FCA Handbook - MCOB 6A.3 MCD mortgages: binding offer, content of the offer document and reflection period

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MCOB 6A.3 MCD mortgages: binding offer, content of the offer document and reflection period

(1)
If a firm offers to enter into an MCD regulated mortgage contract with a consumer, it must provide the consumer with a binding offer set out in an offer document.
(2)
The firm may also provide an ESIS.
(3)
The firm's offer in the offer document must be on the basis of the information in the ESIS relevant to that offer.
(4)
When an MCD mortgage lender provides the consumer with a binding offer, that offer must be accompanied by an ESIS where the characteristics of the offer are different from the information contained in the ESIS previously provided.

[Note: article 14(3)(b) and (4) of the MCD]

(1)
If a firm offers to vary an MCD regulated mortgage contract with a consumer, it must provide the consumer with an offer document.
(2)
The firm may also provide an ESIS.
(3)
The firm's offer in the offer document must be on the basis of the information in the ESIS relevant to that offer.
(4)
When an MCD mortgage lender offers to vary an MCD regulated mortgage contract with a consumer, the offer document must be accompanied by an ESIS where:
1. (a)
  the characteristics of the offer are different from the information contained in any illustration or ESIS previously provided in relation to the offer.
2. (b)
  no illustration or ESIS has been previously provided in relation to the offer.

(1)
MCOB 6A.3.1 R does not prevent a binding offer from being subject to lawful conditions, including conditions which make the binding offer subject to one or more of the matters listed below:
1. (a)
  there being no material change to the facts and circumstances relating to the binding offer which occurs after the date on which the binding offer is made;
2. (b)
  the fact that the consumer has not knowingly provided incomplete or inaccurate information for the purpose of the assessment of affordability, and has not knowingly falsified or withheld the information provided for the purpose of that assessment.
(2)
The material changes referred to in (1)(a) include a material change:
1. (a)
  affecting the condition, value or title to the property;
2. (b)
  in the borrower’s circumstances (such as loss of employment or further secured borrowing taken out after the borrower’s application for an MCD regulated mortgage contract) which is likely to have a material impact upon the borrower’s ability to afford the loan.
(3)
However, the lender cannot use conditions in binding offers as a means of avoiding the requirement to undertake a proper affordability assessment under MCOB 11 before the binding offer is made.

Reflection period

(1)
Where an MCD mortgage lender provides the consumer with a binding offer, it must give the consumer a reflection period of at least seven days.
(2)
The MCD mortgage lender must ensure that, during the reflection period:
1. (a)
  the offer remains binding on the MCD mortgage lender;
2. (b)
  the consumer may accept the offer at any time.

[Note: article 14(6) of the MCD]

The purpose of the reflection period is to provide the consumer with sufficient time to compare offers, assess their implications and make an informed decision.

A firm must provide the consumer with a copy of the draft agreement for the MCD regulated mortgage contract at the beginning of the reflection period.

[Note: article 14(11) of the MCD]

Self-build mortgages and other tranched forms of lending

Where it is known that a loan will be released in instalments, for example in the case of a self-build mortgage, the loan can involve a binding offer, ESIS and the reflection period either for:

(1)
the full amount; or
(2)
an initial amount, which would be replaced by a binding offer, an ESIS and reflection period for a larger amount and so on.

Records

(1)
A firm must make an adequate record of each offer document which it issues to a consumer under MCOB 6A.
(2)
The record required by (1) must be retained for one year from the date that the offer document is issued to the consumer.
(3)
If, in accordance with MCOB 6A.4 (Information to be provided in the offer document or separately), information is included in a separate document that is sent with the offer document, that information must also be retained as part of the record required by (1).

Information contained in the offer

A firm must ensure that the offer document contains a prominent statement explaining:

(1)
the period for which the offer is valid;
(2)
where the MCD regulated mortgage contract contains features, such as additional unsecured borrowing facilities, which could result in the consumer borrowing more money that, where such features are used, the amount of the consumer's debt will increase;
(3)
when any interest rate change on the MCD regulated mortgage contract takes effect. This statement must be used, for example, to explain cases where an annual review system is used;
(4)
the consequences that might arise from the consumer not entering into the MCD regulated mortgage contract, including any fees that the consumer has paid which will not be reimbursed;
(5)
that once the MCD regulated mortgage contract is concluded, there will be no right of withdrawal; and
(6)
that, although no right of withdrawal exists, the consumer will have a right to repay the MCD regulated mortgage contract in accordance with the terms of the MCD regulated mortgage contract.

When setting the period for which the offer is valid (referred to in MCOB 6A.3.9R (1), a firm should bear in mind the requirement under MCOB 6A.3.4 R for a reflection period.

The offer document must state the repayment strategy the consumer intends to use.

The offer document may contain information about any retentions or re-inspections that will be required by the firm.

A firm must ensure that the offer document includes information on how to complain to the firm about the services provided by the firm in relation to the MCD regulated mortgage contract and whether or not complaints may subsequently be referred to the Financial Ombudsman Service.

DISP 1 requires a firm to deal promptly and fairly with complaints, including referring to another firm's complaints about that other firm's services.

In addition to the information required by MCOB 6A.3.9 R, a firm may include information about how to complain to any other firm about the services that firm provided to the consumer in relation to the MCD regulated mortgage contract. For example, where the consumer received advice from another firm, an MCD mortgage lender may include contact details for the firm that provided the advice.

If the firm knows, at the point that the offer is made to the consumer, that its interest in the MCD regulated mortgage contract will be assigned (by sale or transfer) and the firm will no longer be responsible for setting interest rates and charges, the offer document must:

(1)
state this; and
(2)
state, where known, who will be responsible for setting interest rates and charges after the sale or transfer.

Where MCOB 6A.3.17 R applies, if the name of the party who will be responsible for setting interest rates and charges after the sale or transfer is not known at the point the offer is made, the firm must notify the consumer of this as soon as it becomes known.

MCOB 6A.3.17 R and MCOB 6A.3.18 R could apply where the ownership of an MCD regulated mortgage contract is transferred to a third party through securitisation.