Head to head: Thorpe vs. Ewing – Are second charge fees too high?

Scott Thorpe, director, London Money

Yes – but hear me out before you shoot me. There are some great packagers out there who have created great fee models and they understand the new world and should be applauded for their approach.

But an industry that allows a business model whereby control of the fee remains with the packager is in severe danger of being labelled mercenary

You only have to go on a comparison site and request say a £50k second mortgage illustration and many will be quoted with a  £5,000 broker fee.

There are many misnomers in the industry – the cost of packaging a deal, the valuation costs, the complexity of second charges mortgages – most of which can be counter argued. The crux of the issue is that the borrower should not be expected to pay for something that doesn’t necessarily exist.

In the first charge world I challenge you to find me a broker that charges a 10% arrangement fee on any mortgage. It will be a fruitless quest and you will do well to find many that charge more than 1%. Their  work is the same as ours, it is just the terminology that differs.

Now that the second charge industry is regulated in the same way as a first charge surely we should be adopting the same moral compass with regard to fees?

We receive very unfair criticism from our peers for continually raising the fee issue and have been accused of being negative when we only see positivity in achieving better consumer outcomes.

Hopefully the industry including lenders/networks and trade bodies will come together on this as surely it is better for us to find a compromise together than have the regulator find one for us.

Alistair Ewing, managing director, The Lending Channel

There has been a lot of smoke and mirrors from certain parties in relation to what is an appropriate fee structure for a second charge and I think this is damaging the credibility of our market. Why would a large national broker pontificate about how charging a large fee is out of date and detrimental to our market, yet charge large fees on its direct to consumer website? This is clearly a very contradictory message and this type of mis-direction is certainly unwelcome and not good for business.

Without having accurate lending figures to hand I would take an educated guess that about 75% of second charge lending is written with a high fee model – this is charging a broker advice fee of at least 7% or higher. With the large master brokers remaining quiet and below the radar on the fee issue, it is fairly easy to find evidence online what their actual fee structure is – and it’s not at the lower end.

So while my personal opinion would be that charging a £5,000 fee for a £50,000 loan is perhaps not the best value for money from the client’s perspective, my commercial opinion is that while the second charge market is structured in the manner it currently is, provided there is complete transparency, then surely it is up to each individual broker to set their own fee structure.

We offer both an advised and non-advised fee structure and charge a 10% fee for loans up to £50,000 where we give the advice. This fee covers all the clients’ costs and we assume all the risk for the transaction. A substantial amount of this fee is paid to the introducer as a referral fee for the business. We also have a fixed fee structure in place for certain brokers under our ‘exclusive model’ at much lower levels than our standard 10% fee.

Will charging lower fees automatically mean higher lending volumes? No it won’t. In fact it would quite simply ruin our industry by forcing the large volume brokers to close their doors, as running their businesses with much lower income streams would prove unsustainable. This in turn would see our lenders flounder from this lack of volume leading to downsized operations, redundancies and possible closure. And of course our end-user clients would no longer be able to access the specialist lending market as easily as they can at present.