A firm must give the customer reasonable notice, in advance, of:
any changes to the payments that the customer is required to make resulting from interest rate changes; and
any material change by the firm (other than changes which come within MCOB 7.6.2 R) to the terms and conditions of the regulated mortgage contract, where that change is permitted without the customer's prior consent.
A firm must notify a customer, as soon as the details are known, of who will be responsible for setting interest rates and charges on the regulated mortgage contract if any interest in the regulated mortgage contract is to be sold, assigned, or transferred, and the firm will no longer be responsible for this.
For the purposes of MCOB 7.6.2 R the firm may be treated as continuing to be responsible for setting interest rates and charges if, under the terms of the sale, assignment or transfer, it is expected that the rates and charges will continue to be set by reference to, and be no higher than, those set by the firm for other contracts of the same kind.
MCOB 7.6.2 R and MCOB 7.6.3 R may be relevant where a regulated mortgage contract is transferred to a third party through securitisation.
Where the customer has, in accordance with the terms of the regulated mortgage contract, taken up an additional tranche of borrowing on a mortgage that is released in tranches and this did not require any further approval of the mortgage lender, a firm must provide confirmation as soon as possible of:
the new amount owed by the customer under the regulated mortgage contract;
the amount of each payment that is due; and
the interest rate charged.
Examples of where MCOB 7.6.5 R will apply are the release of tranches of money to the customer in relation to a self-build mortgage or other instalment mortgage.
Before a customer submits an application to a firm for a further advance on an existing regulated mortgage contract or for a further advance that is a new regulated mortgage contract, if the further advance requires the approval of the mortgage lender, the firm must provide the customer with either
an illustration that complies with the requirements of MCOB 5 (Pre-application disclosure) and MCOB 7.6.9R to MCOB 7.6.17R; or
an ESIS that complies with MCOB 5A (MCD pre-application disclosure) and MCOB 7B.1.4R (MCD: further advances);
unless:
such an illustration or ESIS has already been provided; or
the regulated mortgage contract is for a business purpose and the firm has chosen to comply with the tailored provisions for regulated mortgage contracts for a business purpose; or
the regulated mortgage contract is with a high net worth mortgage customer and the firm has chosen to comply with the tailored provisions for loans to high net worth mortgage customers;
(see MCOB 7.7 (Business loans and loans to high net worth mortgage customers: tailored provisions)).
If a number of different firms are involved in relation to the transaction referred to in MCOB 7.6.7 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the illustration or ESIS required by MCOB 7.6.7 R.
An illustration provided in accordance with MCOB 7.6.7R(1) must:
be based on the amount of the further advance only;
use the term 'additional borrowing' in place of the term 'mortgage' where appropriate throughout the titles and text of the illustration;
include an additional section headed: 'Total borrowing' and numbered '7a' after Section 7, including the following text:
"This section gives you information about how your mortgage will be affected by taking out this additional borrowing. Talk to [your mortgage lender] [insert name of mortgage lender] if you are not sure of the details of your current mortgage."; and
a clear statement explaining the total amount that the customer will owe if he takes out the additional borrowing and what the customer's new payments will be.
include a clear statement, where all or part of the regulated mortgage contract is an interest-only mortgage and the amount paid in each instalment does not include the cost of a repayment strategy, to indicate that these payments do not include the cost of any savings plan or other investment.
In order to comply with MCOB 7.6.9 R(1), a firm should calculate the APR required by MCOB 5.6.34 R on the basis of the further advance amount only.
For the purposes of MCOB 7.6.9 R(3) and (4):
a customer's existing mortgage includes a mortgage entered into prior to 31 October 2004 as well as a regulated mortgage contract;
the frequency of payments is that in MCOB 5.6.40 R; and
a firm may generally rely on information provided by the customer unless, taking a common-sense view of this information, it has reason to doubt it.
An example of the total borrowing section referred to in MCOB 7.6.9 R(3) is in MCOB 7 Annex 1.
Where not all of the mortgage interest rates described in accordance with MCOB 5.6.25 R(2)(a) apply for the term of the loan part to which they apply, the firm must disclose the amount that will be paid in each instalment when complying with MCOB 7.6.9 R(3)(b), including the following information:
The illustration provided in accordance with MCOB 7.6.7R(1) may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so in order to reflect the fact that the illustration is being provided for a further advance.
The ESIS provided under MCOB 7.6.7R(2) may diverge from the requirements of MCOB 5A where it is necessary to do so to reflect that the ESIS is being provided for a further advance.
MCOB 7.6.14 R allows the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading for the customer. For example, the firm may add text to let the customer know if conditions applying to the original mortgage do not apply to the additional borrowing, such as 'The early repayment charges applying to your existing loan do not apply to this additional borrowing.'
(In the case of a business illustration), MCOB 5.6.16 R is replaced with the following: "Section 1: 'About this illustration' Under the section heading 'About this illustration', the following text must be included:'We are required by the Financial Conduct Authority (FCA) - the independent watchdog that regulates financial services - to provide you with this illustration.' "
(In the case of any other illustration ), MCOB 5.6.16 R is replaced with the following; "Section 1: 'About this illustration' Under the section heading 'About this illustration, the following text must be included: 'We are required by the Financial Conduct Authority (FCA) - the independent watchdog that regulates financial services - to provide you with this illustration. All firms selling mortgages are required to give illustrations like this one, that contain similar information presented in the same way.' "
Where the further advance for which the customer has applied is in the form of an annual insurance premium secured by a first legal charge, a firm:
may, instead of providing an illustration or ESIS in accordance with MCOB 7.6.7 R, provide confirmation of the matters required by MCOB 7.6.5 R; and
where (a) applies use the following text:"Your annual insurance premium has been/will be added to your mortgage account [unless you pay it by dd/mm/yy]. If you choose to pay it in full on or before dd/mm/yy there will be no extra cost. If you do not, interest will be charged on the amount outstanding at [insert details of the applicable interest rate e.g. 'the same rate as your mortgage' or 'the standard variable rate which is currently x%']."
If the insurance premium described in (1) is not an annual premium, (1)(a) and (b) apply but a firm must amend the text in (1)(b) to reflect the length of the contract.
Before a customer submits an application to a firm to change all or part of a regulated mortgage contract from one interest rate to another (for example, a transfer from a variable rate regulated mortgage contract to a fixed rate regulated mortgage contract, or from one fixed rate regulated mortgage contract to another fixed rate regulated mortgage contract), the firm must provide the customer with either:
an illustration for the whole loan that complies with the requirements of MCOB 5 (Pre-application disclosure); or
an ESIS for the whole loan that complies with the requirements of MCOB 5A (MCD Pre-application disclosure),
unless such an illustration or ESIS has already been provided.
If a number of different firms are involved in relation to the transaction referred to in MCOB 7.6.18 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the illustration or ESIS required by MCOB 7.6.18 R.
The illustration provided in accordance with MCOB 7.6.18 R may diverge from the requirements of MCOB 5 where it is necessary to do so to reflect the fact that the illustration is being provided for a rate switch.
The ESIS provided under MCOB 7.6.18R (2) may diverge from the requirements of MCOB 5A where it is necessary to do so to reflect that the ESIS is being provided for a rate switch.
MCOB 7.6.20R (1) and (2) allow a firm to make changes to wording and to add, remove or alter information that would otherwise be misleading to the customer. For example, a firm could replace the statement in Section 3 of the illustration, explaining that if information provided by the customer changes, the illustration may be affected, with a statement explaining that the illustration is based on information gathered in the past, which may no longer be accurate.
Where a firm proposes to vary the term of a regulated mortgage contract so that it becomes a retirement interest-only mortgage:
MCOB 7.6.18R to MCOB 7.6.21G apply as though references to a rate switch were references to such a contract variation; and
MCOB 5.4 applies as though a reference to entering into a home finance transaction included such a contract variation.
Before a customer submits an application to add or remove a party to a regulated mortgage contract, a firm must provide any customer who will remain or become a party to the contract with either:
an illustration for the whole loan that complies with the requirements of MCOB 5 (Pre-application disclosure); or
an ESIS for the whole loan which complies with the requirements of MCOB 5A (MCD Pre-application disclosure).
The FCA would not view:
a simple notification of the death of a party to the regulated mortgage contract as an application for the purposes of MCOB 7.6.22 R; or
a guarantor as a party to a regulated mortgage contract;
so MCOB 7.6.22 R does not mean that someone becoming a surviving joint borrower on or a guarantor to the regulated mortgage contract should receive an illustration.
If a number of different firms are involved the transaction referred to in MCOB 7.6.22 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the illustration or ESIS required by MCOB 7.6.22 R.
The illustration provided in accordance with MCOB 7.6.22 R may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so to reflect the fact that the illustration is being provided in respect of the addition or removal of a party to the contract.
The ESIS provided under MCOB 7.6.22R (2) may diverge from the requirements of MCOB 5A (MCD Pre-application disclosure) where it is necessary to do so to reflect that the ESIS is being provided for the addition or removal of a party to the contract.
MCOB 7.6.25R (1) and (2) allow the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading to the customer. For example, a firm may choose not to include a property valuation in the 'What you have told us' section of the illustration if the property value does not have a bearing on the terms of the regulated mortgage contract.
If a customer requests, or agrees to, a change to a regulated mortgage contract (other than a change as described in MCOB 7.6.7 R to MCOB 7.6.26 G) that changes the amount of each payment due, a firm must provide the customer with the following information, in a single communication (subject to MCOB 7.6.28AR (3)), before the change takes effect:
the amount outstanding on the regulated mortgage contract at the date the change is requested;
the payment due and the frequency of payments; where it is known that the payment will change (for example at the end of a fixed rate period), the new payment and the date of the change must also be shown;
the rate of interest applying to the regulated mortgage contract; where it is known that the rate of interest will change, the new rate and the date of the change must also be shown;
the type of interest rate (for example fixed, or discounted); where it is known that the type of interest rate will change the new type and the date of the change must also be shown;
where the regulated mortgage contract will change to an interest-only mortgage, a prominent reminder that the customer should have in place arrangements to repay the capital, using the following text:'You will still owe [insert amount borrowed or, where part of the regulated mortgage contract is an interest-only mortgage, insert the amount borrowed under the interest-only mortgage] at the end of the mortgage term. You will need to make separate arrangements to repay this. When comparing the new payments on this mortgage with your previous payments, remember to add any money you may need to pay into a separate savings plan to build up a lump sum to repay the amount you have borrowed.'; and
details of any charges that apply for changing the regulated mortgage contract.
MCOB 7.6.28 R (5) does not apply where the regulated mortgage contract is changing to an interest-only mortgage and interest is being deferred and capitalised by the firm as a result of the customer having payment difficulties.
Where (1) applies, the firm must instead provide a prominent reminder to the customer of the amount outstanding together with an explanation of the implications of deferred payments being capitalised, before the change in the regulated mortgage contract takes effect.
The reminder in (2) may be provided in a separate communication.
Examples of where MCOB 7.6.28 R will apply are where the customer requests a change from an interest-only mortgage to a repayment mortgage, requests a change to the term of his mortgage or agrees to his arrears being capitalised.
If a number of different firms are involved in relation to the transaction referred to in MCOB 7.6.28 R, having regard to MCOB 2.5.4 R(2), those firms should take reasonable steps to establish which one of them is responsible for providing the customer with the information required by MCOB 7.6.28 R.
Where MCOB 7.6.28 R applies, a firm may issue either:
an illustration in accordance with MCOB 5 (Pre-application disclosure) in place of the information set out in MCOB 7.6.28 R; or
an ESIS in accordance with MCOB 5A (MCD Pre-application disclosure),
in place of the information set out in MCOB 7.6.28 R.
The illustration provided under MCOB 7.6.31R (1) may diverge from the requirements of MCOB 5 (Pre-application disclosure) where it is necessary to do so to reflect the circumstances in which it is being provided.
The ESIS provided under MCOB 7.6.31R (2) may diverge from the requirements of MCOB 5A (MCD Pre-application disclosure) where it is necessary to do so to reflect the circumstances in which it is being provided.
MCOB 7.6.31AR (1) and (2) allow the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading to the customer.
Where MCOB 7.6.28 R applies and the customer simultaneously requests a rate switch or the addition or removal of a party to the contract, a firm will not be required to provide the information in accordance with MCOB 7.6.28 R where it is provided as part of:
an illustration issued in accordance with MCOB 7.6.18R (1) or MCOB 7.6.22R (1); or
an ESIS issued under MCOB 7.6.18R (2) or MCOB 7.6.22R (2).
Where a customer simultaneously requests a rate switch and the addition or removal of a party to the loan, a firm will not be required to provide the customer with a separate illustration for each in accordance with MCOB 7.6.18R (1) and MCOB 7.6.22R (1). The firm may provide the customer with a single illustration that complies with the requirements of MCOB 5(Pre-application disclosure) for both.
Where a customer simultaneously requests a rate switch and the addition or removal of a party to the loan, a firm will not be required to provide the customer with a separate ESIS for each under MCOB 7.6.18R (2) and MCOB 7.6.22R (2). The firm may provide the customer with a single ESIS that complies with the requirements of MCOB 5A (MCD Pre-application disclosure) for both.
Where a firm is required to provide a customer with an ESIS under MCOB 7.6.18R (2) or MCOB 7.6.22R (2), or a firm chooses to provide a customer with an ESIS under MCOB 7.6.31R (2), the firm need not include the additional APRC required under MCOB 10A.1.6 R, Section 4 of MCOB 5A Annex 1 and MCOB 5A Annex 2, 6.2R to 6.8R.
Where a firm provides a customer with an ESIS under MCOB 7.6.18R (2), MCOB 7.6.22R (2) or MCOB 7.6.31R (2), that includes an additional APRC, the firm must either:
base that additional APRC on the APRC previously provided to the customer under MCOB 5A (MCD Pre-application disclosure); or
calculate that additional APRC in accordance with MCOB 10A.1.6 R, Section 4 of MCOB 5A Annex 1 and MCOB 5A Annex 2, 6.2R to 6.12R.
When considering whether to apply MCOB 7.6.35R (1) or MCOB 7.6.35R (2), a firm should consider its obligations under MCOB 3A.2.1R(2) to communicate in a way that is fair, clear and not misleading.
