View more on these topics

Lenders’ proc fees don’t stack up

Brokers are paid less per hour than binmen, so lenders should beef up the proc fees they pay to better reflect the work that brokers put in and the value they add, says Rob Clifford

Cost of living figures published by USwitch.com show that on average brokers earn £27,884 a year including commission. Take that figure and divide it by the time spent on client acquisition and advice and you’ll find that many brokers make less per hour than refuse collectors.

Compared with other financial services staff, brokers have to apply serious elbow grease to earn even that amount of money. Despite significant advancements in e-trading, broking has changed little in 30 years. Brokers spend their own time, money and resources in customer acquisition and travelling to clients’ homes in the hope their efforts will be rewarded.

And given that lenders’ proc fees average 0.35% of loan amounts, brokers only get about £400 per mortgage sold. More generous proc fees, such as those once offered by specialist lenders, have disappeared thanks to the liquidity crisis.

This remuneration does not reflect brokers’ value. After all, what are lenders’ alternatives? They can advertise but this is expensive. And they can sell direct through branches but this involves serious overheads and massive staffing and operational challenges.

According to anecdotal figures, one branch of a particular lender sells just 1.4 mortgages a week. And figures from the Council of Mortgage Lenders indicate that 60% of all mortgage sales are generated by brokers.

I’m not saying we should get the violins out for brokers. It’s every lender’s commercial prerogative to pay the lowest proc fees possible, but this will lead to more brokers charging customers fees, as Purely Mortgages has been forced to do.

Andrew Strange, policy analyst at the Association of Mortgage Intermediaries, says that brokers could soon have to charge consumers for their time whether sales are made or not.

“There is a distinct lack of knowledge among consumers about the value of brokers’ time and expertise,” says Strange.

But as consumers struggle to obtain the loans they want direct from lenders, this situation could soon change.

Besides cross-selling related financial products to hike their incomes, small brokers must identify better business models. Those working for small businesses are not well paid, but self-employment, particularly under the umbrella of larger organisations, can make the difference.

Nevertheless, charging fees, cross-selling and looking to aggregators for better deals wouldn’t be needed if lenders paid fair proc fees that reflected the costs faced by brokers.

While lenders are not forthcoming about their direct acquisition costs, I can’t believe that paying brokers a few hundred quid on a success-only basis is anything other than a cheap way of originating mortgage volumes.

Recommended

New mortgages in Ireland predicted to fall by 30%

New mortgage business in the Irish Republic will fall by 30% this year, compared with 2006, according to the heads of two of the country’s largest home loan providers.

Readers reject Darling’s call for long-term deals

A massive 81% of Mortgage Strategy Online readers will refrain from encouraging clients to consider long-term fixed rates. Just 19% will comply with the chancellor’s desire to bolster the take-up of long-term fixed rate deals.This week, Mortgage Strategy asks: “Have you reviewed your professional indemnity policy in the past six months?” Q: Would you encourage […]

Brokers must put borrowers first

Brokers trying to retain customers long before their loan dates expire could be in danger of putting their businesses before their clients’ needs, says Julian Wells

Commercial data now sensitive

Julien Holmes, managing director of Crown Mortgage Management, warns that the sectors in the commercial lending market that are both suffering most and are likely to have been overvalued are the ones that make up the greater part of the UK property market

Get your New Year off to a flying start

Ross Jackson, Senior Marketing Manager There’s no denying that these days we expect things quickly. You might have noticed it first-hand during the flurry and rush of the Christmas period. The fact is that in a world of smartphones, social media and click and collect, most clients expect to get an instant response and a […]

Newsletter

News and expert analysis straight to your inbox

Sign up