Many second charge master brokers are still overcharging, with fees of up to 15 per cent not uncommon, according to intermediaries.
The issue of charging flat or variable fees also still divides opinion in the market.
London Money director Martin Stewart says: “I recently did a £50,000 mortgage where I charged the client £495 and I got £150 from the lender. But if I did that in the second charge world, it would have been acceptable to charge £5,000 for that £50,000. We all need to make a profit, but we don’t need to make an excessive profit out of anybody.”
Many brokers think there is a risk the FCA will step in on the issue.
However, Mortgage Strategy understands from sources close to the regulator that it has no unified agenda yet with second charge packager fees. It has instead been carrying out spot checks on individual firms.
If the regulator does crack down on fee charging, many firms could struggle to adapt.
Positive Lending chief executive Paul McGonigle says: “If firms built their business based on high commissions then they would almost certainly have to rebuild their business from scratch.”
Regardless of regulatory interest, there is a growing chorus of voices calling for master broker second charge fees to be reformed. This mooted reform takes two forms – lower fees overall and a flat-fee structure, rather than variable fees.
A growing group of packagers, including TFC Homeloans, Complete FS, Positive Lending and Brilliant Solutions have all moved from charging variable fees to flat fees.
The group says many second charge packager variable fees are too high and lack transparency. However, packagers charging variable fees say these reflect extra work put in and permit a greater level of service to customers.
The issue of fees was rekindled last March following the Mortgage Credit Directive, when the FCA took over regulation of the second charge market from the OFT.
Positive Lending began charging a flat fee in mid-2015, and says this is fairer to consumers.
McGonigle says: “Nine months before the MCD we decided to draw a line in the sand and have one flat fee. Because the cost of processing a deal is exactly the same if it is £20,000 or £200,000. So how can you treat a customer differently if your processing costs are the same?”
Specialist Mortgage Group chief executive Matt Cottle defends variable fees. He says flat fees can work, but that it all depends on the level of work needed.
He says: “If you have a customer who wants to borrow £10,000, it’s a very simple case that doesn’t require much processing. Then, a flat fee works. If you’ve got a large loan which is complex, and the client has various income sources, maybe needs two valuations, a damp report, and has two mortgages on the property already, it’s a completely different model.”
Cottle says some companies charging low flat fees struggle to profit from the model and the argument that master brokers can charge exorbitant fees is often overstated.
He says: “People can shout that everyone is charging big fees, but there isn’t much substance behind what is being said.”
Vantage Finance director Lucy Hodge also believes the variable fee model is not broken: “Charging percentage-driven fees is not a bad thing, as long as it’s fair.”
She says the average level of variable fees has fallen.
“There’s clearly been a downward pressure on fees in that space. That’s been a result of product availability, competition, and the initial regulatory piece that started making everyone look at it. There was a concern people weren’t seen to be overcharging.”
But those interviewed said the market as a whole worked well despite some high fees.
McGonigle says: “There are intermediaries out there that have a bad opinion of second charge brokers and packagers, and we are not all like that. There is only a small element that have not gone the right way.”
Hodge says: “I do still maintain that the market is free and competitive. Nobody is forced to go through a certain channel.”