The debate often polarises opinion, so Mortgage Solutions asked this week’s Marketwatch panel whether client fees make for better business?
Sebastian Riemann, mortgage consultant at Libra Financial Planning, says brokers need to charge a fee, in part because inflation has effectively eroded procuration fees down in recent years.
Peter Baldacchino, founder of High Street Mortgages, argues that charging fees can be a barrier to starting a new broker business.
Colin Payne, associate director at Chapelgate Private Finance, believes clients are happy to pay fees if they receive a good service.
Sebastian Riemann, mortgage consultant at Libra Financial Planning
The issue of fees rose around 2006 – back then many were apprehensive about introducing fees and concerned about losing business or compromising their competitive edge.
Lots has changed since then. It isn’t as simple as it used to be, nor is it as quick.
The regulator has introduced tighter controls, saving us from more doom and gloom, but resulting in a more time-consuming mortgage process.
The issue of stagnated wage growth has not eluded our market, with procuration fees effectively eroded by inflation over the past 10 years.
In order to cover our costs and provide a good and valuable service to our clients, we have little alternative but to charge a fee.
Were a transaction to fall through at no fault of their own, a broker wouldn’t get paid unless they charged a fee; I cannot think of many other business transactions that have a similar arrangement.
Being independent we apply a common-sense approach to fee pricing – for example, the work for an existing client product transfer is less than a new application, although the research element and advice process is the same. It would not be a fair if we charged the same amount for both.
We need our clients as much as they need us, so it is just for us to treat each other fairly. From experience, clients have little objection to being charged a reasonable fee for the work undertaken.
Peter Baldacchino, founder of High Street Mortgages
I started High Street Mortgages nearly two years ago and whether or not to charge fees was a hot topic.
Many people from within the industry and my network thought that I should be charging but I took the decision not to for two main reasons.
First, I was starting a business from scratch and I had to build a client bank quickly.
I networked all over the area and I tried all advertising mediums available to me.
It was important for me to be able to promote myself and advertise as a ‘no fee broker’ to stand out.
Second, my business model is such that I want to operate on a premise that once you talk to me, there is no reason to go anywhere else. I view charging a fee as a potential barrier to this.
Whether or not to charge fees is something that I will keep under review.
In the region that I operate, I believe that the procuration fees are enough to make a living on, especially now that an increasing number of lenders are paying product transfer proc fees.
Colin Payne, associate director at Chapelgate Private Finance
Brokers can justify charging and should charge a fee.
I have charged a fee in some form for the best part of 20 years and I must be doing something right as practically 100% of my business is from existing clients and referrals.
I feel I provide a service which is second to none; if a client needs assistance in an evening or at a weekend I’ll make myself available.
My investment in all of this is my time and for that time I should be paid accordingly.
Yes, I receive a procuration fee from a lender but to me that is solely a fee to cover the work I do on behalf of that lender, not the work I do on behalf of my client.
Brokers nowadays still encounter numerous headwinds in dealing with applications.
If I am placing a £100,000 mortgage for a potential gross procuration fee of £350.00, I will not be left with too many pennies once I have covered all my overheads – so charging a client fee is imperative and right.
My clients appreciate the detailed advice they receive not just about the mortgage rate but also the wider picture, the fact I make myself available and go the extra mile, is why they return time and again, why they refer and why they are happy to pay a client fee.
