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New entrants with low proc fees could be lethal

If a new lender were to come to market offering significantly lower proc fees than currently on offer, other lenders would be forced to follow suit, experts have warned.

In 2010 ING Direct started offering mortgages through brokers by a pilot scheme with Legal & General Mortgage Club.

Mortgage Strategy understands the proc fees it offered L&G were below 0.3%.

When the scheme was rolled out to other brokers, major lenders began to consider dropping their proc fees to match ING.

ING fully launched in April 2011 with an increased proc fee of 0.35%.

In last week’s Mortgage Strategy Ben Thompson, managing director of L&G Mortgage Club, said recent proc fee cuts are a blow for brokers.

But John Malone, executive chairman of PMS, accuses Thompson of hypocrisy because when L&G Mortgage Club launched its pilot with ING, Thompson agreed the low proc fee.

He says: “Every major lender was about to significantly reduce proc fees to match the new lender. It would have led to complete carnage.

“These actions were going to create a tsunami in the broker market and we would hardly have had an industry left. We were not prepared to deal with this lender with such low proc fees.”

Thompson admits the ING deal involved a lower proc fee but says it was always intended to be a pilot.

He says: “It led to ING launching more widely in the market, to the likes of PMS and others, and at a proc fee that represented a proper launch not a pilot.

“It is worth highlighting that ING offers good proc fees compared with some other lenders so we are a little bemused about these comments.”

Ian Andrew, managing director of Nationwide group intermediary sales, says lenders would be at a disadvantage if they did not act against significantly lower proc fees.

He says: “If you’re saving 0.1% on your proc fee against the competition you could put some of that saving into products, make them more competitive and take business from other lenders.”

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