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Exclusive: Two-thirds of lifetime mortgage brokers charge more than £1,000 in fees

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  • 23/05/2024
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Exclusive: Two-thirds of lifetime mortgage brokers charge more than £1,000 in fees
The proportion of brokers charging over £1,000 in fees for lifetime mortgages has grown to around 60% in 2023, Mortgage Solutions can reveal.

According to figures obtained by Mortgage Solutions following a Freedom of Information (FOI) request sent to the Financial Conduct Authority (FCA), this is up from 46% in 2022 and covers those charging from £1,000 to £2,000-plus.

The largest increase was seen among the share of advisers charging £1,500-1,999, which rose from around 15% in 2022 to 22% in 2023.

This was followed by advisers charging £2,000-plus, which increased from 13% to 21% year-on-year (YOY).

The smallest increase was at the £1,000-1,499 bracket, which went from 18% in 2022 to 21% in 2023.

In the £500-999 segment, brokers charging this fee decreased from 31% to 22% over the same period.

Brokers charging no fee decreased from 19% to 15%, and the number of those charging up to £499 has gone from 4% to 3% between 2022 and 2023.

A follow-up FOI request found that the average lifetime mortgage broker fee was £1,258.80, an increase from £1,081.20 in 2022, but down on the 2021 figure of £1,141.90.

 

‘Tough financial conditions’ leading to fee rise

Kelly Melville-Kelly, head of risk, policy and compliance at the Equity Release Council (ERC), said that, following the fallout from the mini Budget in 2022, equity release advisers were “facing the same tough financial conditions”, leading to the first average fee increase since 2019.

She said: “These commercial decisions will have been made following significant debate as, under the new Consumer Duty regime, each firm needs to prove that its ‘fee charging structure provides fair value to the customer’.

“Advice on equity release is specialist, wide-ranging and covers a number of different considerations including affordability, inheritance aspirations, care plans and retirement finance. Family involvement is strongly encouraged, and advisers typically spend a considerable amount of time supporting their clients as they make their decisions.”

Melville-Kelly said “more cautious customers” looking to wait until pricing improved, along with businesses “needing to meet rising fixed costs such as salaries, training, IT and compliance”, were also behind overall increases in fees.

She noted that whether this was a long-term trend would be dependent on interest rates and inflation this year.

“This is the first increase in average fees we have seen since 2019, so I am confident that if advisers can pass on savings to customers, they will do so,” Melville-Kelly said.

She noted that Consumer Duty and fair value meant “ensuring that customers understand exactly what they are paying for”.

Melville-Kelly pointed to the ERC’s guide illustrating a “consistent way” of describing fees and charges and wanted to establish a set of standard definitions to help customers understand their options.

She added that the trade body had produced a guide on post-completion communications, which had been created by a working group comprising providers, funders, advisers and other industry professionals.

Paul Glynn, CEO of Air, said the introduction of Consumer Duty regulation had “moved the later life lending industry into a period of transition”.

He said advisers have had “their work cut out adapting to the shift, with new business models and readjusted services resulting in some fees at the lower end being pushed up”.

Glynn noted: “What doesn’t appear as clearly in the data is that, based on feedback to Air, the highest fees have reduced in response to Consumer Duty and to meet customer needs. As a result of both of these changes, it is not surprising that more fees are grouping around the middle range.

“Another significant shift, also linked to the reduction in the higher levels of fees, has been the move away from percentage fees to fixed fees. This has largely been a welcome change and is one that is reflective of advisers taking their Consumer Duty obligations seriously. Air has taken an active role in supporting those who have undergone this transition and remains on hand to help advisers who may be undergoing a fair value assessment of their fees.”

 

Fee cap could protect customers

Paul Saroya, director of Viva Retirement Solutions, said he was “not surprised” to see advice fees going up overall, but would “urge firms to consider if they are offering fair value to clients”.

He added that nearly half of fees fall between £1,000 and £2,000, which is “understandable, as the cost of acquiring leads has dramatically increased”, with the largest increase being in the £1,750-1,999 bracket.

Saroya said: “Ultimately, the client is left with a large advice fee to pay, whilst the advice company also benefit from the procuration fee. It is especially important to note that, within this, there will be companies offering tied advice who will benefit from higher-than-normal procuration fees from these tied lenders, and so I would hope that these companies would have some of the lowest advice fees in the market.”

He said that Viva Retirement had increased its fees for the first time in almost 10 years from £750 to £995, but he was “not sure that intermediaries are always factoring in fair value”.

Saroya pointed out that 17% of firms, for instance, were charging over £2,000 in advice fees alone, and he would like to see a cap on what firms were able to charge clients.

“This would once and for all stop anyone ‘ripping clients off’ and would safeguard the industry against unscrupulous advisers,” he noted.

 

Cost of delivering advice rising

Chris Bibby, managing director at Key Advice, said there was “no doubt that the costs of delivering advice” in the specialist equity release sector have increased over the last 18-24 months due to Consumer Duty and direct regulatory feedback.

He noted that these both would add time and complexity to the advice process and require investment in technology and training and add significant time into case checking and compliance activities, all of which would increase cost of advice.

Bibby said that, at Key, its fair value assessments accounted for a wide range of factors and are under “continuous review”. Key Later Life Finance charges a fixed £1,299 fee for advice and £1,799 for a whole-of-market advice service with the Equity Release Experts.

He said: “The costs of delivering advice have been coupled with an ever-increasing cost to build awareness in later life lending choices and a focus on educating customers about new product options and attracting customers who may be interested in seeking advice.

“Equity release remains a low-awareness product that is still misunderstood by many. Few customers realise that equity release could be a solution to their needs for boosting their income in later life, and at Key we strongly believe that later life homeowners should know about all of the financing options available to them.”

Bibby said he would want to see equity release products promoted “broadly” alongside other finance options across the adviser spectrum through independent information websites and wider media to promote awareness and interest.

He noted that the sector has moved away from advice fees as a percentage of the release amount to a fixed fee for most specialist advisers, which could have led to a fall in the percentage of fees that are over £2,000 in the past few years.

“This gives customers clarity and transparency on what they are required to pay upfront. For most advisers, fees are not payable unless the customer decides to proceed. So, for many customers, they can still receive advice about financial options without having to pay anything, which in many customer instances can be extremely valuable advice. When you consider that around 5% of initial enquiries lead to an issued mortgage, then customers do still benefit significantly in the way the advice fee model works,” Bibby said.

 

This is part of a series on broker fees, with further deep dives into regulated mortgages, lifetime mortgages and average broker fees coming up.

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