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Mortgage View: The crucial conundrum

There is something of the night about procuration fees. Even when used in reputable commercial businesses, it refers to a buying function rather than a remuneration for selling. Can we please start using the terms “lender fees” or “commission” to give them their true title?

My erstwhile colleague, Mr Harris, at Savills, put in his wish list an improvement in lender fees to recognise the increased work which we are doing. And he is right – we do not get remunerated properly. But apart from the miserly attitude of the majority of lenders to distribution costs, there is a structural issue which empowers them to play this game.

Intermediaries today perform two distinct roles. First, they either provide advice or place a loan and, in this role, they should receive commission from the lenders. In reality, this role finishes with the submission of an application of a loan to a lender. From there on, lenders are subcontracting varying swathes of their administration role. This is nothing to do with the advisory service but is, in reality, outsourcing.

The conundrum is exacerbated by the fact that regulation does not distinguish between these two lines of remuneration. I believe that if lender agreements were to be drawn up properly, they could reflect these separate roles, leaving only commission payments as disclosable. Intermediaries would then have the choice of submitting applications only to lenders or performing the varying admin roles which they currently do.

The conundrum for intermediaries is that lenders’ service standards still vary so horrendously that their completion rates are likely to collapse and their customer relations fall down. In the original data packaging, the roles were well defined, particularly with the growth of the sub-prime market where lenders outsourced their packaging. However, today, lenders are getting intermediaries to submit most of the individual supporting documentation and, in reality, relying on lenders’ intermediaries for progress chasing as well.

Some lenders do distinguish between these roles, and these I applaud. Any separation of the fee structure would naturally be prone to abuse, particularly from a disclosure regime perspective. But we will not have a healthy market until lenders pay properly for the two separate streams of services that they get from intermediaries.

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