Legal & General Mortgage Club
Unsurprisingly I am frequently asked what the future holds for proc fees. I have no crystal ball and am not in direct control of them. The bad news is we have seen some cuts over the last year. The good news is I think we have reached the bottom, or are close.
For a number of years there have been some anomalies, where some brokers have been paid more than comparable firms. Lenders have sought to even up these positions and this exercise feels like it is now complete.
Also, some lenders cut proc fees quicker than others a few years ago, whereas some held firm and consequently paid more than competitors. Recent changes have broadly brought the largest lenders on to a flatter playing field.
With both these two points now complete, why else would a lender cut fees?
The answer is there is no reason. The hourly rate for arranging a mortgage is almost insultingly low. Lenders may have a case to argue that proc fees went too high in boom times and they may be right. I would argue that they have now overshot to the downside and there will be some welcome competition in this area in the medium term when things pick up.
After that, it would be nice if things settled at a level that enabled lenders to price keenly and keep costs competitive, and brokers rewarded appropriately.
There is also a good argument for higher fees to be priced into mortgage products which would transfer some of the advice cost away from brokers and lenders on to customers. That argument never sits easily with some.
The key question is what landscape do the regulator and lenders want to see for the future with regard to brokers?
I would have thought the answer is a high quality, financially stable and professional one. Firms need to invest in their businesses as well as make a living. Customers will continue to need choice and most lenders will always need intermediaries to acquire customers for them, usually for the majority of their mortgage business.
When the recovery does arrive, much of the upside will have to come from the broker market as direct channels remain constrained in terms of growth.
Lenders must find the right balance to ensure the right brokers stay in business through the downturn and become future fit to extend long term and mutually beneficial business relationships.
The right balance should be that both parties benefit in a fair and balanced way. Right now with all the hard work it takes to place a case brokers might be on the edge of getting a raw deal.
Let’s hope things now settle at a level that suits all and we can move onwards and upwards from here.
Lenders are looking at ways to encourage good quality applications
Mortgage Intelligence Holdings
Proc fees have always been subject to change and in fairness over the past 15 years they have gone up and down for different reasons. The biggest problem for everyone at the moment is containing costs and the lack of funding, and whatever we do the horizon doesn’t seem to get any nearer in the current economic climate.
I don’t believe lenders are trying to squeeze brokers out of the market. Brokers have proven they are the best people to sell mortgages and can bring in substantial volume when lenders offer funds and process them.
Even in this tough climate, brokers have been trying to get funds allocated at midnight in a bid to get deals through so there is business to be done.
However, I do feel lenders have had time to evaluate how they want to do business and with who. They are looking at ways to encourage good quality applications, in both client profile and the paperwork that goes with each deal.
If it takes three days longer to process a deal from one broker compared with one that flies through because everything is with the application there is a cost to that extra work. They are looking at that in the same way that we all look at what makes our businesses efficient.
I feel the difference between directly authorised brokers and appointed representatives is not significant, or the size of the broker, but rather it is about the quality of the business and the time it takes to get the paperwork and case through.
Also what happens to the case during the cycle? Does it stay on the books or is there a pattern of arrears with customers through one particular firm?
Some cases are more expensive to process and lenders are looking at whether they can reward those who do more than those who don’t. It is a tough call for brokers at the moment and they have to jump over many hurdles to get business written.
They deserve their proc fees more than ever as each case takes so much longer to process, which of course increases their costs too. So I hope that we can find a balance on proc fees, as consumers need advice more than ever before and brokers are doing their best to deliver that while keeping up with constant changes to criteria and rates.
Brokers will continue to fight
The reduction of proc fees recently announced by Nationwide and Lloyds Banking Group could feel like yet another blow to us brokers. It seems that since February when Abbey announced that interest-only would be restricted to 50% LTV, we have been up against the ropes, bobbing and weaving trying to evade a barrage of punches to stay in this fight they call mortgage broking.
After a strong start to the year, with buy-to-let back in abundance following Abbey’s re-entry and some aggressive rates from NatWest, Accord Mortgages, Paragon Mortgages and Coventry Building Society, 2012 was shaping to be a good year.
But this was followed by an onslaught. The intermediary market started strong and the direct business was under target. At this point, we started to see the margins for intermediary business increase. A clear differential between direct rates and our own intermediary offering was evident and dual pricing came back in a big way to effectively level out the playing field.
Then came the increase in SVRs, which was fantastic news for brokers as it meant the remortgage market was officially declared open. But what soon became evident was the interest-only trap many of our clients are in.
This was followed by the first announcement of a proc fee reduction – first, as I believe this is the start of more to come.
I am sure that just as lenders nudge SVRs up, they will squeeze proc fees down.
A couple of basis points here, a rise of SVRs there and before you know it the banks are millions of pounds up after a slight adjustment that would go unnoticed.
On a £200,000 mortgage, will many brokers feel that reduction of £40 on their proc fee? The answer is yes. It is the straw that broke the camel’s back and the timing could be better.
Going back to my earlier analogy, we are up against the ropes, it’s round 10 and our stamina is diminishing. We are being hit with jab after jab, the odd uppercut and a couple of haymakers and just when we go to cling on for some time out, up pops the proc fee reduction and the ref says break.
Many will go down after the next punch is thrown and for many the proc fee reduction is the last punch.
We have seen restrictive LTVs, interest-only reduced to what would have been an unthinkable level five years ago, and self-cert has vanished as has fast-track.
But we are still here, broking for a living. That reduction of £40 on an average loan size of £200,000 will hurt but it’s a mere jab. We’ve been hit harder and we know we can take it. So let’s shake ourselves down, get our gloves up and come out punching, starting with those Halifax clients who will soon see their SVR edge up 0.49%.