The fees charged on equity release mortgages are under scrutiny again, after a leading mortgage network claimed that percentage fees went against Treating Customers Fairly guidelines.
JLM Mortgage Services claimed that some equity release brokers were “profiteering” by charging percentage fees of between 2 and 4 per cent, and often pocketing a procurement fee on top.
The network says such charging structures were “not in the spirit of TCF” and voiced concerns that potentially vulnerable customers might be unaware of fixed fee options, and may end up paying unnecessarily high charges.
JLM Mortgage Services director Rory Joseph says there was no reason why equity release advisers should not be charging a fixed-price for advice. “Percentage fees are only suitable for ultra-complex work, which quite frankly equity release is not. The fee should be commensurate with the work involved.”
The firm – which charges a fixed fee of £1,295 – said it has recently had a client releasing hundreds of thousands of pounds via a lifetime mortgage. With a percentage fee this would have triggered a charge of £10,000 plus. Joseph adds: “No equity release adviser is carrying out £10k plus of work.”
JLM called for regulators and those in the industry to ensure borrowers were better educated about the equity release fee options available.
However, some disputed JLM’s claims.
Key Retirement founding director Dean Mirfin says: “There are two issues they raise: whether percentage fees are fair, and whether they are being levied at a proportionate rate.”
He adds that Key Retirement – the UK’s largest specialist equity release broker – charges a percentage fee of less than 2 per cent. Mirfin adds: “Fees of up to 4 per cent are certainly far from typical in the industry. I’ve not seen brokers charging fees at this level for equity release advice.”
Key Retirement points out that there is a greater risk to the broker in arranging larger loans. “This is as true for equity release lending as it is in the mainstream market. Brokers who arrange larger loans have higher PI costs,” he says.
This is one reason why percentage fees can work in the customers’ favour says Mirfin: without them those borrowing smaller amounts are effectively subsidising the increased cost of those taking out larger sums.
He also disputed the fact that customers were unsure about fee charging structures. “Under the current disclosure rules we have to make it very clear to customers in advance what we are charging for advice. When we are charging a percentage fee this cost has to be expressed upfront in pounds and pence.
“Customers who think this charge is too high can vote with their feet.”
Brokers like Key Retirement would rebate procurement fees to customers, where it made financial sense to do so, Mirfin adds.
JLM’s head of mortgage finance Sebastian Murphy says: “Just because it is accepted practice, we as an industry should not be charging potentially extortionate fees based on a percentage of the loan.
“We appreciate different adviser firms run different models, but still there is absolutely no reason why an equity release customers – who could, let’s not forget be quite elderly and vulnerable – should be paying thousands of pounds for their advice. It’s wrong and it’s not treating customers fairly.”