Mortgage brokers deserve regulatory protection against industry practices – Walayat

Borrowers are safeguarded by rules covering affordability checks, disclosure requirements, and conduct standards. Yet, despite these layers of oversight, there is a surprising gap in regulation when it comes to how mortgage networks treat brokers.

When a customer takes out a mortgage, the rules are crystal clear: brokers must rightly treat customers fairly, disclose their fees and put customers’ interests first – the list goes on. But what about how those same brokers are treated by the mortgage networks that control their livelihoods?

That’s a different story – and it’s a story no one is talking about.

A mutually beneficial arrangement

In the intermediary ecosystem, mortgage networks and mortgage brokers have a symbiotic relationship where both parties benefit without harming each other.

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On the surface, mortgage networks provide access to lenders and handle compliance, among other things, whereas brokers bring in the revenue to keep the networks and themselves afloat. However, behind the scenes, the balance of power leans heavily in the network’s favour.

Brokers who try to enter the market as trainees find it extremely difficult to find a network, which is fair. Yet, when brokers try to leave a network, they often face hefty exit penalties, withheld commissions, and clawbacks that can cripple their cash flow. Meanwhile, commission arrangements can be opaque, and compliance rulings inconsistent, with little to no room for brokers to challenge decisions.

The Financial Conduct Authority (FCA) focuses primarily on consumer outcomes, not B2B arrangements. As a result, the network-broker relationship falls into a regulatory blind spot.

The assumption is that brokers, as professionals, can protect their own interests.

In practice, however, the disparity in size and influence between networks and individual brokers leaves many vulnerable to unfair practices and even being pushed into financial difficulty, leading to business closures, which impacts their personal lives.

An unfairness towards mortgage brokers harms consumers too

This matters not just for the brokers but for the entire mortgage market. If networks stifle competition and operate without transparency, consumers ultimately lose out too.

Fewer independent brokers means that the ‘vanilla case mentality’ wins, and skewed incentives could shape the advice borrowers receive.

The broker and network ecosystem need to have a balance where both parties’ interests are protected. It’s time for regulators to catch up. The FCA has emphasised the importance of the Consumer Duty, ensuring good outcomes for retail clients.

Extending a similar principle to the broker-network relationship could help close this regulatory gap. Fair exit terms, transparent on-time commissions, and an independent avenue for disputes aren’t luxuries – they’re essentials for a healthy market and accountability.

Mortgage networks play a crucial role in the intermediary ecosystem, but their influence over brokers is often unchecked. Without proper regulation, the balance of power tilts in favour of networks, leaving brokers exposed to unfair practices.

For a market that prides itself on consumer protection, ensuring fairness within its own professional structures should be the next logical step to keep this ecosystem thriving.