The Financial Services Authority (FSA) has published CP180, its proposed approach to application fees for regulating mortgage firms and general insurance intermediaries. This includes offering discounts for early and electronic applications, but confirms brokers are to pay into the Financial Services Compensation Scheme (FSCS). Fees are to be set in bands and mortgage intermediaries with an annual income of less than £1m will pay £500 for early electronic application, compared to £1,100 for a standard application. Brokers with an income up to £25m will pay £8,750 for early electronic applications.
The FSA has acknowledged the importance of smaller brokers to the market; current application fees are based solely on the type of business that a firm is carrying out. John Tiner, managing director of the FSA, said: ‘For mortgage and general insurance business, we are proposing to charge fees based on the size of the firm’s business, in recognition of the many thousands of smaller firms that operate in this market.’
Steve Holt, national sales development manager at network Amity Mortgages, warned that registration is only the beginning. He said: ‘The initial joining fee seems to be reasonable, and the grading of fees to business size will be appreciated. However, there are periodical charges that will come up, IFAs are currently paying around £1,400 a year. Brokers will be paying into the FSCS and ombudsman schemes, for example. So when you look at the overall package, brokers will go from around £500 annually for the MCCB, to a probable £2,000 or so.’
Although included in CP180, the decision that mortgage advisers and arrangers will become FSCS fund contributors is final, not under consultation. However, James Mayne, head of strategic development at Britannic Money, did not think the amount would be onerous. He said: ‘This is not totally unexpected but it is an additional cost that people may not have considered. Charging is on risk, so the question is what is the perceived risk of selling mortgages, compared to investment? The financial detriment of buying the wrong mortgage would be slight in comparison as would any compensation, so hopefully the overall contribution to the fund will be low.’ Costs will be announced in January 2004.
Comments and responses on the consultation paper should reach the FSA by 24 June 2003.