Mortgage Guide

A number of rules and guidelines are used by the FSA in relation to mortgage advice and mortgage arranging. As you will understand, the Mortgage Conduct of Business rules run to many pages and therefore it is not possible to discuss every topic in great detail here. However, we hope that the questions and answers below will guide you through some of the key areas of interest.

Types of sales

What are the different 'types' of sale?

The FSA distinguish between 2 'types' of sale for mortgages. A sale must be either advised or non-advised. It can also be 'standard' or 'higher risk'.

What is 'standard' and 'higher' risk?

A 'higher' risk mortgage is an equity release mortgage. All other regulated mortgages are classed as 'standard' risk.

What are the suitability requirements for advised sales?

For advised sales the adviser must assess the suitability of product and provider for their client based on the clients' individual circumstances. The FSA confirm that a 'suitable' sale does not have to be based on price alone and can be based on other factors, such as flexibility or service quality.

What are the requirements for non-advised sales?

If a sale is to be 'non-advised' then a firm has to use pre-scripted questions to obtain details of the client’s circumstances. A firm must ensure that non-advised sales are closely monitored to ensure that advice is not given to the client.

Documentation requirements

What documentation do I have to provide to clients?

As soon as you make contact with a client you have to provide them with an Initial Disclosure Document (IDD). This is a document that describes some basic details of the firm and its relationship with a client. There are prescribed pieces of information that must be included in the document, such as your firm's name and status, the services that it offers and the cost of these services.

Non-Standard Mortgages

Are there any products excluded from regulation?

Generally speaking, the regulation does not cover buy-to-let mortgages (unless the tenant is a member of the borrower’s immediate family), second charge loans or any loans to limited companies.  You should note that the rules on what is and is not regulated are not always straightforward and some loans in these categories may well end up being classed as regulated.

Are any products subject to a greater degree of regulation?

As discussed above equity release mortgages are categorised by the FSA as 'higher' risk. Therefore they have laid down additional guidance for individuals who want to advise and arrange these types of mortgage. The guidelines require a greater degree of disclosure and also the use of additional risk warnings. In addition individuals advising on equity release must be able to demonstrate that they have the skills required in this area and firms must ensure that ongoing competence in this area is monitored.

Following recent press coverage are self-certification mortgages still allowed?

Yes. When regulation begain the FSA considered making self-certification available only to the self-employed. However, following consultation they decided that self-certification can also be used by employed individuals in appropriate circumstances and when there is no reason to doubt the information provided by the client.

Further Information

Where can I look if I want more information?

The detailed rules can be found in the Mortgage Conduct of Business (MCOB) sourcebook. This can be viewed by following this link.

Below is a table of contents for MCOB that you may find helpful.

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