View more on these topics

An issue that will interest the FSA

Kevin Paterson, managing director, Park Row Independent Mortgages The higher procuration fees on sub-prime cases are not, as many in the industry believe, a reflection of the higher workload involved. If you are doing your job properly, a sub-prime mortgage should be no more onerous than a normal case.

However, I do believe higher fees are justified because these types of mortgages are smaller than the average and in nearly all cases the adviser is not able to subsidise the cost of advice with additional products because, to be blunt, the client is less likely to keep up the premiums. I do though, struggle to see how advisers can justify charging big fees on top of the larger commissions these cases generate. I have seen fees of up to 6% just because the products are adverse and the clients are desperate.

Here is a recent true example. A client with a property valued at £110,000 was looking to remortgage for a total of £45,000. The client had some light adverse (minor defaults three years ago) and we were one of two brokers who quoted. The quote he had already received broke down like this – amount of remortgage: £45,000; fee for advice: £2,727 (6%); single premium ASU: £2,655 (commission on this around 50%); legal costs: £1,000. This makes a total mortgage of £51,382 plus the usual proc fees. We quoted the same product and lender (First National). However, we charged a fee of £250 and were able to get the legal work done for £349. We do not advocate the sale of SPASU but gave the client the additional products as an option (he being likely to keep his premiums up).

The adverse market is becoming an increasingly competitive one and with the onset of regulation, justifying the route taken and the fee income generated will become more of an issue.

It is ironic that those being penalised the most in this market are those least able to afford it. This issue will surely come under the scrutiny of the FSA.

Recommended

Fees greed could kill off sub-prime

For a long time sub-prime lending had a heavy cloud hanging over it – would-be brokers in sharp suits offering a sharper practice that combined high costs and high rates in return for even higher procuration fees plus, given enough volume, the chance of an override payment. Of course, all of this was justified due […]

One in four still denied credit, says Datamoniter

Datamoniter says that despite the non-standard population being at is lowest level in recorded history, financial exclusion is still a problem for one in four adults of working age in the UK. Datamonitor estimates that 9.4m people of working age in the UK would have been systematically refused credit by mainstream lenders in 2003. This […]

Mortgage Talk welcomes Halifax FTB mortgage

Mortgage Talk has welcomed Halifax&#39s first-time buyer mortgage and says its a welcome boost for new homebuyers this Easter and summer. Andrew Frankish, operations director at Mortgage Talk, adds that the products are exactly what the market needs at the moment. He says: “Recent statistics show that the average deposit for first-time buyers has quadrupled […]

Co-op launches 10-year fixed rate mortgage

The Co-operative Bank has launched a 10-year fixed rate mortgage, with an interest rate of 5.69% until May 31 2014. The fixed rate mortgage is available for house purchase and for remortgaging, with a maximum advance of 95% of the property value. For remortgages, the bank will pay legal and valuation fees. Interest on the […]

Newsletter

News and expert analysis straight to your inbox

Sign up