Retention fees could turn into a mis-selling scandal

Ray Cohen

I am intrigued by the debate on retention products. If the loan was non- regulated at the start of the term, why should switching to a different rate make it regulated? For those who wish to make it a regulated loan, the answer is simple – change the contract. The options are to remortgage elsewhere or to remortgage to the same lender.

There will be some legal costs but it’s reasonable to think the lender will dispense with survey and searches, thus reducing the cost. Any lenders willing to make this offer?

But is it worth it for the client? The advantage for the broker is clear – another proc fee. Could this be a mis-selling scandal in the making?

Sue Read wrote a couple of weeks ago of her desire to get a fee from lenders for advising clients to stay where they are rather than re-mortgage, as she found it hard to justify charging the cost of this advice. The FSA is keen to make customers aware advice is not free and they have to pay for it some way or other. Why should a lender which has already paid the cost of winning new business have to pay a broker to keep it when it already offers the customer the best deal?

Any payments to the intermediary are costed back to the customer. If her service offering is to regularly review the market to see if there is a better deal, the customer who signs up for this should pay for it. This is what being a professional is all about. Asking the lender to pay a retention fee is just a way of hiding cost as the client effectively pays in the end.

Ray Cohen Director Jackson Cohen Associates

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