Stuart Gregory managing director of Lentune Mortgage Consultancy says there are double standards on retention proc fees.
Alan Cleary, managing director of Precise Mortgages, points out that proc fees have not changed much recently – even though the work of processing mortgages has.
Gemma Harle, managing director of Intrinsic’s mortgage network says proc fees function well but there is an argument for parity between retention and new business.
Stuart Gregory managing director of Lentune Mortgage Consultancy
Procuration fees: for some brokers it’s their main source of income, for others it supplements their fee income from clients.
It’s a thorny issue. Many lenders feel that their offering to brokers is more than suitable – but we operate in an environment where some lenders feel we deserve to be paid for retaining their borrower for them, whereas some lenders feel we don’t.
Now, either lenders value brokers or they don’t.
The double standards of “Your work on retaining a borrower for us is only worth 50% of your normal remuneration” has to stop.
It’s been said so many times, but just to emphasise the point for any lender representatives reading this.
Brokers have the same compliance and research requirements for a product switch as they do if they could justify moving the borrower to another lender.
Brokers do not have it easy on product switch process.
Lenders may have a reduced process for their own means, but don’t undermine our work by saying that your own process is less, so you pay less.
It’s not relative.
We need our own heavyweights in our industry to fight our corner on this.
I don’t subscribe to the narrative of we should be grateful for getting 50% of the normal proc fee seeing as we got zero before.
That strikes me as rather like Oliver Twist.
Proc fees are never out of the headlines for long and this should not be surprising as they are a significant proportion of mortgage intermediaries’ incomes and a significant part of lenders’ costs.
In the 1990s I set up and ran a mortgage adviser team in the building society that I worked for, I had about 55 advisers working in branches selling our mortgages…. I then saw the light and came over to intermediary mortgages in 2000.
In my experience, proc fees are extremely efficient for lenders as they are a variable cost and only paid on successful completion of a loan; compared to running in-branch advisers whose costs are fixed – I know which model is best for lenders.
Increased regulation has undoubtedly created more work in the processing of mortgages and many lenders have passed too much of that burden to intermediaries, but we haven’t seen much movement in proc fees.
There is a gap between those lenders paying proc fees in the lower quartile compared to those in upper quartile and some of those lenders are sizeable.
That would lead me to the conclusion that there must be some room for improvement and that there are reasonable grounds for doing so soon.
On a more positive note there is definitely, albeit slow, movement on proc fees for retention business with most lenders now paying for intermediaries’ involvement in the process.
Gemma Harle, managing director of Intrinsic’s mortgage network
Mortgage retention has been a fervent industry topic and customers reaching the end of an initial offer period should be given the best chance possible to ensure they obtain the right outcome.
In this regard, procuration fees function well and play a role in encouraging good outcomes, as well as helping to ensure advisers are paid for the level of work undertaken.
The days where an adviser is influenced by a proc fee are a thing of the past; today they are relatively uniform, and serve to complement the client fee.
The Association of Mortgage Intermediaries estimates the worth of the retention market is between £80 to £100bn.
This market is too large to be transacted on a largely execution-only basis and consumers can save vast amounts of money when switching or remortgaging.
Retention fees help to ensure more people only choose a follow-on product after advice is taken.
This is particularly critical given the personal considerations that determine whether an optimal choice is made are so often complex and nuanced.
As personal circumstances change, product features that give the ability to overpay or to port a mortgage to a new property, for example, can become critical factors that are not obvious in an execution-only sale process.