LEGAL & GENERAL NETWORK MORTGAGE ADVICE STANDARDS

Transcription

1 LEGAL & GENERAL NETWORK MORTGAGE ADVICE STANDARDS

2 MORTGAGE ADVICE STANDARDS. 1. INTRODUCTION 2. GENERAL GUIDANCE 3. RECORD KEEPING 4. SCOPE OF SERVICE 5. HAND OFFS AND REFERRALS 6. INITIAL DISCLOSURE TO CUSTOMERS 7. KNOWING YOUR CUSTOMER (FACT FINDING) 8. DESIGNING YOUR RECOMMENDATION 9. EXISTING LENDER ARRANGEMENTS 10. SOURCING A MORTGAGE 11. KEY FACTS ILLUSTRATIONS 12. MROS LETTER 13. TELEPHONE SALES 14. LIFETIME MORTGAGES 15. MISCELLANEOUS ANNEX A - Product Disclosure Guidance Glossary of addresses Index

3 1. INTRODUCTION. Advising and/or arranging sales of regulated mortgages are regulated activities which have specific definitions and require the appropriate Financial Conduct Authority (FCA) permissions. Arranging is a broad term and can include introducing, referring, transacting on a non-advised or execution only basis, or simply assisting a customer to complete an application form. If you engage in a regulated activity and do not have the correct permissions, you will be breaching the Financial Services and Markets Act (FSMA). It is therefore important that you fully understand what you can and cannot do. As your Principal, Legal & General Partnership Services Limited (LGPSL) has FCA permissions for a number of regulated activities and via our contracts with your firm, we delegate some of these permissions to you, via the Legal & General Network (the Network) Mortgage Advice Standards. The Mortgage Advice Standards reflect the requirements of the FCA and the Network for advising on mortgage business as set out in the Mortgage Conduct of Business Sourcebook (MCOB) and the principles of treating customers fairly. It would serve its best purpose when saved to an adviser s computer and used as a reference guide and rulebook but is also available in the point of sale (POS) system library. These standards provide guidance and minimum requirements on what the Network expects from firms when dealing with customers. They are not exhaustive and should be tailored to individuals considering their financial awareness. This guidance is categorised into Fundamentals and Not permitted to assist you in following these standards as closely as possible. FUNDAMENTALS: cover the core Regulatory Rules and Legal & General Network requirements that must be followed. Failure to do so will result in either a Regulatory or Network breach. Their significance to a particular case will be dependent upon the customer s individual circumstances, needs, preferences and financial awareness. NOT PERMITTED: contains examples of what you cannot do, as it will result in a breach of Regulatory and/or or Legal & General Network requirements. You must always act in the customer's best interests. APERs within your firm have a regulatory responsibility to ensure that you follow these standards. Where no specific ruling or guidance exists within these standards, we expect that an individual or firm will take a pragmatic view that is in the interest of the customer, and not seek to exploit any apparent omissions. If you have any queries regarding these standards, contact the Network Business Standards Team on Option 1 or lgpslbusinesssupport@landg.com. You should also refer to the Sales Process Guide and Technical Guide. If you intend transacting mortgages that are individually negotiated, e.g. not sourced via the usual channels, you should contact the Business Standards Team by at lgpslbusinesssupport@landg.com as revised and enhanced standards apply but may differ for each proposition. Function and navigation It will work best when saved to an adviser s computer, phone or media device to be used as a reference guide and rulebook. The Index is linked to each section and you can click a box to navigate to that section. The return bar on the right of the document here can be used to return to the index at any time so you then choose another section. Keep a look out for anything blue and underlined, these will link you to useful information or required documents. R E T U R N B A R

4 2. GENERAL GUIDANCE. 2.1 Express Consent FUNDAMENTAL: The FCA does not allow cold calling for mortgages so before you contact any customer, you must have obtained permission via express consent. An introducer can obtain this verbally before passing any leads over to you but you should obtain written agreement from the customer at your first face-to-face meeting. For further information, including sample wording, refer to the Sales Process Guide. All introducers must be notified to your POCC Decision in Principle (DIP) / Application in Principle (AIP) Where a customer has no particular property in mind to purchase, and you don t anticipate giving advice or a recommendation until they are in a better position to proceed, you can give an indication of their borrowing capacity by using a website calculator or tool. Alternatively, you can provide a lender DIP/AIP. FUNDAMENTAL: Providing a DIP which steers a customer towards a particular lender or product will be seen as advice by the FCA. Therefore, where a customer requires confirmation of their ability to borrow by way of a DIP/AIP but has not yet found a property, you must make them aware that this is not a recommendation of that lender and confirm this in writing. Refer to Section 11.7 for the full process. Where the customer has found a suitable property, you should follow the full sales and advice process, source and obtain the DIP from the lender you intend submitting the formal application to. 2.3 Execution only NOT PERMITTED: The Network does not permit mortgage business to be conducted on any basis other than fully advised. Non-advised and execution only are not permitted. 2.4 Selling to yourself FUNDAMENTAL: If you wish to arrange a mortgage for yourself, on a sole basis, you can either: Go direct to the lender and transact the mortgage on an execution only basis, or Arrange the mortgage via another adviser within the firm on a fully advised basis For joint applications, best practice would be to arrange the mortgage via another adviser within the firm on a fully advised basis. The reason for this is to ensure the conflict between adviser and partner/spouse is managed and for non-mortgage professional individuals the route to advice is offered. 2.5 Use of funds raised by a mortgage NOT PERMITTED: The Network does not permit money to be released from a property to be placed into: Investments (for any purpose other than buy to let purchases) Defined investment schemes Company schemes Investment in land overseas Overseas land/property where the customer will be reliant on income from the land/property to repay the mortgage

5 3. RECORD KEEPING. FUNDAMENTAL: FCA record keeping Rules require a record of all advice given, not just cases that complete. A POS system record must be completed for all regulated business, and contain all information obtained and advice given to the customer, including Decisions in Principle. Throughout these standards we require specific information to be documented in either fact find notes or the MROS. You should strive to ensure your notes contain anything relevant to your recommendations, or material to your advice that impacts a particular preference the customer may have. For example, the impact of recommending a two year fixed rate deal as opposed to a five year fixed rate deal. You must update the record as to the accurate status of the case - e.g. submitted to provider, exchanged, not taken up or rejected by the lender as and when the event occurs. Records must be retained for six years after the business relationship ends. (Mortgage term plus six years unless it is known that the mortgage has redeemed before the end of the term). If paper records are obtained, they must all be scanned and attached to the case. For guidance on attaching documents, refer to the Sales Process Guide. Where paper records are retained, these must be securely stored and retrievable within two business days. It s strongly recommended this should be at a head office location. The following must be on the POS system record: Combined initial disclosure document (CIDD) Fact find Express consent Customer identification (certified for all non face to face sales) Customer specific fee/deferred fee agreement (this need not be the signed version) Evidence of income Bank statements (minimum of 3 months or lender s criteria if more are required) and latest credit card statements (refer to section 7.6) Evidence of any debts that are to be consolidated to the mortgage Referral letter where the client has been referred to another provider/ service company Current mortgage statement (for all remortgage cases) Source of deposit evidence Mortgage sourcing results (pre-application) Mortgage key facts illustration(s) (KFI) Evidence of all repayment plans/strategies for interest only loans Lender approved DIP/AIP (if applicable) and accompanying letter (where applicable) Mortgage record of suitability letter (MROS) Mortgage application form and all accompanying documentation the lender required to support the application Mortgage offer letter Notes/ s relevant to the advice / recommendation Written confirmation if a case is accepted by a lender outside published criteria Customer identification, evidence of income, bank/credit card statements and evidence of any debts being consolidated must be obtained prior to submission of the mortgage. (Refer to the Operating Procedures Section for identification requirements). You should obtain sufficient statements to accurately reflect the monthly outgoings for all customers that are party to the mortgage. FUNDAMENTAL: All s containing personal information relating to customers must be encrypted before they are sent to customers and third parties, such as lenders. NOT PERMITTED: Sensitive data such as credit card numbers and the 3 digit security code on the back of a card must NEVER be stored on the system or held on paper files. It is a breach of legislation to do so.

6 FUNDAMENTAL: You must ensure that credit card details are not contained in the lender application forms before attaching these to the record. FUNDAMENTAL: If a case does not proceed to completion, the reason why must be recorded e.g. customer found another property, pulled out of sale, unsatisfactory survey, etc. Where the lender has declined an application, you must fully record their reason for doing so in notes. If the reason is due to unpublished criteria, the full details given by the lender must be clearly recorded within notes.

7 4. SCOPE OF SERVICE. 4.1 General guidance FUNDAMENTAL: If you can t establish upfront whether the mortgage will be regulated or not, you should treat it as regulated until it becomes clear that it isn t. If you subsequently find the mortgage is non-regulated, there s a template letter in the POS library that you must issue to your customer and a copy should be attached to the POS record (letter where advice not regulated). 4.2 Regulated or non-regulated definition The definition of a regulated mortgage contract is one which satisfies the following conditions: The contract is one where a lender provides credit to an individual or trustees (the borrower ) The contract provides for the obligation of the borrower to repay to be secured by a first legal mortgage on land (other than timeshare accommodation) in the United Kingdom, and At least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower (or, where trustees are the borrower, by an individual who is a beneficiary of the trust) or by a related person 4.3 Regulated mortgages FUNDAMENTAL: Regulated mortgages you can sell as an AR of LGPSL on a fully advised basis All residential mortgages, including further advances, will be regulated subject to the definition above. Residential let to buy mortgages, where customers intend to buy another property in which to live and let out their existing property. Any mortgage on the new residential property will be regulated, and any mortgage on the existing property should be treated as regulated, irrespective of whether the lender will treat it as non-regulated. Commercial mortgages, secured on commercial property which is subject to the definition above. Business loans secured against a residential property will be regulated provided the definition above applies, and the business isn t a large business (turnover of less than 1m). Lifetime mortgages, where customers release equity from their main residence and there s no intention to repay all or part of the capital until after their 80 th birthday or on death. Buy to let mortgages, where the property is let to family members or where the borrower intends to live in the property in the future. Foreign currency residential mortgages, which are only permitted where the customer is paid in the currency of the mortgage, e.g. if they re paid in Euros they may have a mortgage in Euros. 4.4 Non-regulated mortgages FUNDAMENTAL: Non-regulated mortgages/ loans you can sell but in the name of your firm, not LGPSL Residential mortgages, where less than 40% of the land is to be used as, or in connection with, a private dwelling by the borrower or immediate family (e.g. market garden business). Residential mortgages on property used for business purposes, where less than 40% of the land is used as, or in connection with, a private dwelling for the borrower or their immediate family (e.g. retail shop). Mortgages on residential properties (regardless of the percentage of land used as a dwelling) for large businesses (large is subjective but is referred to by the FCA as those with an annual turnover of more than 1 million). Second/ subsequent charge mortgages. For clarification, a further advance from the same lender would be regulated, whereas a second or subsequent charge from a different lender would not. Secured/ non-secured loans refer to Section 15.6 for further information.

8 Commercial mortgages, on commercial properties where less than 40% of the land is to be used as, or in connection with, a private dwelling by the borrower or immediate family. Mortgages on properties outside the UK, regardless of whether the regulated mortgage contract definition applies. Bridging loans, secured on properties such as buy to let, second charge loans, loans for businesses and commercial properties, where less than 40% is occupied either by the borrower or a member of their family. (Some bridging loans are regulated; however the Network does not permit advice to be given on these). Buy to let mortgages, on properties rented to non-family members, where the borrower has no intention of living in the property for the lifetime of the mortgage. FUNDAMENTAL: Whilst the Network is not responsible for the advice and sales process you adopt in relation to non-regulated BTLs, PII cover is in place and a POS record must be retained. We strongly recommend you apply similar standards and sales practices as you would for regulated business. Whilst LGPSL does not take responsibility for non-regulated residential buy to let mortgage sales, our Professional Indemnity Insurance (PII) covers you and therefore a POS record must be completed. You should proceed as follows: Confirm in notes that this is a non-regulated BTL mortgage. Obtain evidence of income (in order to protect advisers against individuals who may seek to commit mortgage scheme abuse, i.e. covert buy to lets, we require advisers to obtain evidence of income to ensure customers are not using this route to circumvent lenders affordability criteria). Produce an MROS and confirm in notes whether it s been issued to the customer. Where the applicant has several BTL properties and their main source of income is derived from these, or where the BTL applicant is a limited company, you must still create a POS record. FUNDAMENTAL: It s important to note that lenders do not differentiate between regulated and non-regulated transactions when assessing fraud and quality controls. If advisers transact poor quality or fraudulent business (knowingly or unknowingly) lenders will remove them from their panel. 4.5 Mortgages not permitted NOT PERMITTED: The Network does not have FCA permissions so is not authorised, and therefore neither are advisers, to advise on or introduce to a third party in respect of: Home reversion schemes Sale and rent back / sale and lease back arrangements Islamic mortgages (also known as Shariah Law or Home Purchase Plans) NOT PERMITTED: The Network does not permit you to provide advice or information on the following, but you can introduce to reputable providers as long as they offer an advisory service to the customer: Regulated bridging loans A referral letter should be sent to the customer confirming that LGPSL is not responsible for the advice and that you will receive a fee for the introduction. Template referral letters can be found within the POS library. For certain specialist lending, or where you are unable to provide advice, we provide a hand off or referral facility and further details can be found in Section 5.

9 5. HAND-OFFS AND REFERRALS. The Network has agreements in place with various providers for certain specialist lending if you choose not to offer advice on these. It is optional whether you use the providers, but they are available to refer customers for: Commercial loans Large loans Overseas properties Secured/ unsecured loans Equity release Conveyancing services You must obtain customer consent, prior to making a referral. A referral letter should be sent to the customer confirming that LGPSL is not responsible for the advice and that you will receive a fee for the introduction. Template referral letters can be found within the POS library. Further information can be found on the Legal & General Mortgage Club website.

10 6. INITIAL DISCLOSURE TO CUSTOMERS. FUNDAMENTAL: You must give the customer a CIDD on first contact where you make, or anticipate making, a personal recommendation or where you give, or anticipate giving, personalised information to a customer. FUNDAMENTAL: On first contact with a customer, whether this is by phone or in person, you must orally disclose the nature of services to be offered to the customer, including whether there are any limitations in the range of products offered and, if so, what they are the basis on which you will be remunerated You must fully explain all sections of the CIDD to the customer: Who the FCA are - how they oversee us and protect the customer. The scope of service your firm can offer introducing both your brand and the Legal & General brand. Any limitation on the range of products you can offer (you cannot offer bridging loans or direct deals, and in the case of lifetime mortgages, you cannot offer home reversion schemes) That you will provide an advice and recommendation service. Who you work for and how your firm links with your lead AR firm and the Legal & General Network (if you operate as a trading name). The complaints process and protection available via the Financial Services Compensation Scheme. That the lender will pay a procuration fee. The basis on which you will be remunerated - where you are charging a fee, explain what the customer will need to pay, when it is payable, and when it is refundable. You must also explain the deferred fee agreement where applicable. That other products are available from other sources, including their existing lender (if applicable). FUNDAMENTAL: The CIDD must cover the full scope of Network services that your firm offers. For example, firms who can offer mortgage, protection and GI advice must issue a CIDD covering all three areas. This will be sufficient to cover one adviser advising on mortgages and another advising on protection at a different time in the same firm. If you re advising on a regulated mortgage and a non-regulated residential BTL at the same time, you must attach the additional buy to let wording available in the POS system library. If you determine that the loan will be non-regulated, you should issue the customer with an IDD if you are providing advice in respect of protection. NOT PERMITTED: You cannot give advice or make a recommendation on Direct products. You can only recommend the most suitable product from those available to you. You can suggest your customer approach lenders direct but you cannot steer them to any particular lender or product. Where a customer goes direct to a lender, a template letter is available in the POS library (Direct mortgage product letter) that should be used in place of an MROS. FUNDAMENTAL: If the mortgage falls through, or the customer decides to go direct to a lender, you will still need to review the customer s protection arrangements as detailed in your CIDD scope of service. FUNDAMENTAL: Where you have provided a CIDD but don t intend to provide protection advice until a later date, e.g. when the mortgage offer has been received, you must add notes confirming this. As you have disclosed that you will be providing advice for both mortgage and protection, you must strive to ensure that advice has been given before exchange of contracts.

11 7. KNOWING YOUR CUSTOMER (FACT FINDING). 7.1 General guidance FUNDAMENTAL: You must complete a comprehensive fact find to enable you to know your customer so you understand their circumstances, preferences and needs. Your record should provide a clear picture of the customer s current circumstances, as well as their needs and objectives, and should show how your recommendation meets those needs and objectives to provide the right outcome. FUNDAMENTAL: You must stress to customers the importance of them providing full and accurate information in order that you can make a suitable recommendation. You must speak to all parties of the mortgage to confirm the accuracy of the information. Customers omitting to provide full information risk a lender identifying this and rejecting applications further down the process. FUNDAMENTAL: Comprehensive notes must be recorded to document customer discussions, such as the reason for their preferences, any personal objectives now and in the future, and further details around the factual information obtained. You must record all details accurately. FUNDAMENTAL: When completing the fact find, you must use the brochure A helping hand with owning your home with your first time buyer customers and give them a copy. You may wish to use the brochure with other customers, but this is at your discretion and may depend on the financial awareness of the customer and familiarity with the mortgage process. FUNDAMENTAL: Where you carry out customer reviews, e.g. at rate expiration, you should check past records to refresh your memory on discussions held at previous meetings. For example, did the customer consolidate debts, and were those debts repaid? Have they accumulated more debt? If so, it could be an indication that their outgoings were not realistic and they have an affordability issue. You should also assess whether the customer has maintained their repayment strategies for any interest only element of their mortgage as this may need to be re-assessed with consideration to their intentions as well as ability to repay this element of the loan. MINIMUM REQUIREMENTS FOR FACT FIND COMPLETION 7.2 Employment details Full details must be included and the record should be clear as to the customer s employment status, for example: Employed (if part time, how many hours per week) Self-employed (sole trader, partner, director and % shareholding should be fully explained in notes) Contract worker (length and type of contract, start and end dates) 7.3 Retirement age You must document the customer s expected retirement age and assess whether this is reasonable. For example, a police officer or scaffolder is unlikely to work to 70, whereas a self-employed solicitor or accountant may. If the customer is expecting to change employment from their current profession at retirement, you must detail this and consider any potential reduction in salary. 7.4 Liabilities You must document full details of the customer s liabilities (e.g. loans, credit cards, overdrafts) including whether there are any payment arrears or shortfalls. Payments made on liabilities should be included within the expenditure section. If any liabilities are being consolidated to the mortgage, the fact find and MROS must reflect this.

12 7.5 Income You must record full details of all income, including non-salaried income such as pension, investment income, state benefits, savings and investments. You must satisfy yourself that the income is reasonable and evidence this in all cases from original documents, attaching copies to the POS record. The employer details shown on the bank statements should reflect that of the evidence provided (employer name and amount). If the customer is self-employed, you must take tax and National Insurance into account when assessing their net income. For sourcing purposes, net profit equates to gross income. If self-employed customers are unable to produce accounts, you must still seek to obtain some form of documentation, for example, bank statements, plus tax returns, accountant s letter etc. If the customer can t evidence the required income then you should assume they don t earn it. You may also conclude this is suspicious, in which case it should be reported. You must submit a Suspicious Activity Report (SAR) immediately and withdraw from the sale without tipping the customer off. You must ask the customer whether they re aware of any expected changes to income or expenditure within the next five years (minimum) that are likely to affect their ability to meet the mortgage payments. These must be detailed in the fact find and MROS. Uncertain changes cannot be taken into account, e.g. improved economic prospects or assumed pay increases. Known changes should be included, for example: Reduction in income following the customer s retirement. Where it is known that the customer is being made redundant. A loan commitment will become due during the term of the mortgage, such as repayment of a shared equity loan. Deferred interest payments on a Government HomeBuy shared equity scheme that will become payable six years after the mortgage commences. Reduction in outgoings when a loan ends. Promotion with increase in salary, confirmed by a letter. If the customer s remuneration and/or assets are complex (likely high net worth customers) an Accountant s letter must be obtained and attached to the record, to confirm that the loan is affordable on a monthly repayment basis and/or that the repayment strategy is sufficient to repay the interest only loan. You should validate the authenticity of the documents provided. The Network provides guidance from time to time on fraud controls and you should ensure, via your Supervisor, you are fully briefed on these to protect yourself. 7.6 Expenditure The expenditure section must be fully completed to reflect anticipated outgoings after the mortgage completes (excluding the monthly mortgage payment). You must ensure these are realistic and check on-going liabilities against bank statements to ensure accuracy. If the bank statements do not detail the usual monthly expenditure as customers pay via credit cards, the latest credit card statement(s) will also be required. Any payments made to savings/ investment plans supporting the repayment of interest only mortgages must be reflected in expenditure. For shared ownership mortgages, the rental payment must be included in expenditure. If the customer doesn t yet know the actual monthly payment, this is typically between 2.5% to 3% of the capital value of the unsold share, and this calculation can be used for affordability purposes. Any expected changes to expenditure should be discussed and noted (as per Section 7.5 above). 7.7 Existing mortgage details Full details must be recorded, including the existing lender, repayment method, interest rate and type, amount outstanding, current monthly repayment amount, term remaining, current property value, any penalties payable, the penalty end date and details of any mortgage payment arrears or shortfalls. Details of other properties, such as second homes or buy to lets should be included, together with any outstanding mortgages.

13 7.8 Mortgage requirements and preferences The source of deposit must be recorded and the feasibility should be assessed. Where possible, evidence must be obtained and attached to the record. If evidence can t be obtained then notes must be added explaining why. Many lenders will require this evidence at application stage. For guidance on deposits, refer to the Sales Process Guide. The guidance will confirm when a referral to Legal & General Group Financial Crime is required. You must record the customer s specific preferences for their mortgage and the reason for those preferences. You must make them aware that preferences for product features reduce the products available to them. If they have a preference for an initial benefit period, the reason for the length of that period must be recorded. You must not automatically assume the customer should have a two year rate because they want the lowest monthly payment without fully discussing the implications of continually remortgaging. For example, depending on market conditions, a five year rate might cost slightly more but taking into account the fees involved in remortgaging every two years, the longer benefit period could be a better outcome for the customer. Your record should include notes of your discussions around longer benefit periods. It would be best practice to evidence on file quotes for longer benefit periods discussed with the customer. The customer s preference for the term of the mortgage should be discussed and recorded. You must not assume that any fees are to be added to the loan. You should discuss with your customer whether they intend to add fees to the loan or pay these upfront. Where your customer opts to add fees to the loan this positive opt in must be recorded in the fact find and the MROS must explain the implications of interest charges. Where the customer has funds from which they could pay the fees, e.g. from savings or equity, you should discuss the suitability of paying the fees upfront. If the customer still wishes to add fees the reason why they didn t wish to use existing funds should be documented in the MROS. If the customer has a preference for an offset mortgage, you should inform them that the underlying rate and fee might not be as competitive as other standard mortgages. Offset must be supported by a need, e.g. an ability to save or a reasonable level of existing savings. Evidence of this must be recorded in the fact find. 7.9 Credit history Full details of the customer s credit history must be recorded. Some lenders will require a history of more than 3 years, i.e. up to 6, and therefore you must ensure that you obtain comprehensive information for the period the lender requires. You should make your customer aware that if they fail to disclose, this will be identified and potentially result in the application being declined, In some instances, you may find it prudent to advise the customer to obtain their own credit history report which you can submit with the application. Some customers will be classed as credit impaired. The definition is a customer who: Within the last two years has owed overdue payments, in an amount equivalent to three months payments, on a mortgage or other loan (whether secured or unsecured) except where the amount overdue reached that level because of late payment caused by errors by a bank or other third party; or Has been the subject of one or more County Court Judgements, with a total value greater than 500, within the last three years; or Has been subject to an individual voluntary arrangement or bankruptcy order which was in force at any time within the last three years (Refer to Section Debt consolidation guidance for credit impaired customers) Debt Consolidation If the customer wishes to consolidate debts and has consolidated before, you must document the full history, e.g. the purpose, amount and number of times. Where the customer has previously consolidated debts to fund necessary bills, this suggests affordability issues and therefore it is not suitable for them to continue consolidating. There s a clear difference between consolidating debts for a specific/one off purpose, e.g. home improvements, as opposed to funding lifestyle and necessary bills.

14 You should apply extreme caution where customers are consolidating debt and whose situation may indicate affordability issues that challenge the suitability, e.g. consolidating coupled with interest only and/or term into retirement. If you think it s unsuitable for the customer to consolidate, they should be referred to credit counselling or the Citizen s Advice Bureau and you should not transact the business Existing repayment plans Details of all interest only repayment strategies must be recorded in the fact find. These may be defined plans, such as endowment policies and investments, which should be included within the Other Plans tab. Non-defined plans should be detailed in notes. All plans must be reiterated back to the customer in the MROS with any applicable risks. Assets, such as unencumbered property or land, should be included within the Assets tab Loans with more than two applicants For cases where there are three or more applicants, you will need to complete two fact finds, link the customers together by setting up a relationship, create two services cases and include all documents in one binder Guarantors You must confirm in both the fact find and MROS that this is a guarantor mortgage and that the guarantor has been advised to seek independent legal advice. You must speak to the guarantor to satisfy yourself that they understand the implications of being named a guarantor and are happy to proceed.

15 8. DESIGNING YOUR RECOMMENDATION. 8.1 General guidance FUNDAMENTAL: You must ensure your recommendation results in the right outcome for the customer. It isn t sufficient just to inform the customer of facts and risks (although you must do this as well). In addition, you must assess whether it s right that they take that risk and whether your recommendation is therefore the right outcome. For example, if you recommend an interest only mortgage, it isn t sufficient to only inform the customer that they need a clearly understood and credible repayment strategy and advise them of the associated risks. In addition, you should consider whether the customer should be taking this risk. If a repayment mortgage is affordable, given that the majority of repayment strategies aren t guaranteed and/or may not be acceptable to the lender, this might be the better outcome for the customer. Retaining comprehensive records of advice to demonstrate that you have understood your customer s circumstances and that the customer is aware of all facts and risks is critical. FUNDAMENTAL: You should refer to the mortgage product disclosure guidance (Annex A). This lists the key risks and information that the customer must be made aware of throughout the sales process, to ensure they fully understand the arrangement they re entering into. 8.2 Lender criteria FUNDAMENTAL: All mortgage applications must meet the recommended lender s published criteria; this includes obtaining, scrutinising and the submission of documentation required to support the application. If a lender agrees to transact outside criteria, your record must contain an from the lender with details of what was agreed, who you spoke to and when. If a lender rejects an application, you must fully record their reason for doing so in notes. If the reason is due to unpublished criteria, the full details given by the lender must be clearly recorded in notes. 8.3 Affordability FUNDAMENTAL: You must ensure that your mortgage recommendation is affordable to the customer and your record includes comprehensive notes of customer discussions that support affordability. The fact find must evidence that the customer can afford the mortgage recommended both during and after any initial benefit period. You cannot rely on old or historical information when assessing affordability. You must take account of the impact of likely future interest rate increases on affordability for a minimum period of five years from commencement of the mortgage. Regardless of the fact that lenders must consider and factor in an interest rate increase, we would expect you to consider the impact and risk to the customer on affordability from a broader perspective. If benefits or maintenance are being taken into account, the file needs to explain how the mortgage will remain affordable when they cease, if they re of a nature where they re likely to stop. For example, if they re linked to a child s age. For right to buy customers, you must ensure they are made fully aware of their responsibilities after completion, which previously would have been the responsibility of the Council. For freehold properties, this will include property repairs, maintenance and buildings insurance; for leasehold properties, this will include service charges and any known works of improvement for the first five years. Details should be included in the Council s right to buy offer letter, which you should request from the customer. The cost of these must be reflected in the expenditure section and included in your affordability assessment. Where reliance is placed upon non-salaried income such as investment income, you must make the customer aware that you re unable to provide advice in respect of these arrangements regarding the level of income, maturity values and level of guarantees, unless you re qualified and licensed to advise on such products.

16 You must satisfy yourself that your recommendation is affordable to your customer and allow funds to cover their protection needs. NOT PERMITTED: You cannot recommend a mortgage that is not affordable, even if it puts the customer in a better position than they are now. If customers are experiencing difficulties, they must be referred to their existing lender Affordability into retirement FUNDAMENTAL: Where the term extends beyond retirement, you must be satisfied that the mortgage payments will remain affordable and the customer s plans must meet the lender s criteria. This may be by way of pension, investment income or where one party remains in employment and will be able to afford the repayments on a sole income. The source of the post retirement income must be recorded in the MROS. If the source is pension or investments, you must not give advice on the potential return they may provide unless you re licensed in these areas. However, you must still have a discussion with the customer to establish whether they believe it to be feasible. If the customer s unsure of the return, you must recommend they seek independent advice. Where the customer has some time to retirement and the lender requires evidence of post retirement income, copies must be attached to the POS record. If the customer already receives pension or investment income as part or all of their income, then this must be evidenced and recorded and form part of the normal income and expenditure affordability assessment. 8.4 Loan amount FUNDAMENTAL: You must ensure that the customer only borrows the amount required to meet their current needs to avoid paying unnecessary interest. The record must be clear how you reached the amount applied for and include comprehensive notes of your discussions with the customer. You may not know the exact amount as up to date figures have not yet been obtained for redeeming the existing mortgage or liabilities that are being consolidated. However, throughout the advice process sufficient information should be obtained to arrive at the amount needed prior to application. For home movers wishing to retain equity, you must make the customer aware that they ll pay interest on the extra amount over the term of the mortgage and by reducing the amount of borrowing, cheaper products may have been available. If you ve applied for a DIP, or submitted an application to secure a particular product based on estimated figures, this must be re-visited when all information is received. If necessary, the amount applied for should be reduced and you must consider whether the loan should be re-sourced if the LTV has reduced sufficiently to secure a cheaper/more suitable deal. FUNDAMENTAL: You must consider ERCs as well as other costs to determine if it s suitable for the customer to switch lender or remain with their existing lender. If it s not suitable, you should recommend that the customer does not proceed. Where a customer is looking to increase the borrowing already secured on the property, unless you know that the existing lender will not provide further monies to the customer, you must inform them that it may be possible, and more appropriate, to obtain a further advance rather than move to another lender. If the customer s preference is to reduce their monthly outgoings by switching to a lower rated product with a new lender, you should source the whole of market to check that this is financially suitable. You should explain that the customer is prepared to pay the ERCs to meet their objective and confirm why this is suitable in the MROS. 8.5 Consideration of existing assets

17 FUNDAMENTAL: It isn t a requirement to consider whether existing assets should be used to increase the deposit in order to reduce the mortgage amount. However, where applicable, you must point out to the customer the fact that realising such assets may reduce the overall cost of borrowing. If the customer s able to provide a higher deposit that would result in a lower interest rate being available to them, this must be brought to their attention. 8.6 Higher lending charge FUNDAMENTAL: If applicable, you must explain to the customer the purchase of the HLC and make it clear that it doesn t remove their liability to repay any amounts owing in the event of repossession. You must explain to the customer that if this charge is added to their loan, interest will be charged. The key facts illustration will detail any HLC. You must discuss whether the customer could avoid a HLC by borrowing less. This must be documented in the MROS. 8.7 Repayment method FUNDAMENTAL: We would expect the recommended repayment method to be capital and interest unless the customer can demonstrate that they have a credible repayment strategy to repay an interest only mortgage that is acceptable to the recommended lender. You must make the customer aware that they will need to demonstrate and evidence to the lender, and to yourself, all repayment strategies. If the repayment strategy is credible and the customer fully understands the risks, e.g. if the intention is to downsize and there is sufficient equity to fulfill this plan, then it may be appropriate to recommend interest only or part and part. You ll need to ensure that the repayment strategy meets the recommended lender's criteria and obtain evidence, as required by the lender and for record keeping purposes (refer to Section 3). Examples of repayment strategies that may be acceptable to lenders are: Regular deposits into a savings or investment plan. Existing investment plans. The periodic repayment of capital from irregular sources of income (such as bonuses or some sources of income from self-employment). The sale of assets (such as another property or other land). Downsizing, where there is or will be sufficient equity in the property to repay the loan and purchase another property mortgage free. NOT PERMITTED: The following are examples of repayment strategies that are not permitted: An inheritance that is expected but uncertain Reliance on house price increases Downsizing, where the lender considers there will be insufficient equity in the property to repay the loan and purchase another property mortgage free The above examples are not exhaustive and up to date knowledge of lender criteria is key. You cannot give investment advice unless you re licensed to do so. If your customer needs advice on investments, you must refer them to a financial adviser. Unless there s a credible repayment strategy for the capital element of the mortgage prior to age 80, the mortgage comes under the standards applicable for lifetime mortgages and a specific licence is needed to provide advice. Refer to Section 14. Affordability may be assessed on an interest only basis where there is a credible repayment strategy. The cost of all repayment plans must be included as committed expenditure within the budget planner. If a lender assesses affordability on a capital and interest basis, irrespective of whether the customer has interest only with a credible repayment strategy, the cost of the repayment strategy does not need to be included as committed expenditure for affordability purposes. This should be fully explained in notes.

18 8.8 Debt consolidation FUNDAMENTAL: Debt consolidation should only be considered when you can evidence suitability and affordability and your record clearly shows the right customer outcome Debt consolidation - guidance for credit impaired customers FUNDAMENTAL: For customers who fall into the definition of credit impaired as per Section 7.9 and who wish to consolidate debts, you will need to assume that the debts will remain outstanding for the purposes of assessing affordability. You must therefore take this into account when making your recommendation. This also applies to further advances for credit impaired and debt consolidation purposes. You will need to make your customer aware that this may reduce the number of lenders/products available to them. FUNDAMENTAL: Where the customer has only minor adverse credit, you must consider use of a prime mortgage Debt consolidation guidance for all other customers: You must advise customers to speak to their existing lender or credit provider(s), prior to advising them on consolidation, as this may be cheaper. You must consider whether it is appropriate to secure a previously unsecured loan. You must evidence all debts/ loans/ credit cards prior to any consolidation and attach copies to the record or document why they could not be obtained. If the customer has consolidated before and you deem it suitable to recommend further consolidation, you must explain why in the MROS. You must explain any potential consequences e.g. that if they continue to consolidate, their LTV increases and this can impact the deals available in the future in terms of rates and eligibility. You must consider with the customer the potential overall cost of paying liabilities if they re consolidated to the mortgage. Whilst the mortgage interest rate may be lower, the term is likely to be longer and could increase the overall cost. Many lenders won t permit debt consolidation on properties that have been bought under the right to buy scheme and are still within the right to buy period. You must therefore determine whether a property has been bought under the right to buy scheme and when this period ends. NOT PERMITTED: Debt consolidation is not permitted in the following circumstances: Short-term debts with less than 6 months to run Small debts of less than 500 Interest free debts, unless the interest free period ends before drawdown of the mortgage and isn t likely to be available again. (If you feel this would not produce the right customer outcome contact the Business Standards Team to discuss) The customer is consolidating debts to fund necessary expenditure, as this suggests affordability issues Debts being consolidated to an interest only mortgage where there s no existing repayment strategy Where a customer is consolidating debt and stretching term and/or switching part of the loan to interest only with no credible repayment strategy FUNDAMENTAL: The figures above are not limited to these minimums. In all instances you must consider the customer s individual circumstances and exercise appropriate judgement. If you think it s unsuitable for the customer to consolidate debts, they must be referred to credit counselling or the Citizens Advice Bureau Debt consolidation - demonstrating cost

19 FUNDAMENTAL: You must show the cost of consolidating to your customer by using either of the following options: 1. Produce, print and discuss two KFIs, or 2. Manually calculate the additional cost of borrowing by using the cost per 1 in Section 5 of the KFI 8.9 Rejected advice FUNDAMENTAL: Where you cannot source a product that is suitable and meets lender criteria and the Network minimum standards, you must inform your customer that you are unable to assist them. NOT PERMITTED: If a customer rejects your advice, you cannot facilitate them proceeding with something else and must not assist them, on any basis, in applying direct (i.e. what could be described as execution only) Term FUNDAMENTAL: You should assess the customer s situation to ensure that their needs, circumstances and preferences are considered to determine the length of the new mortgage Incentives FUNDAMENTAL: If the lender offers an incentive, e.g. a lower rate if a current account is opened, you should ensure that the customer understands the consequences if they don t open an account, and you must draw the customer s attention to this in the KFI Let to buy FUNDAMENTAL: Where customers intend to buy another property in which to live and let out their existing property, any mortgage on the new residential property will be regulated, and any mortgage on the existing property should be treated as regulated, irrespective of whether the lender deems it to be non-regulated. The customer should check with their existing lender to confirm whether they will consent to the property being let and on what terms. If the existing lender will not allow the property to be let, the customer will need to remortgage. Refer to Section 10 Sourcing a mortgage. You should advise the customer to seek professional advice with regards to any tax implications. The customer should also be made aware that the lender of any mortgage on the original property will need to agree to it being let and may charge a higher rate of interest as a consequence. The customer also needs to know that if property prices fall, or if the property can t be let profitably, this could prove very costly to them Foreign citizens FUNDAMENTAL: You must recommend that foreign citizens seek advice with regard to any tax implications of purchasing a property in the UK. Reasonable time should be given for the customer to seek such advice. You must consider the lender s requirements when completing mortgage recommendations for foreign citizens. Where you re advising a customer on a regulated or non-regulated mortgage and the source of deposit isn t from a UK bank account then you must refer to the Sales Process Guide. The guidance will confirm when a referral to Legal & General Group Financial Crime is required.

20 9. EXISTING LENDER ARRANGEMENTS. 9.1 General guidance Existing lender arrangements include: Further advances Porting products, whether maintaining the existing loan or borrowing additional funds Retention products/ rate switches, where terms other than the interest rate remain unchanged. (This includes mortgage products that offer a feature which allows the customer to change rates at some time in the future, e.g. from tracker to fixed.) FUNDAMENTAL: In all cases, you must follow the full sales process, including sourcing the whole of market, to ensure that the existing lender s product is the best available, as well as demonstrating suitability and affordability. If, after sourcing, the most suitable product isn t recommended due to the customer s overriding preference to stay with their existing lender, this must be fully explained in notes and the MROS. For existing lender products where the KFI has to be obtained direct from the lender, you should attach a copy to the record. A manual illustration should be created in order to create an MROS and update the case status. Refer to the Sales Process Guide. 9.2 Evidencing suitability and affordability If the lender has agreed to flex their published criteria for existing customers, and the transaction meets the Network requirements (e.g. repayment strategies are feasible but no longer fit the lender s current published criteria), notes must be added explaining what was approved and by whom. If you have written evidence, this should be attached to the record. Where the advice is to stay with the existing lender, the Network requirements for evidencing income/affordability may be reduced to the latest payslip and bank/credit card statements, providing the following criteria has been satisfied: The adviser gave the initial advice No mortgage payments have been missed The customer is in the same employment (same company/same or increased salary) The adviser confirms with the customer there have been no changes in lifestyle, employment, income or expenditure Notes must be added to the point of sale record to confirm the above criteria have been met. Lender requirements must also be adhered to. 9.3 Not permitted NOT PERMITTED: The following existing lender arrangements will not be permitted and you must refer the customer to their existing lender: Retention/ rate switch products where the customer can t provide evidence that they can afford the loan at the current or proposed rate, even though you may be able to seemingly put them in a better position Where the customer has all or part of their mortgage on interest only, with no appropriate repayment strategy, and they can t afford to convert the entire loan to capital and interest