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Duel pricing

Before you stop reading this, thinking what is the point of reading a column written by some idiot who cannot even spell, bear with me.

Some brokers feel lenders are dual-pricing to kill them off, hence the title of this column. In the boom times, brokers’ positions were unassailable. Lenders desperate for market share could only get a finite amount of business from their direct channels and brokers delivered the rest. Brokers called the shots and typically could offer cheaper rates than many in-house direct mortgage advisers.

When we were benefiting from dual-pricing we were very quiet. Now the shoe is on the other foot, the accusations grow faster than a viral marketing campaign.

The FSA had a good look at dual-pricing and correctly observed that lenders are entitled to use a variety of distribution strategies and price them accordingly, so could offer cheaper rates via their direct distribution routes if they choose to.

Most lenders will employ some kind of salesforce to sell their direct mortgages. These people are a fixed cost. If they sell no mortgages per month, they still need to be paid. Brokers only get paid when they sell mortgages.

Pretty much every survey shows people value brokers’ service. If you give a broker and a direct adviser the same rate, most people will choose the broker and the direct adviser will end up twiddling their thumbs. Lenders found that by dualpricing, brokers will still submit the lion’s share of the business but the branch advisers were kept nice and busy.

What made the situation worse was HSBC’s entry as its pricing was extremely aggressive, so lenders had to reduce their direct pricing to compete. Some lenders took things further than others. Brokers could not compete. Some lenders, notably Nationwide and Woolwich, do not dual-price but most of the others do to some degree. These lenders devote significant resources to looking after brokers so they have no intention of killing brokers off. They are trying to keep their branch staff busy. Brokers need to realise we cannot change what is going on, threats to boycott lenders when the good times return are not going to make any difference.

Jonathan Cornell is head of communications at First Action Finance

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. The moral dilemma is that if a broker is aware a lender is offering an identical product cheaper directly, what obligation does she/he have to tell the customer in considering TCF?

  2. The mortgage broker community will remain in trouble for as long as the industry “leaders” trot out this sort of weak commentary which adds no value to the debate. Is anyone else losing far more deals to Santander than HSBC ? Is anyone else losing more deals to the Santander retention policy than they are to the dual priced products ? The fact is that the network business models mean there will be no biting the hand that feeds and dual pricing will remain long after funding has returned. It will need directly authorised firms to reject the private banking cross sales that Santander has set it sights on before the tide starts to turn.

  3. I just love the fact that the people who write the articles telling brokers that ‘duel pricing’ is not something to be scared of & that we won’t be starved of business. Are always EMPLOYED with a cushey monthly salary. Let’s see what they would say if they were self employed.

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