A plain-English glossary of 30 MCOB and FCA mortgage terms, drawn directly from the FCA Handbook, built for UK mortgage advisers and brokers.
Written by
Charlotte BrownRole
Mortgage Industry Writer
MCOB, the FCA's Mortgage Conduct of Business sourcebook, is the rulebook that shapes almost everything a UK mortgage adviser does day to day: how a sale gets classified, what has to be disclosed, when a lender has to stress-test affordability, and what counts as suitable advice. The terminology gets used constantly, in lender criteria, in compliance training, in client conversations, but not always precisely.
This glossary covers 30 of the terms that come up most often in mortgage advice and lending, in alphabetical order. Every definition below is drawn directly from the FCA Handbook Glossary or the relevant MCOB rule wherever one exists. Where a term is industry shorthand and not something the FCA has actually defined, retention procuration fee and standard variable rate are two examples, that's said plainly instead of being dressed up as official.
A sale is advised whenever a broker makes a personal recommendation on the mortgage, as opposed to simply processing an application. MCOB 4.7A.2R requires the firm to take reasonable steps to make sure the mortgage it recommends is genuinely suitable for that customer's needs and circumstances, not just something they could get approved for.
Before a lender agrees to a mortgage, MCOB 11.6.2R requires it to check the customer can actually afford the repayments, both now and if things change. This is the rule behind income verification, expenditure checks, and the wider affordability modelling most lenders now run before any offer goes out.
The APRC is the total cost of a mortgage expressed as a single yearly percentage, folding in interest and most other charges so two differently structured deals can be compared on the same basis. It's defined in the FCA Handbook Glossary and calculated under MCOB 10A.1, and it's the figure that deserves more weight than the headline rate when a client is comparing offers.
A mortgage is in arrears once the customer has missed the equivalent of two or more regular payments, or breached an agreed limit for over a month on a non-standard repayment loan. The FCA Handbook Glossary sets this threshold because it's the trigger point for the additional protections and processes in MCOB 13.
Not every buy-to-let loan sits under full MCOB conduct rules. A consumer buy-to-let contract is one where the borrower isn't acting for business purposes, which pulls it into a lighter-touch registration regime instead, set out in the Regulated Activities Order and explained in the FCA's PERG guidance rather than the MCOB Glossary itself.
The FCA Handbook draws a precise line here: someone who has owed arrears equal to three months' payments within the last two years, has county court judgments totalling more than £500 in the last three years, or has had an IVA or bankruptcy order in force at any point in the last three years. It's the classification that determines which lenders and products are realistically available, and it comes up constantly in adverse credit case work.
Where the entire advice or arranging process happens without face-to-face contact, by phone, post or online, MCOB treats it as a distance mediation contract and adds extra disclosure and cancellation obligations under MCOB 4.6 and MCOB 4 Annex 3.
An ERC is the charge a lender can apply if a customer repays all or part of the mortgage before a date set out in the contract, most commonly during a fixed or discount deal period. The Glossary sets out the charge itself, and MCOB 12.3 covers how it has to be disclosed to the customer.
An execution-only sale happens when a customer buys a mortgage without advice, either because the firm didn't offer any or because the customer turned it down after being offered it. MCOB 4.8A requires a clear warning that suitability hasn't been assessed, and it isn't permitted at all for right-to-buy purchases, debt-consolidation-led borrowing, or shared equity deals, outside a narrow set of exceptions.
The ESIS replaced the Key Facts Illustration for most residential mortgages once the Mortgage Credit Directive came into force in March 2016. It uses a standard EU template and is provided under MCOB 5A, defined in the FCA Handbook Glossary.
A further advance is extra borrowing taken on top of an existing mortgage, from the same lender and secured against the same property. It isn't a term the Handbook Glossary formally defines, MCOB 7B simply uses it as understood, setting out what information a lender has to provide when arranging one.
Some MCOB protections don't apply to customers wealthy enough to be assumed capable of looking after their own interests. The FCA Handbook Glossary sets the bar at annual net income of at least £300,000, or net assets of at least £3,000,000, whether that's the customer's own position or a guarantor's.
A home reversion plan isn't a mortgage at all. The customer sells all or part of their home to a reversion provider for a lump sum or income, while keeping the right to live there rent-free, or for a nominal rent, until death or a move into care. It's defined in the FCA Handbook Glossary by reference to the Regulated Activities Order, which also requires the arrangement to run for a minimum term of 20 years.
Most advisers still call it a KFI out of habit, but the Handbook's actual term is "illustration": the standardised, pre-application document setting out a mortgage's costs and features in the FCA's prescribed format under MCOB 5 Annex 1, given to a customer before they commit to anything.
The Handbook takes a shortcut here and defines it by exclusion: a regulated mortgage contract that isn't a repayment mortgage. In practice, the monthly payment covers interest only, and the capital borrowed has to be repaid in full at the end of the term through a separate repayment vehicle.
Lenders can't just check affordability against today's rate. MCOB 11.6.18R requires them to consider what repayments would look like over a minimum five-year horizon, unless the rate is fixed for five years or more, and even where a lender's own forecasting points to falling or broadly flat rates, it still has to assume at least a 1% rise.
This phrase doesn't have a single formal Handbook definition, but the obligation behind it is real. MCOB 4.7A.5R requires advice to be based on the facts a customer has disclosed and other relevant facts the firm is or reasonably should be aware of, and MCOB 11.6.14R requires lenders to factor in known or foreseeable future changes to income and expenditure. In practice, it means the picture a broker or lender is working from has to stay current, not frozen at the point of application.
Since 21 March 2016, most new regulated mortgages taken out by consumers fall under the Mortgage Credit Directive regime in full, covering the APRC, the ESIS, and the seven-day reflection period. The Glossary is specific about it, and carves out a defined list of exempt contracts, certain business, bridging, and high net worth lending among them.
A payment shortfall is the total unpaid instalments, capital, interest or both, that have built up because a customer has missed contractual payments. It's a defined Glossary term, and MCOB 13 sets out what a firm has to do once one exists, including how it deals with the customer.
A procuration fee is the payment a lender makes to a broker for introducing and packaging a mortgage application, defined in the FCA Handbook Glossary as the total amount a home finance provider pays a home finance intermediary in connection with customer applications. It's paid by the lender, not taken from the client's loan.
A lifetime mortgage is restricted to older customers and doesn't require repayment until a specified life event, death, a move into long-term care, or sale of the property, with no or restricted capital repayments expected while the customer still lives there. The Handbook Glossary covers both the lifetime mortgage itself and the regulated version of it that MCOB governs.
This is the term that decides whether MCOB applies at all: a loan to an individual, secured by a first-charge mortgage on UK land, where at least 40% of the property is used or intended to be used as a dwelling by the borrower or someone related to them. It's defined in the FCA Handbook Glossary, drawing on the Regulated Activities Order and the Mortgage Credit Directive.
In the Handbook Glossary, it's a regulated mortgage contract where the customer's payments of interest and capital are designed to repay the loan in full over the stated term, the standard "capital and interest" structure most residential mortgages use.
Responsible lending isn't a single defined term so much as the heading for the whole affordability regime in MCOB 11.6, the obligation on lenders to check a mortgage is affordable before agreeing it, rather than lending on the strength of the security alone.
When a client stays with their existing lender on a new rate, known as a product transfer, some lenders pay the broker a retention procuration fee instead of a standard proc fee. It isn't formally defined in the Handbook or MCOB, lenders set their own rates and terms for it, and it's usually lower than a new-business fee, which is part of why retention gets less attention than new leads despite being cheaper revenue to capture.
In a regulated sale and rent back agreement, the customer sells their home, or part of it, to a provider and stays on as a tenant, renting it back. The FCA Handbook Glossary requires the seller, or someone related to them, to be entitled to occupy at least 40% of the property as a dwelling for the agreement to be regulated at all.
A second charge mortgage ranks behind an existing first-charge mortgage on the same property. Since March 2016 it's regulated under exactly the same MCOB regime as a first-charge mortgage, defined in the FCA Handbook Glossary by cross-reference to the standard regulated mortgage contract definition.
The SVR is the lender's own default variable rate, the rate a mortgage reverts to once an initial fixed, tracker or discount deal ends. It isn't a term the FCA formally defines, in fact the FCA's own guidance on the affordability stress test notes it doesn't prescribe which reversion rate a lender should use, only that one has to be stress-tested against.
When advice is given, MCOB 4.7A.5R defines suitability as being appropriate to the customer's needs and circumstances, based on what they've disclosed. There's no MCOB equivalent of the "suitability report" used in investment advice, instead MCOB 4.7A.25R requires the firm to keep a record explaining why the recommendation was suitable, retained for three years, the kind of evidence that Consumer Duty case records now expect firms to be able to produce on demand.
Neither term is formally defined by the FCA. MCOB 4.4A requires firms to disclose any limitations in the range of products they offer, and an MCD intermediary can only describe itself as independent if it considers an unlimited range of the market, but "tied" and "whole-of-market" are industry shorthand, not formal Handbook definitions, generally used the way MoneyHelper describes them to consumers.
Knowing what a term means is one thing. Being able to show, months or years later, that a specific piece of advice met the suitability bar it was judged against at the time is another. Cleera keeps a case's suitability rationale, affordability notes and disclosure documents attached to the file itself, so nothing is scattered across email and spreadsheets, and when a case gets reopened for a Consumer Duty review or a lender query, the evidence is where it should be. Get in touch if you want to see what that looks like against your own case files.
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