While some lenders have upped their product transfer (PT) proc fees in recent months, brokers want to see parity of fees between purchase cases and PT transactions.
They say only equal fees would fairly reflect the level of work necessary to comply with Consumer Duty regulations, Mortgage Charter commitments and the principles of giving borrowers whole-of-market advice based on their most recent circumstances.
Explosion of PT business
UK Finance’s most recent PT update showed that PT transactions in 2023 rose by 17 per cent year-on-year from 1,274,240 to 1,491,750.
Meanwhile, more profitable revenue streams such as first-time buyer and homemover mortgages have plummeted. Last year, homemover mortgages, which pay much higher proc fees, dropped 26 per cent to 251,000; their lowest level since 1974.
Despite the explosion in PT business – of which brokers are responsible for placing around half – and the responsibility they have to carry out a full fact-find and research the entire market before a PT can be recommended, many lenders still pay the nominal 0.2 per cent proc they did in 2018.
Richard Howes, director of mortgages at Paradigm Mortgage Services, said: “Our market needs and depends on a healthy, thriving and financially profitable adviser sector.
“The PT market is driving advisers’ profits down, which is not conducive to long-term growth. Surely it’s the aim of every lender to be working with profitable firms?
“We could use other words in this context, for example, that it’s not fair on advisers. But ultimately it doesn’t make sense to pay below commercially what is right and needed. Perhaps lenders should accept this and now start to act.”
Reluctance to increase fees
Mortgage Solutions approached the five largest mortgage lenders, excluding Halifax, which already pays equal fees for its business, followed by Skipton and Leeds Building Societies, Accord and TSB, to ask if they had any plans to increase their PT proc fees.
Santander said its 0.2 per cent reward was in line with the wider market and did not indicate any plans to change that. Barclays would not disclose its PT proc fee, but said it was competitive. The lender said there was a difference in proc fees for new business activity, which required a significant amount of work from brokers, and a rate switch. Nationwide said it had no plans to change its proc fees. No other lenders responded.
Halifax pays the same amount for purchase and PT business. Its view is that the bank’s proc fees should reflect the level of work involved in the transaction, and it sees the cost of proc fees on PTs as something that provides value.
More recently, Family Building Society has made the same change. Bank of Ireland upped its rate in January, but not to match its purchase transactions.
Mark Humphrey, director of MHC Mortgage and Protection Ltd, said: “This argument has become louder due to a drop in broker income as PT business has increased and purchase business has reduced. However, the argument is about being paid for the advice we’re giving – which often follows the same process and takes a significant amount of our time, effort and expertise, no matter how the borrower proceeds.”
Humphrey says PT transactions now make up 33 per cent of his business, up from 19 per cent the year before. He said the firm’s average loan size is £250,000. For a remortgage or purchase case they might expect £1,000 to £1,200 in income (proc fee + broker fee), but for a PT this falls to around £400-500.
So how are brokers making up this loss of earnings?
“The simple answer is that we’re not,” said Humphrey. “It’s been a particularly tough year in business. The cost-of-living crisis puts additional pressure on family spending, which is making it more challenging to sell protection, so our income is down on several fronts.”
In a recent lender conference, he added, several lenders said that any increase in their PT proc fees would have to be funded from another source, such as a higher mortgage rate or smaller proc fees for remortgages and purchases.
“Halifax pay an equal proc fee for both,” he added, “which demonstrates that the pricing model can work if there’s appetite from lenders to support brokers.”
Money for nothing?
Lenders argue the work that goes into a PT is not equal to a purchase, which is why the two types of business are rewarded differently.
Brokers beg to differ.
They say that, since new rules were introduced under the Mortgage Charter that said lenders should allow borrowers to lock into a new deal six months before their old one expires, this has created even more work for PT transactions, as rates must be monitored and circumstances reassessed before the switch happens.
And new regulation that promotes the best consumer outcomes for borrowers means a full fact-find should not be skipped.
Alistair Ewing, managing director of The Lending Channel, added: “The issue is more about the current process rather than simply comparing proc fee levels.
“To fully assess a client’s current circumstances, the broker should really complete a full fact-find – especially since Consumer Duty has been implemented. While lenders don’t insist that a full new fact-find be completed, this will deliver the best value for the client. How can a broker properly advise a client they may not have spoken to for five years without one? A full proc fee should be paid to recognise this work.”
Rory Joseph, group director at network JLM Mortgage Services, added: “The arguments that advisers don’t do any work for PTs or it’s money for nothing are not just wrong but offensive to our community. We hope others will follow Bank of Ireland here, even if they are not willing to go quite as far as LBG lenders crucially do.”
Opportunity for competitive advantage
“Will other lenders follow the likes of Bank of Ireland, Family and Halifax?
“Who knows as yet,” said Joseph. “But in a highly competitive marketplace where you may have no chance of competing on rate, perhaps a recognition of what advisers actually do for PT business and how there should be greater proc fee parity is a chance to come out into clear ground and be recognised for it.”
PT proc fees were a key topic at the British Specialist Lending Senate 2024, and last year, brokers called for alignment in PT proc fees.
