Lloyds set to link proc fees to business quality

Lloyds Banking Group will begin linking the procuration fees it pays brokers to the quality of business submitted from the beginning of next year, Mortgage Strategy understands.

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The group will begin telling brokers what metrics it will use to measure quality by the end of the year.

However, the change will only apply to its key accounts and directly authorised firms will not be affected by the move, although it is not known whether the lender will include DAs in the future. The move will only apply to the BM Solutions and Halifax brands.

In September 2012 Mortgage Strategy revealed the lender was considering linking proc fees to quality, although at that point it had not made its decision.

A Lloyds spokeswoman says: “We are always looking at ways to ensure we receive quality business from our intermediary partners, and have been clear over recent months that we are considering linking our proc fee payment structure to the quality of business supplied.

“We will be able to provide more details as and when it’s appropriate.”

Nationwide, Barclays, Royal Bank of Scotland, Coventry Building Society and Yorkshire building Society have all said they have no immediate plans to implement a similar payment structure.

The move follows that of rival Abbey for Intermediaries, now Santander for Intermediaries, which switched to a quality-based payment system in July last year.

Santander measures quality against a number of key metrics, including case packaging and the conversion rate of applications to offer.

If I Were You chief executive Rob Clifford believes more lenders will undoubtedly follow Santander and Lloyds to stem the risk of receiving poor quality business.

He says: “To mitigate the risk of getting a flow of less good quality business then I think it is inevitable more lenders follow suit. We are not talking about a couple of lenders on the periphery of the sector doing something which is out of kilter with the market; we are talking about two of the biggest lenders in the UK. So it will be dangerous for lenders that do not adopt a similar approach.”

Separately, Countrywide financial services director Nigel Stockton, who was previously the sales director of mortgages at Lloyds, has called on lenders to increase the proc fees they pay brokers.

He says: “Given that we brokers are now an inexpensive and variable cost channel for distribution, take full advice risk, are operating in the growing markets with unprecedented volume, I do have to ask why are our procuration fees not increasing?

“Why are we still facing into fee reductions? How long will it be until we actually use the Association of Mortgage Intermediaries and discuss a fair recompense for our increasingly professional advice and services but at increasingly lower costs?”