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.