Last year, Virgin Money, Precise Mortgages and Bank of Ireland introduced proc fees for retention deals. From March, Santander started offering brokers retention fees of 0.2% across mortgage clubs and networks. In April, Skipton Intermediaries also piloted a proc-fee paying retention system and Atom Bank committed to paying a retention fee for brokers at the same rate of its initial fee.
Setting the benchmark
While this is welcomed by the broker community, retention fees aren’t new to all. Lloyds Banking Group (which works with brokers across its Halifax, BM Solutions and Scottish Widows brands) introduced proc fees for product transfers 11 years ago.
The lender set out to ensure that a broker’s advice between a product transfer and a remortgage option for a customer could not be influenced by fee considerations. Its proc fees are identical to its remortgage proc fees for that reason.
“At the time broker product transfers (PTs) represented a significant proportion of our PT business, but this is not the industry norm today,” said a spokeswoman.
Managing director of Precise Mortgages Alan Cleary said it will take some time for the specialist lender to see an impact after it introduced the fees. “We don’t have a massive back book. It’s going to be a couple more years before we have sizeable retention.”
However, the principle remains. “Brokers should be paid if they are getting involved in helping. There’s a question mark over how much they should be paid but I’m sure the market will figure that out. Most lenders have come on board and started paying for product transfers – it’s becoming the market norm now,” he said.
Mark Graves, managing director, Sesame & PMS, said the introduction of retention proc fees is “a positive step forward and an acknowledgment from lenders about the importance of ongoing advice to customers and the work involved in delivering this”.
A token gesture
Yet the issue of fees remains – with many lenders paying lower fees for business retention.
“Whilst it is still early days, there will be some instances where good firms, who are delivering the right outcome for their customers are ultimately earning less per case when recommending a product transfer in comparison to a remortgage,” says Graves.
“Advisers are following the same advice process whether it’s new business or retention, as well as being accountable for the recommendation given. However, from point of application there is less administration on retention business and therefore a slightly lower procuration fee seems fair.”
A spokeswoman for LBG suggested this could change. “We may see pressure on lenders to raise their product transfer proc fees towards their standard front book rates,” she said.
London & Country associate director David Hollingworth said whether lenders raised fees to match those for remortgage or not would largely depend on value assessments, adding that consumers may be new to the broker – even if they remain with the same lender.
“The big angst among lenders was that they would end up paying for business they would have kept anyway, but if you look at Halifax, who has supported this for a long time and should be applauded for it, they have stuck with it.”
Gemma Harle, managing director of broker network Tenetlime, added: “There is the argument that brokers aren’t doing as much administration [with PT] but they are doing the full advice process and if there are any issues with that customer the broker is picking it up.”
There are other factors that could affect brokers as the new normal plays out in practice.
Graves points out that lenders may find it more cost effective to focus on retaining customers through their own strategies. “Advisers need to be switched on to this and make sure they are responsive to their existing customer base.”
Other concerns from the broker community include a move to execution-only deals.
Harle says: “It is something that worries us. Will lenders move more into the execution only space? Are they looking at that for PT?”
The fee changes may lead to lower remortgage levels. “I think it will impact the remortgage market though statistically when people remortgage they do tend to raise more funds so product transfer won’t always be the right answer,” said Harle.
She added that it was vital brokers maintained standards. “Whole of market brokers need to make sure they are doing a full fact find and talking about affordability and don’t cut corners because the system is easy. It’s very important brokers keep their end up.”
This is something she says Tenetlime will continue to check.
Most agree that it’s difficult to accurately predict the impact at this early stage. However all would welcome greater transparency.
“There needs to be more clarity and visibility on market data for retention business across the industry, because it is simply not available at the moment,” said Graves.
“With estimations of this type of lending at over £100bn and growing, it’s significant and it should be tracked somewhere. The CML excludes product transfers from overall gross lending figures and therefore a large proportion of business written is being missed,” he said.