The Coventry Building Society has stepped away from the pack and increased its procuration fee by 26% to directly authorised brokers as well as increasing fees to appointed representatives at an undisclosed amount due to individual network deals.
This is a bold move described by one leading industry figure as “more than expected” but definitely deserved so will this signal the start of a market-wide move to revise proc fee structures? And if not is it time for lenders to re-evaluate the value they place on the role brokers play in the distribution of their mortgage products?
Opinion is divided on whether it will, but not on whether it should.
The mortgage process is more complicated and elongated than it has ever been. Mark Graves, head of network at Pink, said the length of the process had doubled in the last three years and the responsibility resting on intermediaries’ shoulders, for quality and criteria, has grown since the financial crisis and the resultant Mortgage Market Review.
Graves said the intermediary adds a valued service to the process which should be recognised by an appropriate level of remuneration and offers lenders a cheaper distribution channel in contrast to using a network of branches.
But the Coventry’s move to recognise the greater role an intermediary now plays in the whole process is not expected to put pressure on other lenders to make the same decision.
Jeremy Duncombe, director of mortgage club Legal & General Network, believes Coventry has made 2014 the year in which we see the debate go up a gear but does not see it sparking a wave of lenders adjusting their fee structures immediately. Not least because to make such changes takes a considerable amount of time to devise and implement.
What the Coventry’s decision has served to do is push the proc fee debate higher up the news and boardroom agenda and will cause banks and building societies to look at their models to see how a fee hike sits within their structure and lending strategies.
And it should not be assumed that all lenders share the Coventry’s appreciation of the service the mortgage broker provides. Its broker-friendly operation runs right through its culture but this is not the norm for other lenders. Despite reports that after MMR intermediaries will be the main source of advice there are still some lenders which view the broker as a necessary channel which they must deal but don’t really want to.
But further rises are expected. LSL’s David Copland’s sees a “significant shift upwards” in fees moving towards 40bps for prime products and 50bps for buy-to-let. Graves predicts a quality-based metric system to be more commonplace by the end of 2014 as Lloyds became the latest to announce its proc fees will be linked to quality this month.
Graves wants to see one more step which he admits is a big step but one which would drive forward the real reason behind issuing a proc fee. He wants to see all lenders use the same method and level of remuneration.
Proc fees are there to reward the broker for providing a quality and valuable service and not to incentivise the sale of one product over another. But not all lenders have the same streamlined sales process which would put some at a disadvantage in terms of profitability.
But the Coventry has certainly burst open the can of worms brokers have been shaking for some time. Which lenders move next will provide an interesting insight into how they really regard the service intermediaries play in the mortgage process.