But last week, Family Building Society raised its maximum proce fee from 0.45%, the industry norm, to 0.55%.
This could be seen as a significant move, the first lender to stick its head above the parapet, or it could be viewed as a bid to draw attention to a niche or low volume-driving product.
Smaller lenders have argued for some time that they want to pay brokers more but they can’t because the big six refused to lead the charge and so a move by a challenger bank may be seen as one taken to incentivise business rather than reward it.
This week we have asked our panel of lenders if they think other lenders are likely to follow suit on their residential mortgage ranges.
Paul Shearman, mortgage and protection proposition director at Openwork, says increased lender competition, extra regulatory risks to brokers and a raft of other cross-winds are creating an unprecedented environment for our market.
Paul Nye, director, business partnerships at Stonebridge Group, says Family Building Society should be applauded but awareness-raising of the products available in this market is still needed.
Jeremy Duncombe, director at Legal & General Mortgage Club, says that recent proc fee rises recognise the cost effectiveness and quality of intermediary business, but calls for fees to reflect the amount of time brokers spend on each case and the quality of business received.
Paul Shearman is mortgage and protection proposition director at Openwork
There are a number of dynamics at play at the moment which are influencing lenders stances and placing pressure on proc fees. Here are the five key ones from my perspective:
1. Increasing competition: With significant new entrants emerging; TSB and Bank of Ireland, Metro, Aldermore and Precise, the dominant position of the largest lenders is under threat for the first time since the credit crunch began.
Several significant lenders are therefore finding it harder to hit share and business targets. This situation will only intensify in coming months given more new lenders waiting on the sidelines to launch into the intermediary space. The pressure on lenders is more acute than historically given the focus of many banks on ‘retail’ rather than investment and/or wealth operations, meaning that mortgages are central to delivering against shareholder expectations
2. Flatish market: Whilst most intermediaries are performing well in 2015, the overall market so far has been subdued. Consequently, achieving lending growth will be down to taking share rather than riding on the coat-tails of the market
3. Channel shift: There’s little doubt that post MMR there’s been a significant shift in business away from direct channels and in favour of intermediaries. Whilst the position does vary from lender to lender, many appear for the first time to be virtually giving up fighting to generate direct business and increasingly accepting that intermediaries will account for 80%+ of business
4. Increased work: Getting cases through lenders and internal compliance functions is hugely time consuming for brokers and post MMR, where many lenders have been forced to move from a non-advised to an advised model, there is at long last recognition of what’s involved with providing high quality mortgage advice
5. Heightened risk: With the regulator increasingly focusing on the mortgage market and willing to impose very significant fines for failure to deliver good customer outcomes, regulatory pressures have intensified for all ARs and DAs in the market. What comes with this is increased costs in systems, processes and controls.
All of these factors are at play at the moment and a number of lenders have already recognised the direction of travel and taken action – Coventry and Virgin Money deserve particular recognition. However, more broadly, following Openwork’s panel re-tendering exercise at the end of 2014, we have negotiated proc fee increases from approaching 70% of the lenders on panel. There is further to go, however during 2015 and I continue to believe that a 20% increase in remuneration from where we are now will be delivered in the next 12-18 months as the balance of power continues to shift in favour of intermediaries.
Paul Nye is director, business partnerships at Stonebridge Group
The news is obviously welcome from the Family Building Society and we certainly support the products that are on offer. Lenders who are offering products which cater for those individuals still living at the family home or renting, and include a family guarantor arrangement to enable a purchase with reduced interest rates, should be applauded.
As an industry we need to look at a variety of product options which allow family members to support each other. Some other lenders offer alternative schemes to support such borrowing but there is not a wide take-up and therefore more needs to be done in order to publicise these available options if we are to encourage greater home ownership, particularly amongst the younger generation.
It is the case that mortgage cases involving multiple applicants can take more time and effort, however overall this proc fee increase is another example of a welcome trend whereby lenders are acknowledging that brokers are taking the advice risk. Plus of course the increased time now involved in the mortgage application process are worthy of a greater reward.
Equally, as lenders look to grow business volume there is a tacit acknowledgement here that their direct-only channels aren’t easily or cheaply scaleable. Therefore a greater reliance on intermediaries is the way ahead with traditional direct-only lenders now eyeing the broker market.
While the general rise in fees is long overdue, brokers will still be very mindful of their advice responsibilities. Significant jumps in proc fee rates grab headlines and encourage brokers to research lenders’ products and criteria more fully, but ultimately they will only gain traction if the lender’s product and service are right for their clients.
Jeremy Duncombe is director of L&G Mortgage Club
It is encouraging to see another lender increase its procuration fees to reflect the importance of the intermediary to their distribution.
We have seen increases from several lenders over the last 12 months including Coventry and Virgin, but this is about recognising the cost effectiveness and quality of intermediary business, not trying to influence the choice of lender.
In a heavily regulated market, no broker would risk losing his or her livelihood by recommending an unsuitable product based on fee. Procuration fees can draw attention to a range or a lender, but the product has to be suitable and competitive or it just won’t sell. Intermediaries are fully qualified professionals, and will not risk this for an extra few pounds.
Gross procuration fees of between 40bps and 50bps are becoming the norm, and this recognises the cost of acquisition to the lender. Lenders with a smaller retail footprint don’t have the capacity to originate mortgages without an intermediary and therefore our cost effectiveness is even more important.
We simply ask that procuration fees are fair and appropriate to reflect the importance of the sector, the amount of time the broker spends and the quality of the business received.”
