Intermediary lenders have helped fuel the summer’s mortgage spree, according to some accounts. This would suggest brokers are in a good place to demand higher proc fees, after several years of seeing them decline.
So is there anything brokers can do to boost their proc fees?
For this week’s Marketwatch, our commentators are:
Aldermore mortgages managing director Charles Haresnape, who recommends brokers reconsider what they charge clients rather than challenging realistic proc fees
Mortgage for Business managing director David Whittaker, who expects proc fees to rise in specialist areas such as complex buy-to-let
Pink director Mark Graves, who argues focusing on quality is the first step to a world of higher proc fees
Charles Haresnape, managing director, Aldermore
In the wake of the crash of 2007/8, many new measures were introduced to ensure the problems never happened again. But one thing has remained constant regarding mortgages: proc fees.
Fees have largely been retained at the levels witnessed prior to the crash, despite downward pressure to cut costs. Currently fees average about 35bps, which I believe to be a realistic and fair price for brokers.
Certain brokers are leading calls to increase proc fees due to the increased regulation they are now required to deal with. I disagree with this. It is the lenders that are tasked with carrying out the new measures, such as the enhanced affordability test.
Some lenders are threatening to implement reduced fees as a penalty if broker origination quality is below par. But in this instance, clear dialogue with the brokers explaining what is required would be the best option.
Professional fees can be hundreds of pounds an hour just for a consultation. On the other hand, brokers conduct a tangible service based on securing a deal and, having done the vast majority of the work, often only charge modest fees.
Brokers could be selling themselves too cheaply. The amount of work they do brokering a mortgage is sometimes not accurately reflected in the amount they charge.
David Whittaker, managing director, Mortgages for Business
In the mainstream buy-to-let space, proc fees have decreased. For example, commission paid by The Mortgage Works and BM Solutions, which control roughly 55% of the market, has decreased from 0.55% to 0.44%.
Vanilla transactions may require less human interaction from lenders but manipulation of market dominance is not acceptable. In Q2 2013 our average vanilla transaction was £175k which equates to a proc fee of just £788. This isn’t much when you factor in the man hours involved from the broker.
Conversely proc fees in the complex buy-to-let space are stronger and in future, could well increase to levels seen in the commercial mortgage market, i.e. 0.75% upwards.
Of course, there are fewer lenders in the complex space. Most business goes to the likes of Aldermore, InterBay Commercial, Keystone Buy to Let Mortgages, Paragon and Shawbrook. These lenders restrict access to just a few key partners.
We have worked hard to become experts in the complex buy-to-let space. Average loan amounts are considerably higher. However, we can’t just rely on proc fees because of the time involved to win the business and process the application. We charge broker fees too. This means that our clients pay for our expertise. It defines our professional relationship and helps them to feel secure in the knowledge that we are working for them and not the lender.
Mark Graves, director, Pink
The new sales process, initiated by the introduction of the Mortgage Market Review, relies on advisers submitting quality cases. There is a case that proc fees could go up as advisers do more work for the lenders and save them time and money.
Quality is likely to have a positive effect and it is in a broker’s interest to ensure quality is at the top of the agenda. As far as ensuring quality is concerned, that comes down to having a robust process in place.
There is one reason proc fees could fall as the new processes come into force. Should lenders find themselves with a greater workload, unable to rely on quality and having to recruit more staff to check cases coming in, there is a likelihood that fees could drop as lenders’ costs rise.
We’ve been saying for a long time quality really is the key. The trick is now making sure that each lender has the same idea of quality – a benchmark, or charter if you like. My concern is that if we have different lenders coming up with their own interpretation of what is good, then proc fees could suffer as result.
We need to look at how we can work with lenders to ensure a level playing field and one that encourages the quality we’ve been promoting.
