Outsourcing affordability checks may create two-tier proc fee model


Industry expert Ray Boulger has warned that a two-tier system of brokers may be created if lenders outsource affordability checks to them.

Ray Boulger, senior technical manager at John Charcol, says different proc fees may apply to brokers who are trusted by lenders and those who are not.

In a feature for Mortgage Strategy TV last week, he says it is fea-sible for lenders to outsource some affordability checks to brokers.

But he says: “Lenders will be ultimately responsible so I don’t see them outsourcing affordability checks to every broker.

“I suspect we will have two tiers of brokers. There will be those who lenders trust to whom they will delegate a significant amount of work and those who lenders have had a lesser experience with.

“This may result in the brokers who are delegated more work getting higher proc fees than the others.”

He adds: “But I suspect it is more likely proc fees will be reduced for the lower tier brokers rather than increased for the higher tier.”

Robert Sinclair, director of AMI, says the average proc fee is around £500 and a two-tier system could be a possible outcome of the Mort-gage Market Review, but is not the only one.

He says: “We must decide what a proc fee will be used for. Will it be for distribution or to undertake affordability checks? Until we reach a point where we know what the requirements are on lenders and brokers from the FSA, it’s hard to say what will happen.”

He adds: “The two-tier system is one potential outcome of the MMR but I’m not sure it is the only one. I would like to argue that if lenders were to dish out that level of responsibility to brokers then they should pay significantly more for that.”

In an FSA-commissioned report published last month, the regulator reported that lenders could cut their use of intermediaries by up to 60%.

The report, which assesses the impact of the MMR on the mortgage industry, confirmed that the lender and broker relationship was likely to change.