With the implementation of the mortgage market review in April, one of the key developments will be the ban on non-advised mortgage sales.
Under the final MMR rules contract variations like changing the payment method, rate switches, retention deals or porting the mortgage can be non-advised as long as the consumer does not want to borrow more money.
This means that any “interactive dialogue” between a lender and a borrower not covered by the above exclusions will be classed as an advised sale.
For in-branch mortgage sales, lenders will have to train their staff to CeMap level or put business through brokers.
As lenders prepare to bring staff up to the required level, Ipswich Building Society chief executive Paul Winter believes lenders may resort to dual pricing to generate sufficient lending volumes to justify the investment in branch staff.
Winter says: “Some lenders will react to the MMR by saying we want to have much more control over distribution. They are going to have to invest a lot of money in their teams to get them to the required standard and they will want to make sure they are getting as much business as possible through those teams. One way of doing that is to offer better deals to those going direct.”
The strategy of dual pricing has been the subject of debate for some time.
In 2010, more than 2,000 brokers signed a petition urging the Government to intervene and prevent banks from offering cheaper prices on direct mortgages.
The Government said pricing decisions and mortgage terms and conditions “remain commercial decisions for banks and building societies”.
Data obtained from Moneyfacts.co.uk shows lenders are still using this strategy.
The average direct rate for a two-year fixed rate mortgage at 60 per cent loan-to-value, stood at 3.08 per cent in 2012 compared with an average of 4.53 per cent for the same deal available through a broker – a difference of 1.45 per cent.
For 2013 for the year to date, the difference between direct and broker rates dropped to 1.23 per cent at 60 per cent LTV.
But at 70 per cent LTV, the gap between direct and broker deals has increased.
Last year an average two-year fix was priced at 3.30 per cent for direct deals, compared with an average rate of 4.62 per cent through brokers – a difference of 1.32 per cent. This year, the gap between direct and broker rates has risen to 1.66 per cent.
Moneyfacts.co.uk finance expert Rachel Springall says: “It is still the case that borrowers will be able to get the lowest mortgage rates by reviewing the direct market.
“But as a mortgage is the biggest financial commitment many consumers will make , seeking financial advice to assess the overall cost will be in the borrowers’ best interest.”
Trinity Financial product and communications manager Aaron Strutt says: “Dual pricing has been around for a long time and it has hit brokers particularly hard. Many of the bigger lenders have struggled to get borrowers into their branches in order to sell them a mortgage and this has led to the banks reducing their high street presence.
“The banks and building societies are investing in their broker support teams and beefing up sales staff, with Barclays going as far as returning to the UK from India to improve its service to brokers.
“It is often a real fight to get mortgage applications through and as lenders tighten up their compliance procedures it is likely to get even harder. Without brokers lenders would struggle to lend as much money as they are suggesting next year.”
Chadney Bulgin mortgage partner Jonathan Clark says a dual pricing trend may emerge but he is confident that brokers will arrange more mortgages than branch staff come next April.
Clark says: “We know most lenders are going to struggle more than brokers once we see MMR implemented next year. It is very much a possibility they have to dual price in order to drive business through their own branches.
“But if these lenders require volume lending, brokers are always going to be the quick-fix.”
Association of Mortgage Intermediaries chief executive Robert Sinclair says: “Given the kind of lending volumes lenders are targeting, they are going to be needing more help from brokers next year rather than less. The chances of dual pricing emerging seems unlikely to me. Individual lenders may start a price war on the high street but I do not think brokers have too much to worry about in that regard; they are going to be well-placed post-MMR.”