When questioned, three brokers gave Mortgage Solutions exclusive insights into how the payment of these fees is likely to have positive benefits for the market as a whole.
Ray Boulger, senior mortgage technical manager at John Charcol, pointed out: “Now that all major lenders aside from HSBC are committed to paying retention fees for product transfer work, there are two benefits for brokers and their clients: firstly it means the lender will allow the broker to process a product transfer. Secondly, they will pay the broker a retention fee for this work.
He argues that this allows the broker to give their clients a better service as well as obtaining some remuneration for the work involved. “A mortgage broker has to go through the same fact finding and advice process for a remortgage or a product transfer, although there is less admin involved in a product transfer.”
Interestingly, he believes that the typical remuneration from lenders for product transfers (0.2%) is likely to rise closer to that for remortgages (0.4%), since the differential is too large given that the broker has to go through a very similar process in order to provide the client with good quality advice.
Boulger estimates that the product transfer market is worth £100bn a year, 50% more than the remortgage market, with only about 25% of product transfers, compared to approximately 70% of remortgages, arranged by brokers. Over time he expects mortgage brokers’ share of the product transfer market to increase significantly, which will also result in a huge increase in the proportion of borrowers who benefit from getting advice on their product transfer, as many product transfers arranged direct with the lender are on a non-advised basis.
Peter Gettins, a spokesperson for mortgage brokers L&C, said: “It’s hard to say definitively that the introduction of retention fees has had a significant impact on our overall business levels but it has brought additional options into play for clients. Without a retention process in place, brokers would be reluctant to make a recommendation they can’t help the client follow, or take responsibility for the advice without payment. By opening up their business processes many lenders are enabling brokers to cast the net a little more widely.”
He noted that not all lenders are currently offering retention fees to brokers. TSB and NatWest are among them, although both have committed to doing so. In addition, Coventry Building Society, despite offering them for buy-to-let mortgages, does not currently offer retention fees for residential mortgages — although it too has committed to offering them on residential cases.
Vic Jannels, chairman of AToM, a packager with qualified advisers, commented: “There are two initial aspects to this in order to create a level playing field – lenders should either all pay retention fees or not. This would deliver clarity and avoid brokers considering the benefits of retention versus change of lender in the best interests of the client.”
He added: “It seems to me that retention fees (assuming the product offering is the right one for the client) make a deal of sense avoiding the issues of remortgaging with the potential of valuation and legal fees applying plus possibly a broker fee. That said, retention fees can trigger a temptation for brokers to take the easy path possibly causing the client to miss out on a better deal elsewhere.”
Jannels concluded: “In my opinion, retention fees should not be considered anything other than creating another option to put in front of a client as part of a wider proposition for consideration.”