the facility.

(3) Full information on any facility described in section 12 must be provided in supplementary materials that accompany the business illustration.

31/10/2004

MCOB 5.7.7

(1) In accordance with MCOB 5.7.6 R(1), where the regulated mortgage contract includes a loan, the facilities described in section 12 of the business illustration should include the existence of, and a simple explanation of, any all monies charge, any contingent liabilities such as guarantees and so on.
(2) Where the regulated mortgage contract includes more than one loan facility (such as a secured loan and a separate secured overdraft facility) the business illustration should be based upon the primary facility and describe any other loan within section 12.

31/10/2004

MCOB 5.8

Home purchase plans

06/04/2007

MCOB 5.8

Applying for a home purchase plan
Note: The rules regarding applying for a home purchase plan are set out in MCOB 5.3.

06/04/2007

Financial information statement: timing

MCOB 5.8.1

A firm dealing directly with a customer must ensure that the customer is, or has been, provided with an appropriate financial information statement for a home purchase plan in a durable medium:

(1) before the customer submits an application for that particular plan to a home purchase provider; and
(2) without undue delay when any of the following occurs:

(a) the firm makes a personal recommendation to the customer to enter into a home purchase plan (unless the personal recommendation is made by telephone, in which case a firm must ensure the financial statement is or has been provided as soon as practicable after the telephone call);
(b) the firm provides written information that is specific to the amount of finance to be provided on a particular plan; or
(c) the customer requests written information from the firm that is specific to the amount of finance to be provided on a particular plan, unless the firm does not wish to do business with the customer.

(3) A firm may comply with (1) and (2) by providing an offer document if this can be done as quickly as providing a financial information statement.

06/04/2007

MCOB 5.8.2

In ensuring that the customer is provided with an appropriate financial information statement, a firm need not provide another when one that remains appropriate has already been provided for that particular home purchase plan. If a financial information statement ceases to be appropriate, for example because the terms of the proposed plan are subsequently materially altered, a new appropriate statement must be provided.

06/04/2007

MCOB 5.8.3

The guidance on the timing of mortgage illustrations may be relevant (see MCOB 5.5).

06/04/2007

Financial information statement: format

MCOB 5.8.4

A financial information statement must:

(1) be personalised to reflect the customer's requirements;
(2) contain only the material prescribed or permitted in this section;
(3) contain that material in the order set out in this section; and
(4) present the material concisely, clearly and consistently.

06/04/2007

MCOB 5.8.5

A financial information statement, if not set out in a separate document, must be:

(1) in a prominent place within the other document and clearly identifiable as key information that the customer should read; and
(2) separate from the other content of the document in which it is included.

06/04/2007

MCOB 5.8.6

The guidance on the content, order and format of illustrations may be relevant (see MCOB 5.6.4 G).

06/04/2007

Financial information statement: content

MCOB 5.8.7

A financial information statement must contain:

(1) a prominent keyfacts logo at the top of the statement;
(2) the term of the home purchase plan;
(3) the overall cost of the plan, comprising:

(a) the purchase price of the property;
(b) the deposit payable;
(c) the amount of the plan required;
(d) the amount of any fees added to the plan;
(e) the total amount payable; and
(f) the amount the customer must pay per £1 provided under the plan;

(4) details of the payments the customer must make, including:

(a) the assumed start date;
(b) all rental rates that will apply;
(c) when the rental rates will apply and for how long;
(d) for each rental rate, the number, frequency and amount of the periodic payments that will apply;
(e) in relation to the first periodic payment, the amount of the purchase payment and of the rental payment;
(f) the amount of any insurance rent payments;
(g) a summary total; and
(h) details of when the summary total will change.

06/04/2007

MCOB 5.8.8

A financial information statement may contain a figure equivalent to an APR after the amount the customer must pay per £1 provided under the home purchase plan. A firm must use an approach equivalent to the APR rules when calculating an APR equivalent.

06/04/2007

MCOB 5.8.9

See the keyfacts logo provisions for further requirements regarding the use of the keyfacts logo and the location of specimens.

06/04/2007

MCOB 5.8.10

The details of the rental rate charged should be based on information available to a firm at the time of producing the financial information statement. For example, if a rental rate cannot be ascertained at that time because it is based on a fluctuating rate of interest, a firm should base the information on the current fluctuating rate.

06/04/2007

Opportunity to consider pre-application disclosure

MCOB 5.8.11

A firm must ensure that the customer has had a reasonable opportunity to consider the financial information statement and risks and features statement before committing the customer to an application.

06/04/2007

MCOB 5.9

Pre-sale disclosure for regulated sale and rent back agreements

30/06/2010

Pre-sale disclosure

MCOB 5.9.1

(1) A firm must, as soon as a customer expresses an interest in becoming a SRB agreement seller, ensure that the disclosures and warnings set out in (1A) are made to the customer, both orally and confirmed in writing, and he is given an adequate opportunity to consider them. The firm must not demand or accept any fees, charges or other sums from the customer, or undertake any action that commits the customer in any way to entering into a specific agreement, until:

(a) the written pre-offer document that is required by MCOB 6.9.3 R has been provided to the customer; and
(b) the written offer document for signing (Stage Two) that is required by MCOB 6.9.10R (1) has been returned to the firm duly signed by the customer.

(1A) The disclosures and warnings referred to in (1) are the following:

(a) where a valuation of the property that is the subject matter of the regulated sale and rent back agreement has already been carried out in accordance with MCOB 2.6A.12 R, a statement of its market value or, if a valuation of the property has not yet been carried out, the price or value of the property on which the proposed regulated sale and rent back agreement would be based (estimated if necessary);
(b) [deleted]
(c) any fees, charges or retentions that the firm will deduct from the purchase price for the property, net of any fees or charges otherwise payable, and whether there are any fees, charges or other sums that are payable to any SRB intermediary that is involved in the proposed transaction or to a third party;
(d) the purchase price that the firm is prepared to pay the SRB agreement seller for the property, net of any fees, charges or retentions;
(e) the percentage of the figure in (a) for the market value of the property that the figure in (d) for the purchase price represents;
(ea) that the SRB agreement seller should in his own best interests independently seek whatever information he can on the market value of his property, as explained in the FSA consumer factsheet provided to the customer, before proceeding with the proposed transaction and how and from where information on its value may be available;
(f) brief details of the main terms of the tenancy under the proposed regulated sale and rent back agreement, including its type, the letting period including the fixed term and the security of tenure the SRB agreement seller (or trust beneficiary or related person) will be given under it, an explanation that the seller (or trust beneficiary or related person) cannot be evicted unless the SRB agreement provider obtains a possession order from the court and an explanation of the seller's (or trust beneficiary's or related person's) ability to terminate the tenancy;
(g) [deleted]
(h) [deleted]
(i) a prominent warning that once the fixed term under (f) expires, the SRB agreement seller and his family may be required to leave the property;
(ia) where the SRB agreement seller is to be given an option under the proposed agreement to buy back the property at some future date from the SRB agreement provider, a statement confirming that this is the case, together with details of the option, including how it may be exercised and any restrictions such as time limits that will apply to it, and a clear explanation as to how the repurchase price is to be determined;
(j) the initial rent due under the proposed agreement;
(k) the circumstances in which the rent in (j) can be increased or changed in any way under the terms of the tenancy agreement;
(l) the risks associated with the transaction from the SRB agreement seller's perspective, including in particular:

(i) that failure to abide by the terms of the tenancy may result in the loss of the right to occupy the property; and
(ii) that failure to obtain legal or professional advice may mean his interests are not fully protected;

(m) whether there are any other features or restrictions in the regulated sale and rent back agreement which the SRB agreement seller would reasonably need to know about for the purpose of making an informed judgment about the merits of entering into the proposed agreement;
(n) information on what the SRB agreement seller should do if he wishes to make a complaint against the firm arising out of or in connection with the proposed regulated sale and rent back agreement, including provision of an address and phone number at which the firm may be contacted should the customer wish to pursue a complaint and that if he cannot settle his complaint with the firm, that he may be entitled to refer it to the Financial Ombudsman Service; and
(o) information on the circumstances in which the SRB agreement seller might be entitled to compensation under the Financial Services Compensation Scheme, depending on the type of business and the circumstances of the claim, and, if so, details of the relevant coverage.

(2) The firm must make the written disclosures and warnings specified in (1) to the SRB agreement seller in a clear, fair and not misleading way before he enters into the proposed regulated sale and rent back agreement and in doing so must ensure that:

(a) the information is set out in the same order as set out in (1);
(b) the disclosures and warnings are made in a separate and standalone document; and
(c) the disclosures and warnings are accompanied by a prominent written statement from the firm drawing the SRB agreement seller's attention to the importance of the information.

(3) In making the disclosures in writing to the SRB agreement seller that are required by (1) and (1A), the firm must make prominent use of the key facts logo in accordance with GEN 5.1(Application and purpose), followed by the text "about this sale and rent back agreement".

30/06/2010

Compliance with the pre-sale disclosure requirement

MCOB 5.9.1A

A firm may comply with the requirement in MCOB 5.9.1 R (Pre-sale disclosure) for disclosures and warnings to be confirmed in writing by providing the potential SRB agreement seller with the written pre-offer document that is required by MCOB 6.9.3 R (Written pre-offer document: Stage One) if this can be done as quickly as providing the pre-sale disclosures, provided that (in accordance with MCOB 5.9.1 R) the firm does not demand or accept any fees, charges or other sums from the customer or undertake any action that commits the customer to the proposed regulated sale and rent back agreement until:

(1) the written pre-offer document that is required by MCOB 6.9.3 R has been provided to the customer; and
(2) the written offer document for signing (Stage Two) that is required by MCOB 6.9.10R (1) has been returned to the firm duly signed by the customer.

30/06/2010

Information on valuations and rental values

MCOB 5.9.1B

Where the potential SRB agreement seller has not commissioned his own valuation of the property, a firm must ensure that he realises that there are other possible sources of information on the property's value that are available to him, including local estate agents, local newspapers which carry advertisements for the sale of residential property in the customer's locality and on-line sites where details of recent property sales in the locality may be accessed.

30/06/2010

MCOB 5.9.1C

A firm must ensure that the SRB agreement seller realises that there are other possible sources of information on the appropriate rental value for the property available to him, including local estate agents, local newspapers and on-line sites which carry advertisements for the rental of residential property in the customer's locality.

30/06/2010

MCOB 5.9.1D

There is no requirement for the property to be valued before making the pre-sale disclosures. However, MCOB 6.9.2 R requires that an independent valuation of the property be carried out before the provider supplies the customer with the written pre-offer document at Stage One (see MCOB 6.9.3 R).

30/06/2010

Disclosure of relevant features or restrictions

MCOB 5.9.1E

Examples of features of a regulated sale and rent agreement that a SRB agreement seller would reasonably need to know about (see MCOB 5.9.1R (1A)(m)) would include an arrangement under which the seller is to receive from the SRB agreement provider a refund of some agreed percentage of the discount (on the market value of the property) that was reflected in the sale price under the regulated sale and rent back agreement after the end of the agreed letting term. Should any restrictions or the payment of any costs or fees be attached to the seller's entitlement to exercise such an option, these should be explained clearly.

30/06/2010

Revised pre-sale disclosures

MCOB 5.9.1F

Where a firm has already provided the required pre-sale disclosures and the terms for the proposed regulated sale and rent back agreement are subsequently materially altered, the firm must ensure that, at the firm's option, either:

(1) the pre-sale disclosures are re-issued to the customer, incorporating the agreed amendment; or
(2) the agreed amendment is incorporated in the written pre-offer document at Stage One (see MCOB 6.9.3 R).

30/06/2010

MCOB 5.9.1G

What constitutes "materially altered" requires consideration of the facts of each individual case. For example, a change in the proposed purchase or valuation price of the property should normally be regarded as material, as would the introduction of an additional charge applying to the regulated sale and rent back agreement when it did not previously.

30/06/2010

Records of pre-sale disclosure

MCOB 5.9.2

A firm must keep a record of the disclosures and warnings made to the SRB agreement seller under MCOB 5.9.1 R for a period of:

(1) one year after the end of the fixed term of the tenancy under the regulated sale and rent back agreement; or
(2) five years from the date of the disclosures and warnings;

whichever is the longer.

30/06/2010

Initial disclosure information to SRB agreement sellers: unauthorised SRB agreement providers

MCOB 5.9.3

(1) A SRB intermediary must ensure that, on first making contact with a prospective SRB agreement seller, whether or not he is the firm's customer, who is proposing to enter into a regulated sale and rent back agreement with an unauthorised SRB agreement provider, it provides him with the written warning in (2) before he enters into any such agreement.
(2) The warning in (1) is that:

(a) the agreement provider is not authorised or regulated by the FSA, and that key protections under the regulatory system will not apply; and
(b) the provider is not subject to the jurisdiction of the Financial Ombudsman Service, and that the SRB agreement seller will not be entitled to refer complaints against the provider to the Financial Ombudsman Service.

30/06/2010

Initial disclosure information to unauthorised SRB agreement providers

MCOB 5.9.4

(1) A SRB intermediary must ensure that, on first making contact with a customer who is both an individual and an unauthorised SRB agreement provider, when it anticipates giving personalised information or advice on a regulated sale and rent back agreement, it must provide him with the written warning in (2).
(2) The warning in (1) is that a regulated sale and rent back agreement is a complex legal arrangement and that expert independent legal advice should be obtained before entering into any such agreement.

30/06/2010

MCOB 5.9.5

A person may enter into a regulated sale and rent back agreement as agreement provider without being regulated by the FSA (or an exempt person) if the person does not do so by way of business. However, a SRB intermediary should at all times be conscious of its obligations under Principle 6 (Customers' interests). Should the firm have any reason to believe or entertain any suspicions that the SRB agreement seller may be proposing to enter into a regulated sale and rent back agreement with an unauthorised SRB agreement provider notwithstanding that the provider appears to be doing so by way of business and therefore appears to require authorisation under the Act, the firm should warn the seller that he should not be proceeding with the transaction.

30/06/2010

Uncertainty whether the arrangements constitute a sale and rent back agreement

MCOB 5.9.6

(1) If, at the point that the required pre-sale disclosures must be provided to a potential SRB agreement seller, a firm is uncertain whether the arrangement will qualify as a regulated sale and rent back agreement, the firm must:

(a) provide the required pre-sale disclosures on the basis that the arrangement might constitute a regulated sale and rent back agreement; or
(b) seek to obtain from the potential seller information that will enable the firm to ascertain whether the contract will qualify as a regulated sale and rent back agreement.

(2) Where (1)(b) applies, pre-sale disclosures must be provided, unless, on the basis of information the potential seller provides, the firm has reasonable evidence that the contract would not qualify as a regulated sale and rent agreement.

30/06/2010

MCOB 5.9.7

If the firm has reasonable evidence that the contract is not a regulated sale and rent back agreement, for example where at least 40% of the property is not going to be occupied as a dwelling by the seller or his family, and has not provided the required pre-sale disclosures and the firm subsequently concludes that the contract does qualify as a regulated sale and rent back agreement, there is no requirement to provide separate pre-sale disclosures at the time the firm reaches that conclusion. However, the requirement to integrate the pre-sale disclosures into the written pre-offer document at Stage One that is required by MCOB 6.9.3 R will apply.

30/06/2010

Record of sale and rent back providers

MCOB 5.9.8

(1) A SRB intermediary must for each regulated sale and rent back agreement in relation to which it carries on regulated sale and rent back mediation activity keep a record of the contact details of the provider that enters into or is proposed to enter into the agreement, making it clear whether the provider is a SRB agreement provider or an unauthorised SRB agreement provider.
(2) The record in (1) must be retained for a period of one year, or one year from the end of the fixed term of the tenancy under the regulated sale and rent back agreement, whichever is the longer.

30/06/2010

MCOB 5 Annex 1

The mortgage illustration: table of contents, prescribed text and prescribed section headings and subheadings.

06/04/2007

This annex consists only of one or more forms. Forms are to be found through the following address:
The mortgage illustration MCOB 5 Annex 1

06/04/2011