I understand that lenders may be feeling the pinch but what about the unintended consequences? Brokers are already facing income and cash flow pressures due to fewer transactions and falling mortgage values. Indeed, the Council of Mortgage Lenders predicts the market will be 40% smaller this year compared with 2007.
Reducing proc fees would compound their problems. It could accelerate consolidation and the police says it could even increase the likelihood of financially vulnerable brokers being targeted by criminal gangs.
There’s an argument for increasing proc fees. Lenders do not have the capacity to service the market directly. It would take time and vast amounts of capital for them to add sufficient capacity in terms of premises, recruitment, training and staffing costs.
Lenders that are in a position to lend are seeing enhanced margins, the likes of which have not been seen for years. This is a result of them increasing pay rates and tightening criteria to stave off demand.
So lenders can afford to pay higher proc fees to brokers. With volumes reduced by 40%, a 40% increase in proc fees would secure future distribution.
AMI’s research suggests that brokers will start charging clients fees because of market conditions. This could exclude some consumers who may eschew advice or choose not to enter the market.
Forced consolidation would lead to fewer distribution options in the future, adding significant costs to the lending industry at a time when it can ill afford it.
The Metropolitan Police has already witnessed insider fraud in lending institutions. Financially and socially vulnerable groups are being approached by organised gangs offering a steady stream of mortgage referrals or crude payments to undertake fraudulent activity on theirbehalf. And the Met has asked AMI to promote awareness of this threat.
The Financial Services Authority is preparing to become more engaged with smaller businesses but if consolidation is accelerated by targeted distribution and a reduction in proc fees, the regulator may find itself overstaffed for the job. Supporting brokers isn’t just necessary, it’s common sense and financially astute too.