A new not-for-profit mortgage club is planning to launch, aiming to strip out costs and return more money to its members, according to London Money director Martin Stewart.
The mooted DA Alliance would gather 100 directly-authorised brokers into a group and use their collective buying power to access better deals from lenders.
Each broker would pay £500 a year to cover the Alliance’s running costs, but would then get to keep all of the fee quoted on the mortgage offer.
Stewart says he came up with the idea after questioning whether the amount of the fee kept by some mortgage clubs gives true value for money to brokers.
Giving an example of one club keeping around £60 of a £700 procuration fee, Stewart says: “Mortgage clubs will come up with a counterargument about why this is justified. But I’m struggling with that.
“If we do 200 mortgages a year, you’re looking at £12,000 in revenue for using a particular mortgage club. If I’m losing £12,000 a year, there have to be 100 DA brokers also losing that a year. I think that’s quite a big price to pay.
“So there is an argument to bring those 100 brokers together as individuals, but for the collective good. Then those brokers have gone from losing £12,000 potential income to making £11,500 of income, because this is a non-profit scenario to cover costs and then give money back to the broker.
“In this current climate of transparency and fairness, a single, tangible membership fee with no ongoing ‘penalties’ seems the obvious route forward.”
Stewart adds that if each of the 100 brokers enables £40m of lending a year, the £4bn total would be enticing to lenders.
He says: “If I was a bank I’d be interested in that £4bn.”
Stewart says he has 20 brokers already interested in the idea, but is urging others to email him about the venture at email@example.com.
He says: “The first thing we are doing is getting momentum from the brokers. Then we can turn round and talk to the banks.
“I just want these little brokers, small firms, to get a leg up. The banks aren’t going to lose out, they will still get the business and pay the proc fee, but the Alliance would strip the profit out of that and give it back to the broker.”
The DA Alliance would be headed by Stewart but be separate from London Money.
For more, read this week’s print issue of Mortgage Strategy.