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Distributors call on lenders to hike proc fees by 0.3%

Distributors have urged lenders to hike residential proc fees by 30 basis points to compensate for the increased workload faced by brokers since the MMR.

Research from L&G Mortgage Club shows the time taken per application has risen from 11 hours to 12.3 hours per case, with average earnings falling from £50 an hour to around £48 an hour.

Until now, many commentators have suggested proc fees should rise but nobody has said publicly by how much. And while the average proc fee has risen to around 0.4 per cent in the past year, distributors say this should increase to 0.7 per cent to reach a “fairer” level.

Homeloan Partnership commercial director Neil Hoare says: “I think 12.3 hours per case [as suggested by L&G] is a low figure. Our members are spending an average of 20 hours on cases now and I’m inclined to refer back to the £50 per hour figure, meaning they should be getting paid at least £1,000 per case.

“Based on the average mortgage size of £142,000, that works out to 0.7 per cent gross and I think that’s fair remuneration for what brokers have to do in the current market. 

“Fees are paid when lenders get new business; the cost of getting that business to them is rising, and faster than fees are.”

SimplyBiz Mortgages chief executive Martin Reynolds supports the call and adds that lenders have room in their margins to support the increase.

He says: “While many will say 0.7 per cent is a high level of fee, there’s no reason why it shouldn’t be there. Clearly the workload for all brokers has soared and fees need to reflect that in a fairer way.

“Lenders are working off fantastic margins at the moment, even with fixed rates being so low. Appetite seems very healthy and that indicates there could be further rises in fees – there is definitely room for lenders to do that.”

Moreover, Pink Home Loans director Mark Graves has suggested lenders sign an agreement on proc fees where they all pay the same.

He says: “Why can’t we introduce a charter that says all lenders pay the same proc fee and remove any uncertainty? The workload has increased for brokers and we’ve seen some lenders push up their fees, but others are still lagging.

“An industry standard removes any scope for conflicts or compromise of product choice and lets brokers know exactly what they are getting for their work, regardless of where their business is placed.”

A spokesman for the Council of Mortgage Lenders says: “As ever, it is up to lenders to set their own procuration fees and these may reflect a range of factors, including approaches to mortgage distribution, commercial strategy and the way in which the industry responds to regulatory reform.”

Several lenders, including Accord Mortgages, Leeds Building Society, NatWest Intermediary Solutions, Skipton Building Society and Virgin Money, have raised their proc fees in recent months but no major lenders contacted by Mortgage Strategy said they had plans to increase fees further.


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  • Stuart Duncan 30th January 2015 at 11:17 am

    Well, it is a good problem to have though, after the horrible period of dual pricing.

  • Good Mortgage Man 30th January 2015 at 10:04 am

    GHU is absolutely correct. I am a Broker and I believe we deserve to be paid more than we currently receive. However, to talk about increasing proc fees by 100% is not helpful, let alone never going to happen. If we drive lenders too hard, they will have to increase product rates to compensate for the higher commission levels, and I can’t believe any of us want that!?

  • Freelancer Financials 29th January 2015 at 7:57 pm

    I agree that Proc fees need to increase but lets be serious, we’re never going to see 0.7%, I’d be happy to see 0.5% but NOT at the cost of dual pricing…

    I still can’t believe that there are still mortgage brokers out there that don’t charge a broker fee.

    Clydesdale today announced that they will be increasing there proc fee again, lets hope other mainstream lenders will follow.

  • Grey Haired Underwriter 29th January 2015 at 4:56 pm

    We’re all doomed is quite correct. The amount of work that goes into a Regulated loan has increased across the board and has certainly had an impact on staffing numbers and productivity. The costs of the additional compliance offers i not cheap and then there is all the effort that now has to go into PSD reporting. The regulator wants more than just their pound of flesh.

    I accept that the job is now more time consuming for brokers but at what point would proc fees become excessive or mean that there could be undue influence to place cases with certain lenders because of the return. I do remember a time when slight adverse cases were placed with sub-prime lenders simply because of the higher proc fees. I also wonder if the regulator will start investigating the high proc fee payers if their business volumes rise out of kilter with the rest of the market. There is a need to find a happy medium

  • Stuart Duncan 28th January 2015 at 5:28 pm

    Hmmm – compare swap rates with what lenders are charging for fixed rates.

    I agree with across-the-board % fees in principle, partly because lenders with better service propositions stand to benefit if their product is similar to those requiring bureaucratic acrobatics and clairvoyant abilities.

  • We're all doomed!!!!! 28th January 2015 at 10:52 am

    Are these distributors saying that Lender’s margins have increased since MMR? If so, then of course Lenders should be able to pay higher fees.

    However, I do not think that’s the case. If anything, Lender’s costs have risen since MMR, which means that their margins will not necessarily increased.

    Therefore, the only way to increase procuration fees would be to increase rates. Are these distributors therefore suggesting a return to dual pricing?

    Be careful what you ask for……

  • Grey Haired Underwriter 28th January 2015 at 10:26 am

    Anyone who thought the change to an affordability based lending model was going to be effective are ‘P**ing in the wind’. The affordability model has far too many faults for it to ever be really effective and I believe that the Regulators know this. So what am I referring to here:

    1. The stress test percentage is not industry wide and we all have to come to some form of decision that doesn’t upset the Regulator. That’s why stress rates are running at anything between 6 -8%. The fact of the matter, however, is that the chance of rates returning to those sorts of levels within the next five years is somewhat unlikely (although never say never).
    2. The lender has to look at likely financial changes that should take place over the next five years but isn’t permitted to allow for the possibility of salary increases. Are wages more likely to go up within the next 5 years than a doubling of interest rates? And if interest rates go up doesn’t it mean that a rise in wages is likely to maintain a level of affordability?
    3. If you look at the basis of an affordability calculator it requires the lender to work on a net income. This is interesting because a tax code might be 500L this year to allow for underpaid tax in the previous year but may rise to a standard 1000L in April. That makes a difference of £5,000 on free pay or £1,000 in cash pa (20% tax) or £2,000 (40% tax). So I could lend you one amount today that would increase markedly in April! MMR also doesn’t allow for the fact that even if you don’t get a salary increase the Chancellor may well increase your tax free allowance and increase your net income. Wonder if this will introduce a new seasonality into lending?
    4. The interesting cases are self-employed and there can be a lot of difference here. I shan’t go into too much detail or it would take a side of A4 alone.
    5. MMR affordability also expects us to allow for household costs so a single person household is cheaper to run than a two person household. The single person can borrow more but the lender is supposed to anticipate the next 5 years. What are the chances that the singleton will be living with a partner and maybe have a child within the next 5 years? Again there are an enormous number of permutations.
    6. Because of the netting of income a couple on £50,000 with only one earner will be able to borrow less than another couple with separate salaries earning, say £35,000 and £15,000. There may be a question of child care costs if both are working but, of course the dual income couple’s parents provide full time child care and cost nothing (even if they live 50 miles away)
    7. A lender has a choice as to how they will assess living costs – use ONS data or ask for an individual breakdown. ONS is quite honestly not the greatest tool in the box but I also know from painful experience that there can be phenomenal dispute about how much a person spends on clothing pa or food or household material. I have had people claim that they spend a fiver a week to feed themselves (It may be possible but I hardly think I want to lend up to the hilt taking a punt on this). How much time should be spent disputing household costs and what a waste of time.
    8. For me MMR affordability has a major and its most fundamental flaw. It ignores the fact that not all people are the same and it takes away my right to make a judgement about this. There are people who live sensibly, have no credit, save money and don’t use an overdraft. They live within their means and their conduct suggests they are a good punt for a bit of an income stretch. There are others that are happy to go over their overdraft limit to pay for their next on-line bet and who love their credit cards – people who have no leeway if something goes wrong but who fit an affordability calculator. Who would you want to lend to?

    I could go on and on but I hope I have made my point. LTIs (multipliers in old parlance) may be a crude measure but the simple fact is that they have worked provided that prudence is applied. I am bound to say that 5.5 x incomes is verging on the stupid and reminds me of the idiocy of the 1990 crash. Certainly anyone borrowing at this level will really suffer if rates go up as there is no leeway written in but a sensible multiplier has a track record. It’s also much easier both for brokers and the customer to understand and would take immense time out of the process. I for one cannot wait to see the Regulator swallow its pride and allow lenders to go back to good old fashioned prudential lending. And before anyone quibbles the loss of lenders at the early part of the recession had little to do with affordability but everything to do with the wholesale markets.

    Have I got a ‘bee in my bonnet’ about MMR affordability – the obvious answer is yes simply because it is a stupid piece of work by someone who had never lent a bean and was a response to a problem that didn’t exist.

  • Chris Hulme 28th January 2015 at 10:25 am

    The increased workload brought about by regulatory changes has certainly been a big part of the effective reduction in hourly rate earned on each case and its good to see the industry highlighting this with the regulators who seem to push for greater levels of professionalism and conduct whilst driving down remuneration.
    It is also worth highlighting that the £48/ £50 per hour worked on a case is likely to be a Turnover figure and not a net earnings or profit figure. The net earnings/ profit is likely to be nearer the £22 to £25 per hour mark which is pittance in comparison to similarly qualified and diligent professionals in other fields.
    Lenders only have to look at the costs of their own in-house advice processes to see how cost effective the broker is and the remuneration required to maintain and enhance this.
    0.7% is nearer the realistic level needed for advice firms to remain in business proving individualistic care and approach and avoid turning into the production line processes of the pre crash market.