MRT1 · Mortgage Law, Practice and Application
LO6 is the heart of MRT1 and of the case studies in the synoptic unit. Expect calculations (interest-only payments, income multiples, LTV, stressed payments, net income after commitments, the cost of a longer term) and judgement calls: is this strategy credible, does this change need a full affordability check, is this recommendation suitable, how should you treat a vulnerable customer. Keep two duties apart. The lender must demonstrate affordability under MCOB 11.6. The adviser must recommend a suitable contract under MCOB 4.7A. Most wrong answers mix the two up or use a rule that changed on 22 July 2025.
12 min read7 sections
Checked against: Walbrook (formerly LIBF) CeMAP specification v14, MRT1 LO6 (AC6.1-6.7); FCA Handbook MCOB 11.6, 11.9, 4.6A, 4.7A, 4.8A, PRIN 2A; FCA PS25/11 (22 Jul 2025); FCA FG21/1; checked 11 Oct 2026. Independent prep, not endorsed by Walbrook (formerly LIBF).
Affordability is the lender's legal duty. Before entering into or varying a regulated mortgage contract, the lender must assess whether the customer, and any guarantor, can pay the sums due, and must not go ahead unless it can demonstrate that (MCOB 11.6.2R).
Build the figure in this order (MCOB 11.6.5R and 11.6.10R):
| Step | Worked example (Dev) |
|---|---|
| Net monthly pay | £3,800 |
| Less committed expenditure (car £320 + loan £200) | − £520 |
| Less basic essential and quality-of-living costs | − £1,350 |
Every note. Every question. One pass.
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From ≈£2.72/mo on the Until-you-qualify pass (18 months)
| Less proposed mortgage payment |
| − £1,100 |
| Monthly surplus | £830 |
What the lender must not do: rely on expected house-price rises or the customer's equity (MCOB 11.6.5R(1)), or rely on a general declaration that the customer can afford it (MCOB 11.6.6R). Income multiples are a ceiling, not a test. £62,000 joint income × 4.5 = £279,000 maximum, still subject to the full assessment.
Trap: starting from gross income, or accepting a customer's signed declaration that they can afford a payment the numbers say they cannot.
Takeaway: Net income, minus commitments, minus essential and quality-of-living costs, minus the stressed mortgage payment. No equity, no declarations, no self-certification.
MCOB 11.6.18R makes the lender consider likely interest rates over at least five years from the start of the term. It must have regard to market expectations (such as Bank of England forward rates) and any FPC recommendation, and assume a rise of at least 1% even if markets expect less. A rate fixed for five years or more is outside the stress.
| Product | Stress applies? | Example |
|---|---|---|
| 2-year fix at 4.2% | Yes, at least +1% | £160,000 interest-only: £693.33 a month at 5.2%, not £626.67 at the market's +0.5% |
| 5-year fix | No (fixed 5 years or more) | Assess at the product payment |
| Tracker or variable | Yes | Assess at the stressed rate the lender sets, at least +1% |
Interest-only needs evidence of a clearly understood and credible repayment strategy with the potential to repay the capital (MCOB 11.6.41R(1)). Speculative strategies are banned (11.6.41R(3)); MCOB 11.6.46E names expected house-price growth and an uncertain inheritance. Acceptable examples (11.6.45G) include regular saving or investment, lump sums from bonuses, and the sale of another property.
Trap: following market expectations of a 0.5% rise instead of the 1% floor, or leaving the ISA contributions out of an interest-only assessment.
Takeaway: Stress unless fixed five years or more, by at least 1%. Interest-only needs a credible, costed, reviewed strategy; inheritance and house prices never count.
