Alliance & Leicester has been accused of bribing brokers by offering a 1% proc fee to sell a “wholly uncompetitive” 10-year base rate tracker deal.
The move comes less than a week after the FSA set out proposals designed to stop high-pressure selling, excessive charges and lenders offering excessive inducements to intermediaries.
The A&L product launched on Friday last week and starts at a flat Bank of England base rate for year one, BBR plus 0.5% for year two, then BBR plus 1.5% for years three to 10, reverting to basic variable rate for the remaining term. Available up to 95% LTV the deal carries redemption penalties for the first three years of six months' gross interest on any amounts repaid. Most mainstream lenders, including A&L, offer proc fees between 0.25% to 0.35% – way below the 1% offered by A&L for this deal only.
Ray Boulger, senior technical manager at Charcol, says: “Over even three years, let alone 10, this is a wholly uncompetitive deal. Year one is just about OK, but, in reality, it is a two-year deal with trailer penalites for the further year.”
And one broker, who asked not to be named, adds: “Obviously A&L think it has enough brokers that are sufficiently amoral to accept the bribe of 1%. This is stooping to the murkiest deaths of the sub-prime market and the unsecured loan market where the level of commission depends on how big an interest rate the broker can get away with. Coming in the week when CP146 was published, this is unbelievable. Where's the consumer protection?” Michael Bolton, head of mortgage marketing at BM Solutions, says: “It's stretching the credulilty of mortgage brokers. It's beyond belief in the current climate – especially in the run up to regulation.”
Andy Homer, spokesman for A&L, says: “This is a test product to assess the appetite for longer-term products and the proc fee was set at this level to create awareness among IFAs. Advisers will provide customers with the best product for their needs. If this offer is not appropriate it won't sell. We believe that it is an attractive offer.”