The MCOB rules relating to interest-only mortgages require lenders to:

The MCOB rules relating to interest-only mortgages require lenders to:

• A. Include the cost of an appropriate repayment strategy in the affordability assessment.
• B. Inform all applicants that they must select a suitable repayment vehicle.
• C. Recommend a specific repayment vehicle and ensure the applicant takes it out.
• D. Refuse any interest-only applications unless the applicant is a high-net-worth individual.

Answer: (A)

When assessing an interest-only mortgage, the important point is that the lender must look beyond current payments and check that there is a credible plan to repay the loan at the end of the term. This means the affordability assessment must include the cost of an appropriate repayment strategy and how that strategy will be funded. The goal is to ensure the borrower can realistically repay the capital when due, even if the repayment vehicle’s returns or sale proceeds don’t turn out as hoped. Lenders should evaluate the plan’s practicality, the likelihood of the strategy succeeding, and whether the borrower can sustain the required contributions or face risks if the plan underperforms. The other statements aren’t correct because they imply forcing a repayment vehicle on every applicant, endorsing a particular vehicle and ensuring it’s taken out, or restricting approvals only to high-net-worth individuals. The rules focus on affordability and a credible plan, not on mandating a specific vehicle or excluding other borrowers.

When assessing an interest-only mortgage, the important point is that the lender must look beyond current payments and check that there is a credible plan to repay the loan at the end of the term. This means the affordability assessment must include the cost of an appropriate repayment strategy and how that strategy will be funded. The goal is to ensure the borrower can realistically repay the capital when due, even if the repayment vehicle’s returns or sale proceeds don’t turn out as hoped. Lenders should evaluate the plan’s practicality, the likelihood of the strategy succeeding, and whether the borrower can sustain the required contributions or face risks if the plan underperforms.

The other statements aren’t correct because they imply forcing a repayment vehicle on every applicant, endorsing a particular vehicle and ensuring it’s taken out, or restricting approvals only to high-net-worth individuals. The rules focus on affordability and a credible plan, not on mandating a specific vehicle or excluding other borrowers.