In the mainstream mortgage market, overrides are not allowed however, the practice is within the limits of the law in an unregulated market.
In an exclusive interview with Mortgage Solutions, Alan Cleary, managing director of Precise Mortgages said overrides should be eradicated.
“There is a risk that higher proc fees in bridging could be distorting broker deal placement, but I think the bigger problem is that some lenders are still paying overrides to brokers.
“Overrides have been outlawed by the regulator because they always end up in a bad outcome for the customer. That practice, which I think is still happening, clearly could, and does distort broker’s placing deals.”
Cleary added that overrides need to be eradicated either by regulation or by campaigning to make the whole process more transparent by disclosing all fees to the borrower.
The Financial Services Authority said it was difficult for it to comment on bridging overrides in the unregulated market as it is “out of its remit.” However, the regulator said it prohibits such incentives in the regulated market.
The Mortgage Conduct of Business (MCOB) hand book states: “A firm must not operate a system of giving or offering inducements to a mortgage intermediary, reversion intermediary, Sale and Rent Back intermediary or any other third party whereby the value of the inducement increases if the intermediary or third party, such as a packager, exceeds a target set for the amount of business referred (for example, a volume override).
“A firm must not solicit or accept an inducement whereby the value of the inducement increases if the firm exceeds a target set for the amount of business referred.”
To watch the full interview, click here