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Remortgage barriers could see switch to trail payments

Mortgage advisers may have to change their business model from up-front commission to trail cash because borrowers are not remortgaging, according to the Association of Mortgage Intermediaries.

Speaking at a Money Marketing mortgage round table, AMI director Robert Sinclair said that customers are staying on the same mortgage rate for longer and advisers’ business models may have to change as a result. He said: “I am interested in trail in the longer term because if we are coming to the point where mortgages are going to be much longer-term and people sit on the same rate for longer, we might be more interested in not paying all the money on day one up front. We might have to change our business models because of that.”

Exact managing director Alan Cleary said the average loan cycle is about three years but for mortgages taken out in 2007 at the peak of the market, the average loan cycle is at least seven years. He said it will take about 15 years for 2007 interest-only mortgage customers to get back into the remortgage market and if house prices deteriorate much further it could be 25 years or more before they are able to refinance.

He said: “We think there is about £100bn worth of loans where the borrower cannot refinance at the moment because their LTVs are 105 per cent on average or they do not want to because they are on trackers 2 per cent over bank base, so they are going to sit tight for a long time.”

Nationwide for Intermediaries head of corporate accounts Paul Howard says: “It means the original fee on completion will be less than it would otherwise and how many brokers can suffer a reduction in their income from a cash flow point of view? I think it is a fantastic idea but I really cannot see it taking off.”


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