8. Regulation and the Buying Process Flashcards
When did MCD regulated mortgages begin?
21st of March 2016. Mortgages before that date are referred to as regulated mortgages and are subject to the original MCOB rules for servicing and variations
What are the key regulatory stages in the mortgage application process?
Financial promotions, i.e. marketing of mortgages (MCOB 3A)
Initial disclosure: meeting the advisor to discuss the needs and circumstances to identify a suitable mortgage (MCOB 4 & 4A)
Providing advice (MCOB 4) and lending responsibly (MCOB 11 & 11A)
Making an application (MCOB 5 & 5A)
Receiving a mortgage offer from the lender (MCOB 6 & 6A)
Disclosure at the start of the contract (MCOB 7)
Who is allowed to carry out financial promotions?
An individual or firm authorised by the FCA. Or where the content has been approved by an individual or firm authorised by the FCA
What is a non-real-time financial promotion?
Any promotion that does not include interactive dialogue - SMS, email, faxes, letters, adverts, etc
What is real-time financial promotion?
Any promotion made through telephone or face-to-face conversation, or other interactive dialogue
All non-real-time credit promotions must include the following:
Company details: name, number, address, email, etc
Terms of promotion: clear statement if the product being promoted is conditional on other products being purchased e.g. house insurance
Risk of repossession
Annual percentage rate of charge (APRC)
Interest rate
Credit
Term
Instalments
Total
Example
What are the rules for real-time financial promotions?
Calls cannot be made at unsocial hours
Contact cannot be made on unlisted telephone numbers
The caller must identify themselves and their firm
The caller must check that the customer agrees to continue with the conversation if the time of communication has not been agreed earlier
The caller must terminate the conversation if the customer does not wish to proceed
The content of the conversation must be clear, fair and not misleading, and not make any untrue statements
What is an initial disclosure (MCOB 4 & 4A)?
When a prospective purchaser seeks a mortgage the firm arranging the mortgage must provide the borrower with information about the firm and its status through initial disclosure
The information must be provided before the firm carries out any mortgage arranging or advisory activity
What must the initial disclosure tell the customer?
Any limitations in the range of products offered of products it will provide information about
How the firm will be remunerated
Alternative finance options if the customer seeks to increase the secured borrowing on a property subject to a regulated mortgage
In relation to the range of products offered, what are the three types of service the firm can offer to customers?
Unlimited: the firm selects and recommends from a range of products that represent the whole market. (Unlimited does not mean the firm has to select from every single product on the market, the key is that the products offered should be representative of the whole market)
Limited range: the firm selects and recommends from a limited range of products, typically from a panel of lenders. (The firm must list the names of all the lenders whose products it offers)
Single lender: the firm selects and recommends only the products of a single lender. (The FCA gives bridging finance as an example of this)
With regards to remuneration, what was the firm inform the customer of?
Any fees the firm will charge them
When such fees will be payable
Whether the firm will receive commission or a procuration fee from the lender or a third-party
The firm estate the amount of commission or, where the amount is not known at the time of disclosure, state the actual amount will be disclosed at a later stage in the ESIS form
Where the borrower is looking to raise further funds on a property that is already subject to regulated mortgage what was the firm inform them?
That alternative funding could be obtained through a further advance (unless it knows that the existing lender will not offer that facility), a second charge, a mortgage with another lender or through unsecured borrowing
Where a customer is considering a retirement interest only mortgage, the firm must inform the customer that a lifetime mortgage may be available and more appropriate
What is meant by execution-only?
Transaction executed upon a clients specific instruction, where the firm gives no advice and the rules on assessing appropriateness do not apply
When is execution–only permitted?
Well there is no interactive dialogue between the firm and the customer during the sale, for example website and postal applications
There is interactive dialogue but the customer is in one of three categories: high net worth, professional customer or business customer
There is interactive dialogue but the firms contribution is limited to factual information about a regulated mortgage or application and it’s administration processes, The provision of an ESIS or a mortgage illustration and an explanation that it has not assessed suitability and that the protection of an advised sale will be lost
The customer has rejected advice, they’ve identified the product they wish to purchase and has elected to proceed on an execution-only basis
Which customers may not proceed on an execution-only basis?
Customers whose main purpose of the loan is the exercise a statutory rights to buy Home
Customers whose main purpose is to raise funds for debt consolidation
Customers entering into a shared equity arrangement where one person buys a share in a property with a mortgage and the remaining portion is held by a third-party provider who will receive a proportionate share of the proceeds when the buyer sells the property
