Equity release: advising and selling standard

Part

MCOB Mortgages and Home Finance: Conduct of Business sourcebook

Chapter

Equity release: advising and selling standard

Printed on: 10/12/2024

Rulebook at: 06/04/2007

MCOB 8

Equity release: advising and selling standard

MCOB 8.1

Application

01/12/2004

Who?

MCOB 8.1.1

This chapter applies to a firm in a category listed in column (1) of the table in MCOB 8.1.2 R in accordance with column (2) of that table.

31/10/2004

MCOB 8.1.2

This table belongs to MCOB 8.1.1 R

(1) Category of firm

(2) Applicable section

equity release provider

whole chapter except MCOB 8.5 and MCOB 8.7

equity release adviser

whole chapter except MCOB 8.6. MCOB 8.7 does not apply in relation to a lifetime mortgage

equity release arranger

whole chapter except MCOB 8.5. MCOB 8.7 does not apply in relation to a lifetime mortgage

06/04/2007

What?

MCOB 8.1.3

(1) This chapter applies to a firm in the course of carrying on an equity release activity:

(a) makes, or anticipates making, a personal recommendation about; or
(b) gives, or anticipates giving, personalised information relating to;

the customer:

(c) entering into an equity release transaction; or
(d) varying the terms of an equity release transaction entered into by the customer.

(2) In respect of arranging or advising on a home reversion plan for a customer who is acting in his capacity as an unauthorised reversion provider, only MCOB 8.1, MCOB 8.2 and MCOB 8.7 apply.

06/04/2007

MCOB 8.1.4

(1) Initial disclosure requirements apply only in relation to varying the terms of an equity release transaction entered into by the customer in any of the following ways:

(a) adding or removing a party;
(b) taking out a further advance; or
(c) switching all or part of the lifetime mortgage from one interest rate to another.

(2) Otherwise, this chapter applies in relation to any form of variation of an equity release transaction.

06/04/2007

MCOB 8.1.5

If a firm is an authorised professional firm, MCOB 1.2.10 R (3) has the effect that when the firm conducts non-mainstream regulated activities with a customer, MCOB 4.4 (Initial disclosure requirements) (as modified by MCOB 8) applies. The firm is only required to provide the initial disclosure information in section 7 (What to do if you have a complaint) and section 8 (Are we covered by the Financial Services Compensation Scheme (FSCS)?) of the initial disclosure document or combined initial disclosure document.

06/04/2007

MCOB 8.2

Purpose

01/12/2004

MCOB 8.2.1

The purpose of this chapter for equity release transactions is the same as that for regulated mortgage contracts and home purchase plans in MCOB 4.

06/04/2007

MCOB 8.3

Application of rules in MCOB 4

01/12/2004

MCOB 8.3.1

(a) Subject to (c), MCOB 4.1 to MCOB 4.6 and MCOB 4.8 (with the modifications stated in MCOB 8.3.3 R and MCOB 8.3.4 R) apply to a firm where the home finance transaction is a lifetime mortgage.
(b) MCOB 4.1 to MCOB 4.4 and MCOB 4.8 (with the modifications stated in MCOB 8.3.3 R and MCOB 8.3.4 R) apply to a firm where the home finance transaction is a home reversion plan, except for those provisions that by their nature are only relevant to regulated mortgage contracts.

(2) The table in MCOB 8.3.3 R shows how the relevant rules and guidance in MCOB 4 must be modified by replacing the cross-references in that chapter with the relevant cross-references to rules and guidance in MCOB 8.
(3) The table in MCOB 8.3.4 R replaces certain rules and guidance in MCOB 4 with rules and guidance from MCOB 8.
(4) The terms that by their nature are relevant only to regulated mortgage contracts must be replaced with the appropriate equivalent terms and expressions for home reversion plans.

06/04/2007

MCOB 8.3.1A

The rules and guidance that are not relevant to home reversion plans are those related, for example, to interest rates, APR, higher lending charge, mortgage credit cards, multi-part mortgages and foreign currency mortgages.

06/04/2007

MCOB 8.3.1B

Firms should substitute equivalent home reversion terminology for lifetime mortgage terminology, where appropriate. Examples of terms and expressions that should be replaced in relation to home reversion plans are 'loan' or 'amount borrowed', which should be replaced with 'amount released' or 'amount to be released', as appropriate, and 'mortgage lender' and 'mortgage intermediary' which should be replaced with 'reversion provider' and 'reversion intermediary'.

06/04/2007

MCOB 8.3.2

In applying initial disclosure requirements to equity release transactions, the market for equity release transactions should be treated as one single market with two separate sectors. References to the 'whole market' must be read as references to the whole market for equity release transactions. This is unless the firm only gives personalised information or advice to customers on products in one market sector, in which case references to the 'whole market' must be read as references to the whole market for lifetime mortgages or home reversion plans as the case may be.

06/04/2007

MCOB 8.3.2A

The effect of the rules on independence is that a firm that sells lifetime mortgages and home reversion plans from the whole market and enables the customer to pay a fee for the provision of the service, can hold itself out as being 'independent' for the equity release market (see MCOB 4.3.7 R). If the firm offers a service on this basis for only one of these market sectors, then it can only describe itself as 'independent' for that sector.

06/04/2007

MCOB 8.3.3

Table of modified cross-references to other rules: This table belongs to MCOB 8.3.1 R.

Subject

Rule or guidance

Reference in rule or guidance

To be read as a reference to:

Advice or information from the whole market

MCOB 4.3.4R(2)

MCOB 4.7.2R

MCOB 8.5.2R

Initial disclosure requirement (for equity release transactions only)

MCOB 4.4.1R(1)(c) and (3)

MCOB 4 Ann 1R

MCOB 8 Ann 1R

Initial disclosure requirements

MCOB 4.4.3G

MCOB 4

MCOB 4 as modified by MCOB 8

Initial disclosure requirements where initial contact is by telephone (for equity release transactions only)

MCOB 4.4.7R(2)

MCOB 4 Ann 1R

MCOB 8 Ann 1R

Additional disclosure for distance mortgage mediation contracts

MCOB 4.5

MCOB 4

MCOB 4 as modified by MCOB 8

Non-advised sales

MCOB 4.8.6G

MCOB 4.7

MCOB 8.5

06/04/2007

MCOB 8.3.4

Table of rules in MCOB 4 replaced by rules in MCOB 8: This table belongs to MCOB 8.3.1 R.

Subject

Rule(s)

Rule(s) replaced by

Advised sales

MCOB 4.7

MCOB 8.5

31/10/2004

MCOB 8.4

Initial disclosure requirements: Home reversion schemes

01/12/2004

MCOB 8.4.1

If a firm gives, or anticipates giving, advice or personalised information on home reversion schemes in addition to regulated lifetime mortgage contracts, the initial disclosure information in MCOB 4.4.1 R and MCOB 4.4.7 R must be provided in respect of the home reversion schemes, as well as the regulated lifetime mortgage contracts, using the text set out in MCOB 8 Annex 1R and MCOB 4 Annex 2R.

14/01/2005

MCOB 8.5

Advised sales

01/12/2004

Suitability: general

MCOB 8.5.1

Principle 9 requires a firm to take reasonable care to ensure the suitability of its advice. In accordance with that principle, a firm should take reasonable steps to obtain from a customer all information likely to be relevant for the purposes of MCOB 8.5.

31/10/2004

MCOB 8.5.2

A firm must take reasonable steps to ensure that it does not make a personal recommendation to a customer to enter into an equity release transaction, or to vary an existing equity release transaction, unless it is, or after the variation will be, suitable for that customer (see MCOB 4.3.4 R(2), MCOB 4.3.5 G and MCOB 4.3.6 G).

06/04/2007

MCOB 8.5.3

In this section, a reference to a recommendation to enter into an equity release transaction is to be read as including a reference to a recommendation to vary an existing equity release transaction if the context so requires.

06/04/2007

MCOB 8.5.4

(1) An equity release transaction will be suitable if, having regard to the facts disclosed by the customer and other relevant facts about the customer of which the firm is or should reasonably be aware, the firm has reasonable grounds to conclude that:

(a) the benefits to the customer outweigh any adverse effect on:

(i) the customer's entitlement (if any) to means-tested benefits; and
(ii) the customer's tax position (for example the loss of an Age Allowance);

(b) alternative methods of raising the required funds such as, in particular:

(i) an equity release transaction from the other market sector; or
(ii) (where relevant) a local authority (or other) grant;

are less suitable;

(c) where the equity release transaction requires that payments are made to the equity release provider (for example an interest-only mortgage), the customer can afford to enter into the transaction;
(d) the equity release transaction is appropriate to the needs, objectives and circumstances of the customer; and
(e) the equity release transaction is the most suitable of those that the firm has available to it within the scope of the service provided to the customer;

(2) No recommendation must be made if there is no equity release transaction from within the scope of the service provided to the customer which is appropriate to his needs and circumstances; and
(3) If a firm is dealing with an existing customer in arrears and has concluded that there is no suitable lifetime mortgage for the purposes of MCOB 8.5.2 R, the firm must nonetheless have regard to MCOB 13.3.2 E(1)(a), (e) and (f) (see also MCOB 13.3.4 G(1)(a) and (b)).

06/04/2007

Suitability: means-tested benefits, customer's tax position and alternative methods of finance

MCOB 8.5.5

In determining whether MCOB 8.5.4 R(1)(a) applies, where a firm has insufficient knowledge of means-tested benefits and tax allowances to reach a conclusion, the firm must refer a customer to an appropriate source or sources such as the Pension Service, HM Revenue and Customs or Citizens Advice Bureau (or other similar agency) to establish the required information.

21/04/2005

MCOB 8.5.6

(1) In determining whether MCOB 8.5.4 R(1)(b)(ii) applies a firm should:

(a) establish, on the basis of information given by the customer about his needs and objectives, whether these appear to be within the general scope of a local authority (or other) grant (for example where the customer requires funds for essential repairs to his property); and
(b) refer a customer to an appropriate source such as his local authority or Citizens Advice Bureau (or other similar agency) to identify whether such a grant is available to him.

(2) Compliance with (1) may be relied upon as tending to show compliance with MCOB 8.5.4 R(1)(b)(ii).

31/10/2004

MCOB 8.5.7

If for any reason a customer:

(1) declines to seek further information on means-tested benefits, tax allowances or the scope for local authority (or other) grants; or
(2) rejects the conclusion of a firm that alternative methods of raising the required funds are more suitable;

a firm can make a personal recommendation (in accordance with the remaining requirements of this chapter) where there is an equity release transaction (or more than one equity release transaction) that is appropriate to the needs and circumstances of the customer, but must confirm to the customer, in a durable medium, the basis on which the personal recommendation has been made.

06/04/2007

MCOB 8.5.8

In determining whether an equity release transaction from the other market sector is less suitable, and the appropriateness of the transaction to the customer's needs, objectives and circumstances, a firm must consider:

(1) whether the customer's requirements meet the eligibility criteria for the equity release transaction (for example, the amount that the customer wishes to borrow or to release, the loan-to-value ratio, the age of the customer, the value of the property, as appropriate);
(2) the customer's preferences for his estate (for example, whether the customer wishes to be certain of leaving a bequest to his family or others);
(3) the customer's health and life expectancy;
(4) the customer's future plans and needs (for example, whether the customer is likely to need to raise further funds or is likely to move house);
(5) whether the customer has a preference or need for stability in the amount of payments (where payments are required) especially having regard to the impact on the customer of significant interest rate changes in the future; and
(6) whether the customer has a preference or need for any other features of a an equity release transaction.

06/04/2007

MCOB 8.5.9

Where a firm sells only lifetime mortgages it is not required to assess the suitability of individual home reversion plans, and vice-versa. However, where a firm sells products from both market sectors, it should assess the suitability of all equity release transactions within its range.

06/04/2007

Suitability: affordability

MCOB 8.5.10

In relation to MCOB 8.5.4 R(1)(c), a firm must explain to the customer that the assessment of whether he can afford to enter into a lifetime mortgage is based on:

(1) current interest rates, which might rise in the future; and
(2) the customer's current circumstances, which might change in the future.

06/04/2007

MCOB 8.5.11

In relation to whether the equity release transaction is affordable and appropriate to the customer's needs, objectives and circumstances, where a firm makes a personal recommendation to a customer to enter in to an equity release transaction where a main purpose is to consolidate existing debts, it must also take account of the following, where relevant, in assessing whether the equity release transaction is suitable for the customer:

(1) the costs associated with increasing the period over which a debt is to be repaid;
(2) whether it is appropriate for the customer to secure a previously unsecured loan; and
(3) where the customer is known to have payment difficulties, whether it would be more appropriate for the customer to negotiate an arrangement with his creditors than to enter into an equity release transaction.

06/04/2007

MCOB 8.5.12

(1) In assessing whether a customer can afford to enter into a particular equity release transaction, a firm should give due regard to the following:

(a) information that the customer provides about his income and expenditure, and any other resources that he has available;
(b) any likely change to the customer's income, expenditure or resources; and
(c) the costs that the customer will be required to meet once any discount period in relation to the lifetime mortgage comes to an end (on the assumption that interest rates remain unchanged).

(2) Contravention of MCOB 8.5.12 E(1) may be relied upon as tending to show contravention of MCOB 8.5.4 R(1)(c).

06/04/2007

MCOB 8.5.13

A firm may generally rely on any information provided by the customer for the purposes of MCOB 8.5.4 R(1)(c) and (d) and MCOB 8.5.8 R(2) to MCOB 8.5.8 R(6) unless, taking a common-sense view of this information, it has reason to doubt it.

31/10/2004

MCOB 8.5.14

Different considerations apply when making a personal recommendation to a customer in arrears. For example, the circumstances of the customer may mean that, viewed as a new transaction, a customer could not be recommended to enter in to an equity release transaction. In such cases, a firm will still be able to make a personal recommendation to that customer where this recommendation is, in the circumstances, a more suitable one than the customer's existing equity release transaction.

06/04/2007

MCOB 8.5.15

In complying with MCOB 8.5.4 R a firm is not required to consider whether it would be preferable for the customer to:

(1) trade down (that is release funds by selling his existing property and purchasing a less expensive property) rather than enter into an equity release transaction;
(2) rent a property, rather than purchase one or enter into an equity release transaction on his existing property; or
(3) delay entering in to an equity release transaction until a later date on the grounds that property prices would have changed in the intervening period, or that the interest rate in relation to a lifetime mortgage would be lower, or both.

06/04/2007

Suitability: appropriate to the customer's needs, objectives and circumstances

MCOB 8.5.16

(1) MCOB 8.5.4 R(1)(d) does not require a firm to provide advice on investments. Whether such advice should be given will depend upon the individual needs and circumstances of the customer. Where considered relevant, MCOB 8 does not restrict the ability of an adviser to refer the customer to another source of investment advice (for example, where the adviser is not qualified to provide advice on investments).
(2) Where the scope of the advice provided is based on a selection of equity release transactions from a single or limited number of providers, the assessment of suitability should not be limited to the equity release transactions which the firm offers. A firm cannot recommend the 'least worst' equity release transaction where the firm does not have access to products appropriate to the customer's needs and circumstances. This means, for example, that a firm dealing solely in the sub-prime market should not recommend one of these equity release transactions if approached for advice by a customer with an unblemished credit record.

06/04/2007

MCOB 8.5.16A

In assessing whether a home reversion plan is appropriate to the needs, objectives and circumstances of its customer, matters that a firm should take into account include:

(1) the duration of the right to occupy the property; and
(2) where an unauthorised reversion provider will provide the plan, the loss of those protections of the regulatory system that apply when a customer enters into a home reversion plan with an authorised reversion provider.

06/04/2007

Suitability: most suitable

MCOB 8.5.17

(1) A firm should, out of all the equity release transactions identified as being appropriate for that customer, recommend the one that is the least expensive for that customer taking into account those pricing elements identified by the customer as being most important to him.
(2) Compliance with (1) may be relied upon as tending to show compliance with MCOB 8.5.4 R(1)(e).

06/04/2007

MCOB 8.5.18

(1) With regard to MCOB 8.5.17 E(1) different customers are likely to identify different pricing elements as being of most importance. For example, it may be the overall cost, a fixed or capped rate of interest, the inclusion of a 'no negative equity' guarantee, or the absence of early repayment charges that a customer considers most important.
(2) A firm is not prevented from making a recommendation on grounds other than price. For example, it would be open to a firm to have regard to the speed or quality of service of different equity release providers, the policies of equity release providers on further lending or capital repayments, the underwriting stance of equity release providers or the customer's wish for an equity release transaction that is compliant with Islamic law. The obligation to have reasonable grounds to conclude that the transaction is the most suitable remains the same in such cases.

06/04/2007

MCOB 8.5.19

(1) If circumstances arise in which a firm has reasonable grounds to conclude that there are several equity release transactions that would be suitable, the firm may recommend only one of those equity release transactions.
(2) If for any reason a customer rejects a recommendation made by a firm (for example, on the grounds that the equity release provider selected is unknown to him), the firm can make a further suitable recommendation where there remains an equity release transaction that is appropriate to the needs and circumstances of the customer.

06/04/2007

Rejected recommendations

MCOB 8.5.20

(1) If a customer has:

(a) rejected all of the personal recommendations made by a firm and requested information instead on an equity release transaction that the firm does not consider suitable (and therefore could not recommend to the customer); and
(b) been issued with a new initial disclosure document or combined initial disclosure document;

the firm may be able to provide information on that equity release transaction in the light of the information on which the personal recommendations in (1) were made.
(2) If the firm needs to ask further questions regarding the needs and circumstances of the customer to be able to provide information on that equity release transaction, the firm must obtain that information by asking scripted questions (in accordance with the rules on non-advised sales).

06/04/2007

MCOB 8.5.21

A firm may consider it prudent to record any cases where, after all personal recommendations it has made to a customer have been rejected, it changes the nature of the service it provides and provides the customer with information about an equity release transaction.

06/04/2007

Record keeping

MCOB 8.5.22

(1) A firm must make and retain a record:

(a) of the customer information, including that relating to the customer's needs and circumstances, that it has obtained for the purposes of MCOB 8.5; and
(b) that explains why the firm has concluded that any personal recommendation given in accordance with MCOB 8.5.2 R satisfies the suitability requirements in MCOB 8.5.4 R(1). This explanation must include, where this is the case, the reasons why a personal recommendation has been on a basis other than that described in MCOB 8.5.17 E(1).

(2) The record in (1) must be retained for a minimum of three years from the date on which the personal recommendation was made.

31/10/2004

MCOB 8.6

Non-advised sales

01/12/2004

MCOB 8.6.1

The questions used to help a customer select an equity release transaction must cover the following:

(1) the matters regarding eligibility criteria, customer's preferences for his estate, customer's health and life expectancy, customer's future plans and needs, customer's preference or need for stability in the amount of payments, and whether the customer has a preference or need for any other features, set out in MCOB 8.5.8 R;
(2) whether the customer has considered alternative methods of raising the required funds, and in particular;

(a) an equity release transaction from the other market sector; and
(b) where relevant, grant assistance from his local authority (or other provider); and

(3) whether the customer has established whether either his entitlement to means-tested benefits or his tax position or both will be adversely affected.

06/04/2007

MCOB 8.6.2

A firm should encourage a customer to seek advice on an equity release transaction if the customer is unsure about making their own choice. In relation to grant assistance, means-tested benefits and the customer's tax position, a firm should, where relevant, encourage the customer to seek further information from an appropriate source such as their local authority or Citizens Advice Bureau (or other similar agency).

06/04/2007

MCOB 8.6.3

Firms are reminded that the Training and Competence sourcebook sets out requirements for:

(1) employees designing scripted questions for use in sales to customers of equity release transactions which do not involve personal recommendations; and
(2) employees overseeing on a day-to-day basis the sales to customers of equity release transactions which do not involve personal recommendations.

06/04/2007

MCOB 8.7

Initial disclosure information: unauthorised reversion provider

06/04/2007

MCOB 8.7.1

A firm must ensure that, on first making contact with a customer who is an individual and an unauthorised reversion provider, when it anticipates giving personalised information or advice on a home reversion plan, it must provide the customer with the following warnings in a durable medium:

(1) that a home reversion plan is a long-term investment; and
(2) that a home reversion plan is a complex legal arrangement, and that expert independent legal advice should be obtained before entering into any agreement.

06/04/2007

MCOB 8 Annex 1

Initial disclosure document ("IDD")

01/12/2004

This annex belongs to MCOB 4.4.1 R (as modified by MCOB 8)

This annex consists only of one or more forms. Forms are to be found through the following address:

Initial Disclosure Document - mcob8_annex1.pdf

06/04/2007

MCOB 8 Annex 2

Combined initial disclosure document ("CIDD")

01/12/2004