Lenders are failing to pay high enough fees for retention business, advisers say, as their hopes of achieving payments on a par with, or largely close to, those for new business are unfulfilled.
While just two of the major lenders are yet to introduce procuration payments on retention business, advisers say the compensation being offered is not enough. A drive to support intermediaries helping customers switch product at the end of their mortgage deal has seen many major providers introduce retention proc fees.
RBS and Natwest are among the only major providers yet to implement the new payments, a Mortgage Strategy investigation can reveal. These fees are paid to advisers who transfer existing customers to new deals with the same lender once their mortgage term matures.
Lloyds Banking Group says it first introduced proc fees for product transfers 11 years ago. The bank, which pays a full proc fee for retention business, says: “We set out to ensure that broker’s advice between a product transfer and a remortgage option could not be influenced by fee considerations.”
The fees for both are the same, at 0.35 per cent.
Chadney Bulgin mortgage partner Jonathan Clark says: “When Halifax started paying out a full fee we thought other lenders would follow and they didn’t. It has not got to the point where more lenders are paying fees than aren’t. Those which aren’t doing it yet say they soon will.”
But Clark says the problem is that at many providers the fees for retention business are much lower than those paid for new business. The difference between the two can frequently be 10 basis points or more.
He says: “I don’t think we should get the same rate as we do for new business, but it should be higher than it is as we have to do a similar amount of work for each. I think most brokers would argue it’s not enough at the moment.”
There is also a wide disparity between the level of fees paid by providers. While Lloyds’ pays a generous fee, others pay just half that.
OneSavings Bank introduced a 0.25 per cent retention procuration fee in June last year and says it keeps the fee under constant review.
Virgin Money brought in the fees a month later, in July 2016, paying 0.38 per cent. The bank says it wants to support its intermediary partners to grow their businesses.
Brokers are paid a proc fee for returning an existing mortgage customer to the bank upon maturity of their existing product.
Santander started payments this year, introducing them for networks and mortgage clubs in March and rolling them out across the business through to July. The bank now pays 0.2 per cent on all retention business transacted through its online portal.
Aldermore brought the fees into effect in April, offering a net payment of 0.3 per cent. It is available on residential owner-occupied and standard BTL loans. The challenger bank says the move was ‘part of its ongoing commitment to its broker partnerships’.
Accord, the intermediary arm of Yorkshire Building Society, introduced proc fees on retention business in July. The lender pays a gross fee of 0.3 per cent on residential mortgage products. It doesn’t pay retention fees on BTL mortgages but says it aims to offer this by the end of the year.
Nationwide and its BTL arm, The Mortgage Works, introduced retention proc fees in August. The provider pays a gross fee of 0.2 per cent to intermediaries switching existing customers to new products.
Middleton Finance director Daniel Bailey says: “While it’s positive many lenders have introduced fees, they should be higher. The onus is on us to do all of the compliance and due diligence and the lender gets presented with a client that they get to keep for another two or five years. Yet in many cases we only get half the fee.
“Proc fees in general haven’t increased in a lot of years and, at the same time, because of regulation and compliance changes, our costs have increased significantly.”
Lagging the pack are RBS and Natwest, which have not yet introduced procuration fees for retention business. The bank says it is looking to introduce the payments by the end of the year but no date has yet been set. When introduced, the fee is likely to be 0.2 per cent on both residential and BTL business, the lenders say.