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Brokers rage at developer ‘incentives’

  • 20/07/2017
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Brokers rage at developer ‘incentives’
Intermediaries have slammed developers threatening to withdraw incentives on new-build properties if buyers do not use partner brokers, arguing it is resulting in sub-standard advice.

Daniel White, managing director of White Financial Services, said that just last week a client had come to him looking to buy a local new-build property, but the recommended adviser was struggling to place the case.

He said: “The borrower had a few black marks on their credit score, but this adviser was trying to place it with lenders who were never going to look at it. I had the case 24 hours, got it accepted by a lender, but now the developer has said that if the client uses me they will lose the £6,000 incentive they were offered. It looks as if the adviser is taking all of my recommendations and now doing it themselves.”

White said this isn’t the first time one of his clients has been pressured by developers to use their own recommended advisers this year.

He added: “I can ring up the developer and complain, but what can I do without putting the client in a compromising position where they may lose the home? It’s different with estate agents as they have a code of conduct they need to abide by; developers seem to think they can do whatever they want.”

The FCA is expected to look into commercial relationships between developers and advisers as part of its market study into competition in the mortgage industry.


Substandard advice

James Mole, head of mortgages at Ginkgo Independent, said that a developer had tried this with him recently when he bought a new-build property, insisting that Mole use the developer’s recommended broker.

He continued: “I have a few clients in the same boat. Nine times out of 10 they can insist on not using them and it is okay, but occasionally some developers won’t let it happen. The problem though is often the in-house brokers are not very good. Developers usually won’t want to pay any broker with experience the money they would require and so hire newly qualified brokers.”

Andrew Montlake, director at Coreco, argued that relationships between brokers and builders needed to be perfectly transparent, without any incentives on offer to use certain advisers.

“Incentives can cloud the judgement of buyers who may then use someone they have no particular faith in or may not even have access to the same products other brokers do. This could result in the buyer receiving substandard or biased advice,” he added.


New-build requires expertise

However, Helen Pierson, head of business development at Mortgage Bureau, defended the practice, arguing that the tight timescales and complexities of things like the Help to Buy scheme mean that it is understandable that developers will direct buyers towards brokers they trust to navigate the new-build market.

She added: “Brokers are a bit like supermarkets; they all sell the same basic commodity but your expectation of what you will get from them will differ. Ultimately it still should be up to the client to make the final decision on who to use, based upon merit.

“What would be of greater concern to me would be if a developer was receiving remuneration from a broker in exchange for referrals, whether this be by way of hard cash or something less obvious, and if this is the case whether it is being disclosed to the purchaser at the point of recommendation.”

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