Chris Pearson is head of sales and marketing at BM Solutions
The mortgage intermediary market ticks many of the boxes of what is known as perfect competition. There is perfect visibility of pricing and there are a large number of buyers and sellers. The UK market is the most competitive in the world and there are new entrants constantly coming in, whether from home or abroad.
What has this got to do with retention fees? Well, the market votes with its feet – or in this case, its mouse – when deciding where to place business. When you are leading from the front into the unknown you need to work closely with your distribution.
We are not going to design a product or proc fee structure brokers don’t like because in the long-term it would not be a success. The reason intermediary lenders increasingly quote the phrase ‘listening to brokers’ is because this is integral to a successful intermediary strategy.
We’ve spent a long time researching the market and looking at broker reactions and we are confident that our retention policy offers good value. Many lenders are trying to stem the tide of broker and consumer opinion because retention strategies don’t fit with their particular business models. This is a dangerous game because eventually any lender that doesn’t offer a retention strategy could have issues when it comes to treating customers fairly.
With product transfers, brokers win and consumers win. Lenders need to put more energy into developing smart online systems which enable brokers to quickly and easily manage cases online and less time into arguing about retention strategies.
The Financial Services Authority, the Association of Mortgage Intermediaries and the major distributors have no issues with product transfers. This should be an indication that product transfers are here to stay.
Matthew Wyles is group development director at Portman
Lenders, intermediaries and borrowers are the key stakeholders in the UK residential mortgage value chain. As margins have fallen, the relative share of value available to lenders and intermediaries has relentlessly contracted while consumers have benefited.
But the intermediary share of the cake has remained relatively unchanged in recent years and, as margins declined, it was lenders that lost out most.
This is particularly and painfully obvious in the lower risk prime market where, to get any meaningful volume, lenders now have to write business at a loss for the first two or three years and then hope that some of the business stays on at better margins. The buy-to-let market looks as if it may go the same way.
Intermediaries should not have to face a conflict of interest between their duty to their clients and their need to optimise revenue. If it is agreed that this conflict of interest should be eliminated the question is – who’s going to carry the cost?
There are only three possibilities. The first option is to take a lower proc fee upfront and then receive some form of trail revenue depending on the life of a mortgage. That might be attractive for some brokers but would place severe strain on the business models of others.
The second option is that lenders pay brokers more without passing the cost on to consumers. That is not likely to happen across the board because, in the prime market at least, lenders cannot stand any further margin erosion – the well is already dry.
The final and most likely option is that borrowers will carry the cost of retention fees via higher product pricing. This seems to be the way the latest retention schemes are working in practice.