In an ultra-competitive market, mortgage rates have remained low in 2018, despite increases in the Bank of England base rate and the cost of borrowing for banks.
It means lenders are earning less on home loans in 2018 than in previous years.
Lloyds’ managing director of intermediaries Mike Jones warned this was the case earlier this year.
L&G Mortgage Club director Kevin Roberts also agreed lenders are “starting to feel the squeeze” and suggested that proc fees could plateau in the near future.
One source at a high street lender told Mortgage Solutions a move by one big lender to reduce proc fees could open the flood gates for more to follow suit.
They said: “There’s a reason senior figures are talking about the lenders’ budget for proc fees being squeezed…
“If a big lender were to reduce fees, it would likely give others the opportunity to do the same.”
However, another well-placed source at a large broker network told Mortgage Solutions that discussions with lenders don’t point to any changes in the near term.
They said: “There is nothing on the table at the moment.”
Ben Thompson, managing director at the Mortgage Advice Bureau, doubts lenders are set to make changes anytime soon.
He said: “Margins for lenders may well be under pressure, for a variety of reasons, not least of which, heightened competition and a challenging interest rate environment.
“I’m sure however that there isn’t a single lender contemplating reducing their procuration fees at a time when the relationship with intermediaries is both stable, predictable, de-risked and most importantly equitable.”
Lenders may focus on direct business
Another fear is that lenders could focus on growing its direct channels to help reduce the amount being paid in proc fees.
Lenders have put a lot of time and effort into the broker market in recent years, as business has increasingly come through intermediaries.
But growth and investment in technology could give banks and building societies the means to tip the business balance back towards direct channels.
It comes after the Financial Conduct Authority (FCA) also raised the issue of whether consumers could benefit from more avenues to carry out execution-only mortgages in the interim report of its Mortgages Market Study.
Aaron Strutt, product director at Trinity Financial, said: “Many of the banks and building societies are relying very heavily on brokers to hit their lending targets and the amount of business coming through brokers as opposed to the direct channels is incredibly high.
“Lenders are doing a lot of work behind the scenes to make the application process as automated as possible and technology will make a huge difference over the coming years.
“Open banking is set to transform the financial industry and lenders will want to cut costs where they can.”
Again, the changing market and adoption of technology should be a wake-up call for brokers to assess their business models, according to critics.
Andrew Montlake brand director at Coreco said: “There will be some lenders that believe technology will give them an opportunity to take back a share of this business without having to pay a proc fee.
“Brokers who have started to rely heavily on this source of income need to have a look at their models and fee charging.
“It is important we all value what we do and are able to articulate this to the consumer.
“In my mind technology should be an excuse to develop closer relationships with brokers rather than start to plan for a future with less emphasis on them.
“For all lenders now, brokers are an integral part of their strategy and for lenders to start reducing proc fees will be difficult to justify and for brokers to forgive.”
Other ways to cut costs
Of course, brokers may have little to fear.
Lenders continue to openly speak about the importance of the intermediary relationship.
And it was suggested there are a number of ways banks and building societies can ease pressure on margins before either cutting proc fees or circumventing brokers.
MAB’s Thompson said: “It’s pretty clear that any focus to address margins is a collective challenge for lenders as a whole and one that could be sorted through adjusted pricing, further cost-cutting or making processes more efficient through technological and other enhancements.
“At a point in time where customer acquisition is as tough as it’s ever been, this is no time to squeeze the hard-earned and close partnership that exists with intermediaries.
“It’s interesting to horizon gaze a world with intermediaries squeezed commercially – I’m not sure this ends well for lenders, from whatever angle one could look at this.”
