Q: Do 'balances outstanding' in D to F only include unsecuritised loans?
A: In the MLAR, balances outstanding in D, E, and F exclude securitised balances except in the special analysis in D2. Loan balances here are gross balances, that is before the deduction of provisions.
If you look at the columns of section D1, you will see that the 'Other debits etc.' column in the MLAR Guidance is described as including movements involving any securitisations in the quarter.
Hence balances outstanding in columns 1 and 6 are only unsecuritised loans.
D2 is the exception, in that the final column is the amount of loans subject to non-recourse finance, ie loans securitised.
Q: What is the basis for reporting balances outstanding in D1, and how do they relate to those in A3?
A: The reporting basis is as follows:
- balances in D1 are unsecuritised balances
- balances in D1 are gross balances, that is before the deduction of any provisions
- balances in D1 are similar to those in A3 column 1, but because of Handbook Instrument (2005/21) on Accounting (which made changes to MLAR guidance) they are not exactly the same. As a result of this change, section A3 is on an IAS basis (if the firm is subject to IAS), while D1 (and subsequent tables) is on a contractual basis (ie as between lender and borrower). See Q 12 in the General section of these FAQs. The treatment of accrued interest is also another potential source of difference: see Q3 below.
Q: What is the treatment of 'accrued interest' in loan balances in section D?
A: The guidance notes say relatively little about accrued interest:
- D3 mentions that 'balances at end quarter' should include accrued interest
- by implication, since we have indicated so in the Validation rules and because we also imply this in the second paragraph of D3 Guidance, the balances reported in D3 (column 1) need also to agree with those reported in D1 (column 7)
- there is also a reference to 'accrued interest' in Section F: Arrears, subsection 1.1 (ii) which says the loan balance outstanding on an arrears case at the reporting date is the borrower's 'total debt at the reporting date...including interest accrued on the advance (but only up to the reporting date)...'
The points above on D3 imply that D1 column 7 (and hence column 6 also) should also include accrued interest.
The issue now, is what is meant by 'accrued interest' in this context. However the only way interest gets added to loan balances in D1 is via 'Other debits/credits' column, and the guidance for this column refers only to 'interest charged to the loan account during the period' and 'interest repaid during the period'.
There would appear to be alternative interpretations that a firm might adopt in trying to apply this guidance:
- Method 1: would be to assume that by 'interest charged to a loan account in the period' is the actual amount debited to the loan account. In which case, any accrued interest in respect of the period between the interest being charged (or debited) to the loan account and up to the reporting period end, is not included. If that is the approach adopted, then the concept of interest accrued in D1 column 6 (and 7) and in D3 column 1 could only mean the excess of the amount of interest charged net of any interest repaid. For most borrowers it would be zero (ie if the loan was performing), and only for loans in arrears would unpaid interest start to mount up.
- Method 2: would be to assume that by 'interest charged to a loan account in the period' is the actual amount debited to the loan account, plus any residual interest due to the lender up to the financial quarter end but not so far formally charged to the loan account (ie including accrued interest to the period end).
In a firm's balance sheet, accrued interest will apply to both sides.
On the liabilities side it will for example include amounts of interest accrued on a depositor's account up to the balance sheet date that have not yet been paid or credited to the account (it is expected that this would appear within the reported figure for deposit balances), and there would be an equivalent treatment on the assets side.
That is, loan balances would be expected to be reported inclusive of accrued interest in the balance sheet.
But how does this balance sheet treatment of accrued interest for loan balances link to reporting of loan balances in section D onwards:
- under Method 1 above: the amount of accrued interest would be included in the balance sheet entries (eg A1.6 and A3), but not in section D onwards (noting the exception for loans in arrears in section F)
- under Method 2 above: the amount of accrued interest would be included in the balance sheet entries (eg A1.6 and A3), and also in section D onwards
- NB: loan balances in section E3 to E6 are expected to agree with the corresponding balances reported in D1 (column 7) as stated in the validation rules
As to materiality, let us assume that mortgage interest is say 6% per annum. That is 0.5% per month, and so if a firm debited interest to loan accounts at mid month, then accrued interest in respect of the period from mid month to end financial quarter would amount to no more than 0.25%. So the difference in treatments is unlikely to be material.
We do not know how firms are interpreting the guidance on section D for these aspects related to accrued interest: many might go for method 1, whilst others might go for method 2.
The difference is unlikely to be material, and therefore we are neutral as to which method is adopted.
Finally, we should note that there is no expectation that entries in A3 (column 1) will necessarily be the same as corresponding entries in D1 (column 6).
Accordingly there are no such cross checks in the validation rules (see those published in the IRR web-pages).
This is partly because of potential issues such as accrued interest, but also because if a firm is subject to International Accounting Standards (IAS) then we have now stated (in Handbook Instrument 2005/21) that while sections A, B and C of MLAR should be compiled on an IAS basis, nonetheless sections D onwards should be compiled on a contractual basis (ie as between lender and borrower).
Q: What should be entered in column 6 of section D2 of the MLAR?
A: This section D2 deals with two types of information:
- The first 5 columns report a breakdown of loan book movements that have already been reported in the Other debits/(credits) etc column of section D1.
- Column 6 of D2, “Balance at end quarter on loan assets subject to non-recourse funding”, is a memorandum item that is not directly related to the first 5 columns. It is explained in detail at the end of the MLAR Guidance for section D2, and is the gross amount of loan assets subject to non-recourse funding as part of a securitisation.
If your firm has any securitised loan assets, then column 6 will be relevant, otherwise not. If your firm does have any securitised assets, then your financial team should be familiar with the terms used in the MLAR Guidance, since they are also relevant in the preparation of a firm's published accounts.
Indeed, the analysis presented in A3 (final 4 columns) is related, and we would expect the balances presented in D2 column 6 to “agree” with the underlying gross securitised balances presented in A3 (column 4, that is before the deduction of provisions), unless of course a firm is subject to International Accounting Standards (when sections A, B and C are on an IAS basis, but sections D onwards are on a contractual basis: see answer to Q12 in the General section of these FAQs).
Q: Should 'Advances' reported in D1 and D4 also agree by type?
A: The firm asking the question noted: in sections D1 and D4 we have to report Advances made in quarter and we understand that the entries in these should agree. However should the entries in the regulated/non-regulated splits agree? In the following example how should the advances be reported in each section?
£100k is offered and completed in January as a non-regulated contract. However shortly after completion the £100k account changes from non-regulated to a regulated account also in January. How should this be reported under the advances sections of D1 and D4 (Commitments)? Should both sections show the 100K under regulated part of the advances section? Or should D1 show the £100k as regulated and D4 show the £100k as non-regulated as it was originally a non-regulated advance?
The answers are as follows:
- Yes, we expect the figures for Advances in D1 and D4 to agree, and also by regulated/non-regulated categories etc as well.
- So in the example, both D1 and D4 columns referring to Advances should report the transaction as 'Regulated'.
Q: How should we handle changes in loan categorisation in D1 and D4?
A: In the more general situation, where a loan categorisation is subject to change sometime after the original transaction is made, we think this could be handled by posting suitable amending transactions to bring about the necessary result.
The following is one suggested approach:
Where a Commitment (that has already been recorded in the firm's systems and would then be reported in column 2 of D4 of the current period's MLAR) undergoes a subsequent change in its categorisation (eg from non-regulated to regulated, or from house purchase to re-mortgage etc):
- During the same quarter, this can be accommodated via the 'cancellations in quarter' column. That is, cancel the original commitment, and report the revised commitment on the row that is now relevant under the column 'commitments made since end of previous quarter'.
- During a later quarter than the original: follow the same approach if the loan has not yet been advanced. But if the loan has been advanced, then the commitments balance outstanding will no longer include this loan, and hence should not need amending.
In the case of an Advance (that has already been recorded in the firm's systems and would then be reported in column 2 of D1 and column 4 of D4 of the current period's MLAR), we have no equivalent to the 'cancellations' column, so we suggest this can be reversed as follows:
- For changes occurring in the same reporting quarter as the original transaction: by posting an entry under 'advances in qtr' which is the same amount as the original but this time with a negative sign. Then post the newly categorised loan against the correct line item (eg now regulated in the example in Q3a).
- For changes occurring in a later reporting quarter than when the original was reported: by posting a negative entry under 'other debits/credits' in relevant line in D1 and an equal and opposite signed entry in the 'correct' line in D1 (which will have the effect of transferring balances to the 'right' loan category.
If however a firm's reporting of advances and/or commitments (or indeed any other item) for a previous period was considered to be materially incorrect, the firm should revise its figures in respect of the already submitted MLAR and resubmit a revised version.
Q: How should we deal with ‘cancelled advances’ in section D?
A: The firm asking this question noted:
- This refers to the situation where either the advance cheque is not actually presented before cancellation, or where the advance payment is made and subsequently returned or cancelled, within usually a short period due for example to delayed or postponed completion.
- In the Q&A guidance for Section E, the following text appears in relation to a point raised under the 'number of advances section' of the MLAR re cancelled advances:
Q12 How to report 'number' of advances in situations involving stage payments and further advances? A series of five related questions, shown below as a) to e).....
....b) If the advance was reported in the previous quarter, but the advance was cancelled during the quarter under review, should the number for the quarter under review reflect this (ie deduct 1 from the number count for the quarter under review)? Answer = No. Only report actual advances. 'Cancelled advances' (presumably reported under repayments in D1) should not feature in 'gross advances' in D1 or in E3, E4, E5 or E6.
- In this particular scenario the guidance relates to cancelled stage advances.
- Can you confirm whether the same treatment, as spelt out in the last part of the QA shown above, should be applied to all cancelled advances?
The answer provided was as follows:
The original QA in section E at Q12 b), and which arose in the context of how to report "numbers" of loans in E, is addressing the particular occurrence of a cancellation transaction in a later quarter than when the original lending transaction took place. As such, it mentions in the answer -in brackets- the presumption that the £amount of the cancelled advance would be treated as a repayment in D1.
Building on this, and the reference in the MLAR Guidance Notes for D1 under 'Gross advances' at point (e), namely that 'Advances made in the quarter' should include 'the deduction from advances made of advance cheques cancelled', we can advise as follows.
In the case of an Advance made to a borrower (that has already been recorded in the firm's systems and would be reported in column 2 of D1 of the relevant period's MLAR), and where the loan is subsequently cancelled, we suggest the 'cancellation' is reported as follows:
- Where the loan has not been drawn down, eg the advance cheque has not been presented nor the amount drawn down, then either ignore both the advance and the cancellation as if they had not occurred, or treat the 'cancellation' as a negative advance within 'advances'. The cancellation will therefore offset the amount already includable in that quarter's figures for the underlying loan advance.
- Where the loan has been drawn down, then we suggest the 'cancellation' could be reported:
- if the transaction occurs in the same quarter as the advance is made: then either ignore both the advance and the cancellation as if they had not occurred; or report as either a negative advance within 'advances' or as a repayment in D1 column 3.
- if the transaction occurs in a subsequent quarter to that in which the advance was made: then report as a 'repayment' in D1 column 3.
Q: How do we report a further advance for a borrower to acquire a further share in a shared ownership scheme?
A: In the case of a shared ownership case, any loan to finance an existing borrower's acquisition of a further share in the scheme should be reported in MLAR as follows:
a) as a commitment: report in section D4 against 'House purchase', as a further part of the house is genuinely being purchased.
b) when actually advanced: report in section E6 against 'House purchase'
c) in section E1/2, the £ amount reported is the further loan amount, and when calculating the LTV percentage for shared ownership:
- Loan is the sum of old loan + further loan etc (ie as per point (i) (b) of guidance notes for 'Loan to valuation ratio LTV' under Section E1/2 of the MLAR Guidance.
- Valuation is calculated on the borrower's shared ownership proportion of the overall property valuation, and not the whole property valuation
Q: When to treat sundry debits as part of advances and commitments?
A: a) When is a sundry debit classed as being formally part of the loan?
Where the amount is repaid over the term of the loan, with no expectation of it being repaid either at time of advance or very soon after.
b) Should valuation fees and arrangement fees be included in the Loan Commitment and Advance amounts, regardless of whether they are included in the Offer of Advance amount or not, if they are debited to the mortgage account on completion?
Valuation fees, arrangement fees or any other item of expense should only be included in Commitment and Advance amounts where they are repaid over the period of the loan. This is regardless of whether they are included in the Offer of Advance amount.
Q: How should the originating lender, the society, and the third party administrator each report the following transactions involving equitable sales of mortgages?
A: The building society asking the question explained the transaction as follows:
The Society has entered into an agreement to acquire, by equitable sale, individual mortgages at the time of completion from another registered company. Additionally, the mortgages are administered by a different registered company.
For each transaction the lender’s brokers actually give the advice, the lender takes out the mortgage, but the Society funds the transaction and obtains the rights and benefits to each mortgage through the equitable sale. Subsequently the net effect is that the Society has funded each mortgage and each mortgage is administered for the Society by another registered company.
The answers are as follows:
a) the originating lender makes the advance and the loans go on that firm's balance sheet (however short a time this might be). That firm's MLAR should report such advances in the normal way eg under D1 'advances in qtr'.
b) that firm then does an equitable sale/transfer: its MLAR should report such transfers in accordance with MLAR Guidance (ie in section D1 under 'other debit/(credits)' as a negative figure, and in section D2 under 'loans sold')
c) the society purchases such loans by equitable sale/transfer: the society's MLAR should record these as 'loans acquired': which means in section D1 reporting the amounts under 'other debits/(credits)' as a positive figure, and in section D2 reporting them under 'loans acquired'. (But it would be incorrect to treat them as the society's 'advances'.)
d) as regards loan administration:
- when the loans are acquired by the society, then assuming the society has an authorisation for loan administration, the society would be regarded as administering its own loans (even though outsourced to a third party) and should tick the box at G0 in table G of MLAR, and hence not report any specific information on these particular loans in table G
- the third party administrator, if it has authorisation to undertake loan administration, would be required to complete an MLAR. In respect of those loans in your scenario that are administered for the society, the third party administrator should report them in table G(1) as 'Other administrator'. This is because the society would be assumed to be the principal administrator (even though it out sources the loan administration).
Q: How do we report loans that we originate but then transfer to an SPV?
A: The firm asking the question noted: although we retain the legal title to the mortgages we transact, we sell the equitable interest to a third party. This happens automatically with each completion so that at the end of each reporting quarter we would always return a nil balance i.e. we do not retain any loans on our books.
There are two possibilities for the 'third party' here:
- another firm (not connected with the originating lender, as in Q6)
- a special purpose vehicle (SPV) which is economically connected to the originating lender, and where the SPV loan assets are shown on that lender’s balance sheet using the linked presentation method
The reporting treatment is as follows:
- if the loans are being transferred to an SPV, then there is still reporting relevant to MLAR
- before loan transfer, the actual advances are reportable in the firm's MLAR, eg in D1, D3, D4 and also in table E, even if they are transferred before the reporting quarter end
- loan balances transferred should be reported in D1 (column5) and also in D2 (column 3 if securitised, or column 2 if otherwise)
- if the loans transferred are subject to the linked presentation method of accounting under FRS5, where entries are made on your firm's balance sheet but offset by linked funding (see MLAR Guidance: Introduction (section 9(i)), and Section D (subsection D2)), then such loans are still reportable in parts of MLAR: A3(cols 4-7); D2(col6); and in G1.1c and G1.2c, and G2.3, and also in H
Q: In D4, does 'Commitments made since end of previous quarter' include borrowing limits which are not taken up by the borrower, but which could be at some point in the future?
A: The firm asking the question provided an example: say the customer asks for a £100,000 mortgage and the financial institution agrees to this. In addition they also offer a draw down facility of £20,000 which makes the borrowing limit £120,000. Does this mean the commitment is £120,000? And does the advance of £100,000 leave an outstanding commitment at the end of the quarter of £20,000?
'Commitments made since end of previous quarter' in table D(2) should include all amounts which the firm has formally agreed to advance, and is therefore committed to lend to the borrower, whether now or in the future. As such it would include any drawing facilities that have been agreed, and in the example you quote:
a) the initial commitment would therefore be £120,000 and
b) after the £100,000 advance has been made, the commitment outstanding at the end of the quarter would then be £20,000 until such time as any drawdown was subsequently made.
Q: In section D1, could you please provide guidance on converting currencies to sterling in respect of brought forward balances.
A: The firm asking the question provided further background and an example: the Guidance Notes state that the currency should be translated into their equivalent sterling value using an appropriate rate of exchange at the reporting date.
If the base currency is for example euros (and an exchange rate of 0.67) and we have a closing balance at the end of quarter 1 of EUR 1,000,000, this will translate to £670,000. If at the end of quarter 2 the exchange rate is 0.68 then the opening balance for quarter 2 is still EUR 1,000,000 but this translates to £680,000.
Should the opening balance for quarter 2 be reported as £680,000, otherwise I would imagine that the transactions across the line would not balance as different conversion rates are used?
There are two possible ways of dealing with "balances at start of quarter":
a) A lender reports the sterling opening balance figure to be the same as the closing balance reported for the previous quarter. In situations where none of the loans are denominated in currencies other than sterling, we would generally expect opening balances to agree with previous quarter closing balances (perhaps with any minor difference reflected in other debits/credits; but any significant difference probably needing revised figures submitting for the previous quarter). If that approach were to be followed for situations involving non-sterling currencies, then the difference arising on currency translation could be posted via other debits/credits, otherwise the analysis across the columns would not reconcile.
b) A lender reports the sterling opening balance figure, but on the basis of applying the currency conversion rate applicable at the end of the current reporting period. All columns should then reconcile (assuming of course that the underlying amounts pre-conversion also reconciled). In this situation the opening balance would differ marginally from the closing balance reported at the end of the previous quarter. This is the method shown in your example.
However, we have not commented specifically on this aspect in the MLAR Guidance. That means that some firms could be planning to adopt the first approach, and some the second. Indeed, there would not appear to be any reason for ruling either approach as invalid. In the circumstances, our approach would be to accept either approach as being valid.
Q: We are analysing the amendments made under section 2004/79 regarding the requirements to report Overdrafts in section D1 and what is classified as an overdraft. The guidance notes indicate two types of revolving credit facilities: overdrafts and credit cards, but I am unsure how overdrafts relate to mortgages, particularly with credit cards.
A: 'Overdrafts' fall into two broad categories: those that are secured on land and buildings (ie a mortgage), and those that are unsecured.
Unsecured overdrafts are likely to constitute the majority of overdraft facilities offered by financial institutions. For MLAR purposes they are reportable only as part of A3.5 and in relation to B 2.5.
However those overdrafts, which are secured, are includable within all categories of Mortgage lending in D1. The MLAR Guidance mentions secured overdrafts and other forms of secured credit, at the end of section 4 (last paragraph) in the Introduction chapter. While this is in the context of the range of loans caught by the definition of a regulated mortgage contract, the concept applies equally to other categories of lending and an overdraft could exist as a secured overdraft as part of each of the lending categories in D1.1, D1.2 or D1.3 etc.
The purpose of the new 'of which' analysis in D1 columns 7-9 is to separately analyse those overdrafts already in D1 column 6, and then exclude them from certain later analyses (eg. D3, E3-6 (see second paragraph of section E of MLAR Guidance as amended by 2004/79) and F (see Introduction paragraphs of F as amended by 2004/79) etc.).
We have defined 'overdrafts' as covering two types of revolving credit facilities: overdrafts (by which is meant the normal banking products of that name that are normally linked to a current account) and credit cards. Therefore this term 'overdraft' would not include:
a) those elements of a mortgage constituting extra drawing facilities (eg those reported in E5).
b) those elements of a mortgage constituting the facility to draw down that arise because of overpayments (excluded from E5).
Q: Do overpayments on qualifying loans create additional commitments?
A: Because we define 'Commitments' in section D4 sub paragraph a) of MLAR Guidance as 'formally agreed advances', it is not expected that firms will necessarily treat 'overpayments' (where, under the terms of a loan, such an event creates an ability to re-borrow) as new reportable commitments.
However, if the borrower subsequently re-borrows any overpayment such that the lender needs to report an actual 'advance', this has implications for D4 in particular (but advances will need to be reported elsewhere too). If there is no compensating 'commitment' made, then the stock of commitments will be reduced and that would be inappropriate, as it would understate the true level of commitments. It is suggested that whenever an 'advance' of this nature is made for which there is no pre-existing commitment, that an amount equal to the advance is added to 'commitments made since end of previous quarter' in D4, so that there is no diminution in the underlying stock of commitments.
Q: Should drawdowns on flexible mortgages be included in 'advances' and 'commitments'?
A: Drawdowns should be included in figures for further advances in E6.3, and hence in figures for overall advances in D1 under 'Advances made in quarter'. They also need to be taken into account when compiling figures for commitments, but how this is done will depend on the type of drawdown.
There are two types of 'drawdown':
(i) drawdowns on loans with an extra drawing facility, that is those types of loans described in E5. These types of loans have a formal commitment from the outset to lend the 'extra amount' agreed at the time of making the original advance. Hence we would expect such unutilised commitments to formally be included in figures for Commitments at D4 at the time of the original commitment being made. So there should not be a problem of subsequent drawdowns being reported in 'advances in qtr' in D4 (and of course in D1, where there is specific guidance at D1 d), and hence reducing commitments balances without any corresponding commitment being included in the brought forward balances.
(ii) drawdowns on loans where, under the terms of the loan, the event of an overpayment creates a facility for the borrower to subsequently withdraw any overpaid amounts (possibly subject to conditions on minimum/maximum amounts etc.). Here, the event of the borrower exercising this facility means that an amount of money is 'advanced' by the lender to the borrower, and the loan balance outstanding increases by the same amount. Hence such movements need to be reported in advances in D1, and the MLAR Guidance at E6.3 implies that this should also be reported in advances there as well. To deal with the analysis of Commitments at D4, it is also necessary to take this type of drawdown into account. One method would be for the 'commitments made in qtr' figures to include an amount equal to any drawdowns of this type that are actually made in the qtr. Another method would be to create a new commitment every time a qualifying overpayment was made, but this would tend to overstate the likely amount that would ever be drawn down (as not every borrower would exercise the facility) and so a lender might need to only regard a proportion of such notional commitments as reportable commitments for D4 purposes. We think this is a matter for the lender to decide in the context of the product characteristics, but the first method is probably easier to implement and avoids the risk of significantly overstating commitments.
Q: How do we report 2nd charge lending in section D?
A: The firm asking the question noted: should we categorise our 2nd charge lending as 'other secured loans' for the purposes of form D? Is this correct given that some of our 2nd charge loans are regulated by the Consumer Credit Act (CCA), and others are entirely unregulated?
The answer provided was as follows:
- We think this is unlikely to be correct
- For MLAR purposes there is no distinction between 2nd charge loans covered by the CCA and those that are not. In MLAR, the term 'regulated' means specifically that it is a regulated mortgage contract as defined by the FCA (see MLAR guidance, Introduction, section 4 (iv)): but the fact that it is regulated under the CCA has no relevance in terms of the MLAR use of 'regulated'.
- '2nd charge lending' needs some clarification before deciding on how to classify:
- If it involves loans to individuals secured on residential property, then it should be classified as 'residential loans to individuals: non-regulated', eg D1.2. The Introduction chapter of the MLAR guidance mentions that this category includes 2nd charge lending at section 4 (ii), paragraph 2; and 2nd charge loans are also given as an example of non-regulated mortgage contracts in paragraph 4 of that same section.
- Thus it is likely that much of a firm's 2nd charge lending will be reportable under this category of 'residential loans to individuals: non-regulated'
- But if there are any 2nd charge loans that do not satisfy the characteristics of 'residential loans to individuals', for example if the loan is to a corporate, or if the loan is to an individual but less than 40% of the land & buildings is used for residential purposes, only then would such a loan be classifiable as 'Other secured loans' as for example at D1.3
Q: In section D4: Commitments, where should Further Advances be included – under House purchase, Remortgage or Other?
A: The terms house purchase (HP) and re-mortgage (RM) are also used in E6, and although there is no explicit link in the guidance notes to that effect, we suggest you follow the guidance in E6, which means that:
- HP (at D 4.1(a) /D 4.2(a)): should be approached in the same way as items E6.1 and E6.2
- RM (at D 4.1(b) /D 4.2(b)): should be approached in the same way as items E6.4 and E6.5
- "Other" (at D 4.1 (c) /D 4.2(c)): should then be approached in the same way as all other E6 items, i.e. E6.3, E6.6 and E6.7
Since in E6 it is clear that Further advances (FA) are to be reported in different ways depending on their nature/purpose (see next paragraph), then this treatment should also be followed when reporting a FA both as a commitment made and as an actual advance made in section D4.
In E6, further advances are reported as follows:
- FAs on buy to let are reported against E6.2 Buy to Let. Thus include in HP in D4.
- FAs on lifetime loans are reported against E6.6 Lifetime Mortgage. Thus include in “Other” in D4.
- Other FAs are reported against E6.3 Further Advances. Thus include in “Other” in D4.
Also, it is important that when a particular FA is reported in D4, whether as a commitment or as an advance, that it is classified in the same way each time.
Q: How should we deal with a loan commitment case in D4 where a potential borrower receives one or more revised loan offers?
A: The firm asking the question explained: a customer may get an offer during the reporting period say for £100,000. Three days later they may come back and say they want £105,000 instead, so we cancel the original offer and create a new one. A month later in the same period they may come back and say actually we need £120,000, eg for home improvements not originally allowed for. The offer for £105,000 gets cancelled and a new offer of £120,000 gets created. The question is, should we report 1 offer for £120,000 or three offers and two cancellations?
Ideally the firm should report the most recent 'offer' but if this is not viable, because of how offers and cancellations are recorded or processed in the firm's systems, it would be equally acceptable to report 3 offers and 2 cancellations.
In most cases we imagine a borrower will probably only be subject to one offer in a quarter, and so for the minority that have multiple offers it is unlikely to make a significant difference to 'new commitments' figures. Moreover, the impact on the figure for net new commitments (a key measure derived by us from new commitments less cancellations) will be nil.