In recent weeks, there has been much debate about whether lenders’ commission levels influence brokers. Although this issue has been around for some time, it has been fuelled most recently by Moneyfacts.co.uk’s controversial claim that brokers are influenced by lenders that pay the highest commissions.
While there are bad eggs in every industry, my view is that the vast majority of brokers are professionals who consider their integrity and the reputation of their business to be of paramount importance. They would not risk jeopardising their good name by recommending products for purely personal financial gain.
But Moneyfacts.co.uk mortgage analyst Julia Harris takes a different view.
“As lenders compete for brokers, there seems to be a conflict of interest,” she says. “Where a broker is choosing between lenders, the difference between receiving commission of, say, £150 or £650 could swing a deal. While regulation prevents abuse of the system, if the level of business generated is not influenced by fees, why are lenders continually increasing them? Fees are interfering with advice and choice.”
Perhaps one reason why lenders are continually increasing commission is that house prices are soaring and so is the size of the average mortgage. It stands to reason that if commissions are based on percentages of loans, they will rise as loan sizes increase.
Interestingly, this fact is highlighted by Moneyfacts. co.uk’s research, which shows that commission has either increased in monetary value or remained as a percentage of home loans, with the average mortgage having increased from £54,000 in 1997 to £130,000 this year.
My concern about this debate is that it could put consumers off taking advice from experts. The mortgage market is becoming increasingly complicated and it is getting harder for consumers to research and compare deals.
And in most cases, the difference between lenders’ commissions to brokers is not great and is therefore unlikely to influence decisions. Following statutory regulation, there is tighter control over the way brokers work and they have a duty to provide best advice and give good value to their customers.
On a separate but related matter, research for Moneyfacts.co.uk suggests that 79% of lenders believe retention fees paid to brokers will become a standard feature of the market in future.
Again, these fees have been criticised by some commentators but without them others suggest that brokers may be tempted to recommend remortgages to clients simply to generate fees.
Sometimes, it seems that brokers can’t win as there will always be someone willing to criticise our industry, which-ever way it develops.
Then again, perhaps such a debate is not such a bad thing if it ensures we keep the concept of treating customers fairly at the forefront of everything we do.