The decision by two of the market’s biggest lenders to cut proc fees for directly authorised advisers last week has unsurprisingly had an unsettling effect on many brokers.
Both Nationwide and Lloyds Banking Group were quick to state that it was a tidying-up exercise more than anything else, but that’s cold comfort to brokers who will see their income dip.
Other lenders would be well advised to think long and hard about any structural changes. A large number of brokers – well over 50% at Mortgage Strategy’s last count – charge fees and are not wholly reliant on proc fees. But there remains a dedicated core who provide free advice and are remunerated by a proc fee.
So the question all lenders have to weigh up is whether cuts to proc fees are worth the disastrous effect this would have on the livelihoods of thousands of brokers.
As Ben Thompson, managing director of Legal & General Mortgage Club, points out on page 6, if lenders want to hit the ground running when the recovery finally arrives, they need to ensure there are people around to distribute their mortgages.
Most lenders admit that brokers are a scaleable distribution force that is far more flexible than their own direct sales forces. And despite what the Financial Services Consumer Panel insisted last week in its response to the Mortgage Market Review, consumers do appreciate the value of advice. They like having somebody who takes into account their best interests, rather than a provider’s bottom line.
Clearly the Financial Services Authority, with its proposal to ban non-advised sales, also sees its value. So the reality is that major changes to proc fees would not just result in a decline in brokers’ fortunes, but lenders themselves.