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A gap too far?

New figures from Home Buyer Systems revealed today that those who opt for a direct mortgage could be as much as £5000 better off over two years than they would be if their mortgage came through an intermediary.

Advisers have, over the last year, begun to change their mortgage business model so as to bridge the gap between intermediary and superior direct offerings. But is this a gap too far? Can advisers still compete in such a one-sided mortgage market?

Thanks to dual pricing, HBS has found that a client can save as much as £208 every month over the first two years of their mortgage if it was originated directly from the lender.

Dual-pricing has become a way of life for UK mortgage intermediaries in 2009, and most have begun to change their proposition accordingly – this is illustrated in HBS’ data, which shows a 300 per cent increase in the number of mortgage advisers processing fees through its systems.

Many have now come to the conclusion that there is simply no room for a business to survive on proc fees alone. It’s a case of finding the best mortgage for the borrower, possibly for a fee, and then if that is a direct product, trying to sell other products around the mortgage.

In a recent interview, First Action Finance head of communications Jonathan Cornell told me that as dual pricing becomes the norm, advisers have to prove their worth as complete financial service agents rather than simply mortgage brokers. He said that his firm had found that clients are much more likely to sit down and talk about pensions, protection and investments if the adviser had been honest and pointed them towards a direct mortgage.

But, as the Association of Mortgage Intermediaries revealed this week, there are concerns within the mortgage sector surrounding this new change in direction. Personal Indemnity cover may not be valid if an adviser points a client towards a particular direct product. This is not to say every case will leave advisers open, but for the likes of Personal Touch Financial Services, it’s a real worry.

So is £5000 just too much of a gap? Is this proof that for mortgage intermediaries it’s time to head for pastures new? And for IFAs, is it safer to just move away from mortgages completely? Or is this just a symptom of a transient market that will move in the opposite direction once the upturn comes?

Tell me what you think by commenting below.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. A gap too far – Dual Pricing
    Despite some positive news in recent times, the mortgage market is still not functioning as it should and these continue to be difficult times for many borrowers and their advisers. Lenders continue to focus on the short-term by adopting a policy of dual-pricing rather than look at the fundamental benefits of mortgage advice and an understanding of where the majority of their business has come from in recent years. Given the nature of the current market, this mortgage Botox approach coulddeal a mortal blow to many mortgage advisers, taking them out of the market at a time when there has arguably never been a greater need for financial advice.

    Deep long-term cracks will appear within the mortgage market if this approach persists and one must question whether lenders really have consumer’s long-term interests in mind if their ongoing actions lead to the vast majority of advisory firms going out of business. Consumers who are lured in on lender’s deeply discounted direct deals may find they have few advice avenues to explore when their special rate ends in a few years time. This is not in the consumer’s best interests and there must be greater dialogue between lenders and advisers about this approach and who it is actually benefiting in this market. For those who argue that dual-pricing has always existed, we would suggest it has not operated in conditions like this before and therefore it is having a massively disproportionate effect. The
    time has come for lender’s to acknowledge that mortgage advice is a positive and they must adopt strategies that help not hinder the ability of consumers to access that advice now and in the future. £5000 may be a relatively short term gain for long term pain.

  2. A gap too far.
    I just wish the FSA would promote independent advice by forcing all lenders to make all deals available to independent mortgage advisers.

  3. Dual Pricing
    It’s not just products, it is the overall impact that we have seen. Most lenders do not allow us to transact business for our clients that would like these products available through our impartial service and that are happy to pay us a fee. Instead they have to walk into a branch, deal with some that they don’t want to and really do not understand why this has to be the case. There is no middle ground from the lenders. Impartial advice is important to consumers but the government has not shown support in the value of this……Petition:

  4. Dual Pricing
    It saddens me that lenders, who have built a quality mortgage book from brokers and still employ staff to try and attract their business, while stabbing the intermediary in the back by offering so much better deals direct. I don’t know a single broker that has any respect for them. I hope new foreign lenders will see the profit opportunities that exist in this country and, lacking a branch network, will use the broker market to sell their products. If this happens and our wannabe assissins again court our support to regain market share I, for one, will happily tell them to shove it. Or I would if best advice and TCF allowed it. Who is making sure the broker is being treated fairly? And I don’t just mean writing a few articles saying how unjust it all is. I mean actually making something positive happen? It seems that nobody actually gives a stuff about us and/or has any power to do anything about it.

  5. Halcyon times
    In the years up to August 2007 we effectively had too much money available in the UK mortgage market. The pendulum is at the other extreme and will stay there for some time to come.
    Sufficient funds to reduce the very high margins the lenders are currently able to obtain will only come about when the economy improves and interest rates rise. This SHOULD NOT happen until at least the second qtr. 2010 on the current ‘spin theories’. These prophesies are likely to be wide of the mark so probably later still.
    (However I ‘called’ sharply lower interest rates in Oct. 2007 following the Fed’s move. Merve ‘The Swerve’, citing inflationary pressures that he had no hope of affecting, namely world oil, commodity and food prices, didn’t move until much later in 2008. Then panicked! I got the timing of that one wrong, so when I say ‘shouldn’t’ happen it doesn’t mean it won’t.)
    Dual pricing will only be squeezed out of the system when there are sufficient funds available to satisfy the market. These will come because the very wide margins UK lenders are currently getting will be very attractive to investors.
    Then some semblance of ‘normality’ will come back, but it will be a different ‘normality’ with much more (small ‘c’) conservative practices. These more conservative practices will however give investors more confidence.

  6. a gap too far
    As a broker I am worried sick by dual pricing. I have seen lots of mortgage brokers shut up shop this year unable to cover the costs of the business, and things are only getting worse. The realisation is that the government care about independent advice about as much as china care about global warming, so we cannot rely on them to even the playing field. I am so disheartened with the entire industry that there doesn’t seem any point in fighting it anymore. The government (I mean the taxpayer) has bailed the banks out and now they seem hell bent on destroying the independent advisers, removing a valuable resource for the public. Talk about having your cake and eating it. Downing St will learn in the future the massive mistake they have made allowing the banking monsters to destroy an entire industry. I cannot for the life of me understand why they have not listened to us and allowed this to continue. The answer to the question is ‘Yes’ it is a gap too far. The solution is very simple- end dual pricing. Unfortunately I don’t think I’ll still be around to see that. Think I’ll add to Browns woes by joining the dole queue!!!!!

  7. Swings and Roundabouts.
    Round pegs in round holes direct fine to a degree,square pegs wanted in round holes then consult a professional mortgage broker. I have today sourced (from all) a straightforward mortgage where the ‘top of the tree’ rate for the product is ‘Intermediary only’. It cuts both ways and the comments made for ‘headlines’ is normal where there is a vested interest.When the upturn comes the likes of Coventry, Abbey et al WILL be remembered.

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