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Mortgage proc fees on way out

Premier Mortgage Service is conducting a business review over concerns that procuration fees will fall away over the next two years to be replaced by advice fees.

Managing director John Malone says PMS, which operates by taking a percentage of the procuration fee, will have to change its business.

He says he believes that by 2010, around 30 per cent of mortgage broker income will come from up-front advice fees.

Malone says: “At the moment, this figure is probably less than 5 per cent but in the project work we are doing we see this increasing by 2010. We will have to change our proposition as we cannot take a fee out of that income.”

The Intermediary Mortgage Lenders’ Association warned this month that broker remuneration may become more based on fees for advice rather than proc fees in the future.

Legal & General director of housing Stephen Smith says the firm has been considering the issue. He says: “Even though times are difficult at the moment, it is good to be looking as an industry beyond the next 12 to 18 months. We are looking at the next three to five years at what the shape of the business will be and how it will operate.”

Smith says there will be increasing pressure from the regulator and lenders for intermediaries to prove the value they have in the chain and this could see more brokers charging for advice. He says: “For mortgage clubs that simply aggregate volume and do not add value, the future looks grim. The challenge is for a club to prove how it adds value.”

Pink Home Loans managing director David Copland says a lot of the company’s business comes from appointed representatives so it has the option of charging a fee but says it is more difficult for clubs which deal with directly authorised brokers.

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