Mortgage networks looking to grow quickly and sell on their businesses to IFAs after depolarisation could face serious financial problems, warn leading industry experts.
Mortgage Intelligence managing director Sally Laker fears that new mortgage networks pulling in members with low membership fees are not looking carefully enough at their long-term costs.
She says she is concerned that a number of new mortgage propositions hoping to sell up quickly following the onset of regulation could find themselves shunned by IFA groups.
Laker's concerns were raised after Money Marketing revealed that Customs and Excise has already ruled in individual cases that IFA networks should pay VAT on member charges. This ruling could be applied to mortgage operations.
Leading brokers say brokers could face escalating membership fees if their group has not put enough money aside to cover unforeseen problems in two, three or five years.
Laker says: “There are some that are gearing up to sell their businesses on but the success of this will surely depend on how long they have been trading and their potential liabilities. From my point of view, it would difficult to quantify exactly what you would be buying.”
Inter-Alliance mortgage development director Stuart Wilson says: “These concerns are well founded. The VAT issue is yet another problem in addition to regulation costs that some new networks have not considered carefully enough or looked at in the long term.”
Pink Home Loans managing director Paul Jones says: “I think some of the pricing is extremely fine and does not leave much margin. If they get landed with a big VAT bill, it is quite likely that their charges will have to increase. We have done our own cost modelling but my guess is that a number of the start-ups will not have discussed this.”
Mortgage Edge, p37