Mortgage lenders are facing renewed pressure from distributors to raise procuration fees as data reveals an increased workload post-MMR has cut per hour broker payments.
Legal & General Mortgage Club data shows since the Mortgage Market Review the time taken per application for brokers has risen from 11 hours to 12.3 hours per case, while others say the increase has been even more significant. As a result, L&G says brokers’ average earnings have fallen from £50 an hour to around £48 an hour.
Several mortgage lenders, including NatWest Intermediary Solutions, Skipton Building Society, Accord Mortgages, Leeds Building Society and Virgin Money have raised proc fees for completed mortgage deals in recent months, while Lloyds Banking Group and Santander continue to pay brokers based on the quality of business submitted.
Despite an increase in the average proc fee from 0.35 per cent gross in 2013 to around 0.4 per cent gross as of January 2015, L&G Mortgage Club director Jeremy Duncombe says lenders must continue to reward brokers for an increasing workload.
“I’d be reluctant to say how much fees should go up from here, but clearly the evidence is there that each case is taking a lot longer than it did before the new rules and that is something that should be looked at,” he says. “We’ve seen fees rise in recent weeks from certain lenders but we need to see more from the market.”
Homeloan Partnership commercial director Neil Hoare says his network’s members are, on average, spending around 20 hours on each case post-MMR. He says pre-MMR this figure was around 11 hours.
“If brokers are spending an average of 20 hours on cases, they should be getting paid at least £1,000 per case. Based on the average mortgage size of £142,000, that works out to 0.7 per cent gross and that’s fair remuneration for what brokers have to do in the current market.
“At any rate, proc fees are paid on completion, not simply when an application is submitted, so they are only paying out when they are getting new business – the cost of getting that business to them is rising, and rising faster than fees are.”
Major lenders, including Barclays/Woolwich, Nationwide Building Society and NatWest Intermediary Solutions, say their proc fees are regularly reviewed to be kept “in line with the market” and to ensure brokers are being fairly rewarded for the work involved.
But SimplyBiz managing director Martin Reynolds argues proc fees could rise above 0.7 per cent.
“Brokers should be rewarded with bigger fees,” he says. “Some lenders have shown they agree with that view and so we’ve some increases recently but generally more needs to come.
“While many will say 0.7 per cent is a high level of fee, there’s no reason why it shouldn’t be a lot higher than it is. Clearly the workload for all brokers has soared and fees need to reflect that in a fairer way.”
However, Personal Touch sales and marketing director David Carrington warns “sudden hikes” in proc fees risk drawing the attention of the regulator. The FCA has previously said it will investigate rising proc fees if evidence emerges they are influencing product choice.
Carrington says: “Larger, sudden hikes may draw attention to the market that it doesn’t necessarily want. We are entering a more stable market at the moment and we need to ensure that functions properly without attracting scrutiny from the regulator because suddenly fees have jumped 30 basis points. There is a balance to be struck.”
But Hoare argues lenders have room in their margins to pay brokers a bigger slice of completed deals.
He says: “Lenders are working off fantastic margins at the moment, even with fixed rates being so low. Appetite seems very healthy and that indicates there could be further rises in fees – there is definitely room for lenders to do that.”
John Charcol senior technical manager Ray Boulger says recent proc fee rises reflect lenders’ growing reliance on brokers to drive new business flows.
He says: “We know lenders are increasingly reliant on brokers in the post-MMR market and these recent fee hikes are a reflection of that. There is a lot more work involved in each case and that requires better compensation, hence the rise.”
Boulger adds even with increasing fees, the cost of marketing and providing in-branch mortgage advice is less cost-effective for lenders, and believes more lenders will turn to proc fees as a way of ensuring volumes.
“Lenders have to train their advisers to the level required by MMR, they have to market that service to the public, they have to make sure they have the capacity to deal with any increase in volume and that all adds up to a significant cost base.
“Paying brokers an extra 10 or 20 basis points is almost certainly going to be a more efficient way of managing business levels.”
The Council of Mortgage Lenders says: “It is up to lenders to set their own procuration fees and these may reflect a range of factors, including approaches to mortgage distribution, commercial strategy, and the way in which the industry responds to regulatory reform.”