Brokers have called on lenders to pay them higher procuration fees to reflect a heavier workload due to tougher affordability requirements being introduced ahead of the mortgage market review.
Last week, Money Marketing revealed Lloyds Banking Group has decided to link proc fees to the quality of business submitted. Lloyds subsidiaries Halifax and BM Solutions will introduce the new system early next year for its key accounts only. The decision follows a similar move by Santander for Intermediaries in June 2012.
Lloyds’ move has sparked a wider debate around the level at which proc fees are set. Brokers argue the current average proc fee of around 0.35 per cent of the mortgage is too low given the extra workload created by the MMR.
Under the MMR, responsibility for ensuring affordability lies ultimately with the lender. But brokers say they are the ones having to meet tougher packaging requirements being introduced by lenders ahead of the MMR, and as such should be rewarded accordingly.
Perception Finance managing director David Sheppard says if lenders are expecting so much more of brokers, it is a natural for brokers to want an enhanced proc fee in return.
Sheppard says: “The drip-feed of information coming out from the regulator on what lenders should expect out of MMR has led a lot of lenders to implement tougher standards already. Some have even gone further than the expectations of MMR and I see no reason why they would feel the need to strip the practices back now.
“Lenders now require a lot more from brokers in terms of the affordability checks and necessary documentation. I think this is a healthy move for the market, but at the same time if the lenders are wanting us to do so much more in terms of pre-vetting the clients, it is only right we are compensated accordingly.”
Emba Group sales and marketing director Mike Fitzgerald says lenders’ systems force brokers to meet lenders’ quality standards, as online applications will not be accepted without the proper paperwork.
He says: “The process is no longer like ten years ago when a broker might forget a payslip or identification papers and a case gets sent through because the current systems will not allow that to be processed. Most professional brokers are submitting all necessary paperwork anyway because we want to see the payslips and bank statements ourselves so everything is ready to be uploaded onto lender systems.”
Fitzgerald says lenders need to realise that brokers are having to do a lot more to submit applications, which he says merits higher proc fees.
He says: “Some of these lenders need to appreciate the extra work involved in what brokers are now doing. Often lenders will even send a request for further information once a case has been submitted. With all of this going on, a higher fee for the broker is, in my opinion, justified.”
Brokers say in the long run higher proc fees would benefit lenders, as it would mean an increased volume of business from brokers with lenders saved the costs of having to train up in-house staff to meet affordability rules.
Writing in Money Marketing’s sister publication Mortgage Strategy last week, Countrywide financial services director Nigel Stockton thinks lenders face an uphill challenge in getting branch staff to effectively assess affordability.
Stockton says: “Once MMR is introduced, the advice and responsibility for the advice will make it harder for lenders to deal with customers online and by telephone. As a result, they will need to train branch staff accordingly as the lender will clearly be responsible for assessing that consumer can afford the mortgage they are taking out. Every lender has realised this and that is why we have the best set of products helped by Funding for Lending but at the same time, bigger lenders are pulling their hair out about branch performance.”
Distributors say these challenges, plus the problem of high staff turnover, all lend weight to the argument to pay brokers more, thereby pushing up brokers’ market share and relieving pressure on lenders’ branch staff.
PMS mortgage club executive chairman John Malone believes any overhaul of proc fees should address not just brokers’ extra workload, but the disparity between the higher proc fees paid to appointed representatives and proc fees paid to directly authorised brokers.
Malone says: “I have always campaigned for greater equality between the two because fundamentally the intermediary, regardless of whether they are directly authorised or an appointed representative, is largely doing the same job and should therefore be paid the same money.”
SimplyBiz Mortgage Club chief executive Martin Reynolds believes there is an argument to be made for increasing fees for any additional work required of brokers.
Reynolds says: “It would be an interesting debate with lenders in the run-up to and post-implementation of MMR to understand what additional work and checks they would want an adviser to do above what they currently are doing. If there is additional work, surely that therefore warrants a renegotiation of fee structures?”