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MCOB: The Mortgage Conduct of Business Rules


The Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB) is a set of rules managed by the Financial Conduct Authority (the FCA) pursuant to the statutory powers and duties vested in it by the Financial Services and Markets Act 2000. The rules are set out in the FCA Handbook which, despite its name, comprises an extensive collection of rules which apply across virtually all aspects of the financial services industry. The rules are regularly amended and updated and are best viewed online. The FCA website provides various versions and guides to the handbook, together with other useful consumer information.


Regulation of the UK financial services industry started with the Financial Services Act 1986. The Act provided for the creation of the FCA’s predecessor, the Securities and Investments Board (SIB) and five self- regulatory organisations (SRO’s) responsible for the day-to-day regulation of their respective sectors.

As far as the mortgage industry was concerned, a scheme of voluntary self-regulation was established by the Mortgage Code, managed by the Mortgage Code Compliance Board (MCCB). Registration with MCCB extended to about 160 lenders and 12,000 intermediary firms.

A major overhaul in the UK financial services industry was announced after the 1997 general election. The SIB changed its name to the Financial Services Authority in October 1997 and acquired extended responsibility including banking supervision, leading to the Treasury’s decision to regulate mortgage lending.

CAT Standard mortgages (Charges, Access and Terms) were introduced as a voluntary measure in 1999 and applied to both variable rate and fixed or capped rate mortgages.

The Financial Services and Markets Act 2000 (FSMA) imposed upon the FSA certain statutory and strategic objectives, including an obligation to provide an effective regulatory regime, aimed at maintaining market confidence and promoting public understanding.

As far back as December 2001 the Treasury announced that mortgage advice and the authorisation of mortgage intermediaries would be subject to a statutory regime from 31st October 2004 (known as “Mortgage Day” or “M Day”).

There followed a series of consultation papers covering a number of aspects of mortgage business, and which led, finally, in October 2003, to the production of a definitive set of rules now known as MCOB. The objective was to impose a statutory scheme of regulation, backed by forms of statutory redress - including a Disputes Resolution procedure; a scheme of Compensation; and a Consumer Redress Scheme. The FSA is now known as the Financial Conduct Authority.


MCOB applies to every firm that (amongst other things):

  carries on a home finance activity (subject to specific provisions in relation to business loans and high net worth mortgage customers)

firm” means an authorised person (does not include professional firms unless they are authorised). Most of MCOB applies to four types of firm: lenders/providers, administrators, arrangers and advisers. A single firm may fall into more than one of these types.

home finance activity” includes a number of things - regulated mortgage contracts, equity release transactions, home purchase plans, and regulated sale and rent back agreements.

The simple meaning of “regulated mortgage contract” is that it is a loan on the security of a first legal mortgage on land in the United Kingdom of which at least 40% is used as or in connection with a dwelling by the borrower. For the full definition, see the Glossary.

It is important to bear in mind therefore that MCOB applies to Regulated Mortgage Contracts which, by definition, are entered into after 31st October 2004

There are special provisions in MCOB 1.2.3 etc which apply to business loans and loans to high net worth mortgage customers.

By MCOB 1.6.3, before a firm enters into a mortgage, it must take all reasonable steps to establish whether the mortgage will be a regulated mortgage contract and therefore subject to MCOB.

MCOB then sets out a number of different standards and regulations under different headings. Each chapter begins with the headings “Application” and “Purpose”, making clear to whom the standards and regulations apply and in what circumstances. It then states the intended purpose of the standards or regulations, followed by the detailed requirements themselves.

MCOB 2 – 7 contain the broad scheme of regulation extending over the whole range of mortgage selling, and impose detailed requirements as to the form and content of communication and financial promotion; the conduct of advising and selling; disclosure of information; the terms of offer documents including the requirement to give illustrations; having regard to the interests of customers and the duty to treat them fairly; and the duty to keep records (with supplemental provisions in MCOB Schedules).

MCOB 8 and 9 make special provision in respect of equity release schemes.

MCOB 10 contains detailed provision for the calculation of the Annual Percentage Rate and Total Charge for Credit, and applies the identical provisions of the Consumer Credit (Total Charge for Credit) Regulations 1980

MCOB 11 contains some important duties about responsible lending that extend the requirement in MCOB 6 to treat customers fairly.

MCOB 12 tackles the problem of charges.

MCOB 13: Arrears and repossessions is of particular importance in the context of mortgage litigation and is set out in more detail below.

MCOB has also been significantly amended to take accoutn of the Mortgage Credit Directive (MCD).

NOTE: When considering MCOB, it is important to view the version of the rules in force at the relevant time. the online handbook has a useful timeline function to enable this to be done


MCOB 13 applies to mortgage lenders and mortgage administrators (and firms that were mortgage lenders or mortgage administrators before the sale of a repossessed property took place).

What does it do? It imposes some key duties in relation to administering a regulated mortgage contract and a mortgage shortfall debt. It also amplifies MCOB 6 (duty to treat customers fairly) in respect of the information and service provided to customers who have payment difficulties or face a mortgage shortfall debt

MCOB 13.3 requires that a firm must deal fairly with any customer who has a payment shortfall on a regulated mortgage contract, or a sale shortfall. It addresses vulnerable customer and customers in payment difficulties. It also requires forms to make and retain an adequate record of its dealings with customers whose account has a payment shortfall or a sale shortfall.

MCOB 13.4 stipulates that if a customer falls into arrears, a firm must within 15 business days provide the customer with certain arrears information, and to provide further disclosure on subsequent arrears. Before commencing an action for possession, a firm must (1) provide a written update of the information required by MCOB 13.4; (2) ensure that the customer is informed of the need to contact the local authority to establish whether the customer is eligible for local authority housing after his property is repossessed; and (3) clearly state the action that will be taken with regard to repossession. MCOB 13.4A deals with data sharing with other charge holders including an obligation to give notice if it commences legal proceedings to each person who has a legal or equitable mortgage (which will include charging orders).

MCOB 13.5 requires further disclosures about the payments due and charges being incurred, and MCOB 13.5.3 prohibits firms from putting pressure on a customer through excessive telephone calls or correspondence, or by contact at an unreasonable hour.

MCOB 13.6 deals with repossessions and is set out in full as follows:

A firm must ensure that, whenever a property is repossessed (whether voluntarily or through legal action) and it administers the regulated mortgage contract or home purchase plan in respect of that property, steps are taken to:

(1) market the property for sale as soon as possible; and

(2) obtain the best price that might reasonably be paid, taking account of factors such as market conditions as well as the continuing increase in the amount owed by the customer under the regulated mortgage contract.

13.6.3 If the proceeds of sale are less than the amount due:

A firm must ensure that, as soon as possible after the sale of a repossessed property, if the proceeds of sale are less than the amount due under the regulated mortgage contract or home purchase plan, the customer is informed in a durable medium of:
(1) the sale shortfall; and

(2) where relevant, the fact that the sale shortfall may be pursued by another company (for example, a mortgage indemnity insurer).

13.6.4 (1) If the decision is made to recover the sale shortfall, the firm must ensure that the customer is notified of this intention.

(2) The notification referred to in (1) must take place within five years of the date of the sale (if the regulated mortgage contract or home purchase plan is subject to Scottish law) or within six years (in all other cases).

13.6.6 If the proceeds of sale are more than the debt:

A firm must ensure that, on the sale of a repossessed property, if the proceeds of sale are more than the amount due under the regulated mortgage contract or home purchase plan, reasonable steps are taken, as soon as possible after the sale, to inform the customer in a durable medium of the surplus and, subject to the rights of any subsequent mortgage or charge holders, to pay it to him.

13.7 Business loans and loans to high net worth mortgage customers:

Where the regulated mortgage contract is for a business purpose or is with a high net worth mortgage customer, a firm may as an alternative to MCOB 13.4.1 R(1) provide the following information in a durable medium instead of the Money Advice Service information sheet "Problems paying your mortgage":

(1) details of the consequences if the payment shortfall is not cleared;

(2) a description of the options available to the customer for clearing the payment shortfall; and

(3) (in the case of loans for a business purpose) details of sources of fee-free advice for business customers.

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