Typically, these charges are justified on the basis that through the provision of their technology to market participants, they can offer a lender direct distribution to a large numbers of intermediaries.
Perhaps however, it is time to question the merits of this approach in its current guise.
Numerous new mortgage sourcing companies have tried and failed to challenge the more established providers in the market in recent years. By paying the dominant players in the sourcing market to list their products and simultaneously (perhaps not without reason), failing to offer the same payments to the smaller players, lenders may have unknowingly helped perpetuate the existence of a duopoly, thus stifling technological innovation.
Then there is the issue of independence. Sourcing systems hold themselves out to be whole of market and an independent reflection of products available. If lenders are excluded from adding their products to a sourcing system because they refuse to pay the charges demanded, could a sourcing system provider really remove them from their panel, to the detriment of the service they in turn provide their own end users?
Historically lenders have paid sourcing system providers on a ‘per product’ basis. However, the definition of what constitutes one single product is open to interpretation. A single product could account for more than 10 inclusions in an overall product count if it is entered multiple times to reflect differing LTV bands, fee structures and distribution options.
Perhaps therefore, it is not the principle of charging that is flawed, but the method by which charges are calculated.
It may be that a more appropriate method is to charge by actual distribution numbers, i.e. how many individual brokers actually use the sourcing system to identify products for their clients, and indeed, how much business is written by those intermediaries.
Furthermore, perhaps lenders should start to request MI from sourcing systems around the volume of searches that happen, and how many times their products appear in results. After all, surely there is no point in paying to list your products on a system where you never actually appear in any results?
In the post-MMR world, lenders are demanding more from intermediaries when it comes to quality of submissions to justify the payment of proc fees. Perhaps they should be demanding more from sourcing systems to justify the payment of their charges too.
James Tucker is managing director of Mortgage27
