Yorkshire Building Society is considering making a radical change to the way in which it pays procuration fees to mortgage introducers.
Instead of the fee being paid in full on completion, Yorkshire proposes to reduce that amount and then pay smaller payments for each year the borrower remains with Yorkshire.
The move is obviously designed to assist the lender in the retention of existing borrowers and to try to reduce the number of borrowers who switch every couple of years for the best deal, aided by mortgage brokers.
Yorkshire hopes to recognise the role that introducers play in this process and is hoping to combat the “churning” of mortgage business by offering a financial incentive to the broker to leave their clients where they are.
This is the next stage of the “mortgage war” that has seen lenders placing much more emphasis on the retention of borrowers rather than just attacking new business. This has been most notably shown by Nationwide's move to one rate for all.
Sounds too good to be true – so what are the problems?
Foremost is the danger that the client's best interests are not looked after. After all, the borrower is the adviser's client and it is to them, not the lender, that there should be a duty.
If the lender plans to leave the client on variable rate, in all likelihood there will be a better rate available and the client must be given that option. If not, the relationship between broker and client is lost.
It is hard at this stage to judge the full impact of trail commission, as so much will depend on how it is implemented, which is not yet clear.
David Hollingworth is a mortgage specialist at London & Country