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Rock around the proc

Discount broker Hargreaves Lansdown is sending shockwaves through the homeloan business by offering procuration fee rebates.

It is the key point of the company&#39s drive to widen its mortgage offers with a national press campaign this month.

Hargreaves Lansdown set up a mortgage arm last September to diversify from its investment and pension business but it has only been targeting its 400,000 client base. Now it is going out to the general public and offering to pay part of the procuration fee from lenders to borrowers who take the execution-only route. It will also offer mortgage advice if people want it but in that case will hold on to the full proc fee.

But some players in the market, including broker club Prudential Mortgage Services and national firm Savills Private Finance, are warning that the move could provoke lenders to cut proc fees to just a small introductory fee in line with the level of service the intermediary provides to the client.

Pru national mortgage manager John Malone says: “There may be an implication for mortgage brokers with regard to payment for acquisition in relation to the value of the work they are doing. Lenders may just pay an introductory fee which could set a precedent in the industry.”

Savills associate director Simon Jones agrees, saying: “That is a very good point – some lenders might look at paying fees based on merit.”

But Hargreaves Lansdown head of mortgages Ian Jordan says: “My view is that this argument could be levelled against everything that Hargreaves Lansdown does. When we sell an Isa, we give back all the commission and live off the trail but fund managers do not price funds to include no commission. Lenders will want to encourage all intermediaries to do business with them. What is the point of reducing proc fees if intermediaries do not sell their products?”

Others in the market, such as independent mortgage consultant Mark Chilton, think that lenders are too keen to hold on to distribution to make such a cut.

National broker franchise Mortgageforce managing director Robert Clifford says: “It is possible but unlikely that lenders would cut the fee, as they probably have the lowest acquisition costs in the world. In fact, the opposite should be true and brokers giving full advice could receive an enhanced fee.”

Although Hargreaves Lansdown is confident that its execution-only service will make a big impact on the mortgage market, key players such as London & Country and Charcol, are, for now at least playing down the competition.

Some of them cast doubts over how many people will make what is often the biggest financial decision of their life without professional advice.

But Jordan says: “People said that about us when it came to selling Peps and stakeholder pensions execution-only but we have a huge amount of experience of distributing fairly complex products.”

Hargreaves Lansdown&#39s selling point is that there is so much information available on mortgages on the internet and in the media that people are well equipped to make up their own minds.

But Bradford & Bingley head of retail PR Siobhan Hotten takes the opposite view, arguing that this level of information makes advice even more vital. She says: “In this day and age most people seek advice because the market is so complex.”

This view is supported by research released this month by the Council of Mortgage Lenders showing that 79 per cent of 3,000 people questioned in the last quarter of 2002 want a face-to-face interview when setting up a mortgage.

Another outcome that is causing concern for some borrowers is that a potential borrower may take face-to-face advice from one broker but then go to Hargreaves Lansdown to apply for the mort-gage tempted by the promise of getting some cash back.

Jordan argues that intermediaries should be able to show clients they are providing worthwhile advice and a good follow-up service so they realise they are getting what they are paying for.

He says: “People could potentially get advice elsewhere, then come to us but, as an adviser, I used to try and sell additional services. With an investment, you cannot guarantee performance but if it goes wrong people can go to their adviser. It is the same if an adviser recommends something that does not deliver, they can complain but they cannot do this on execution-only.”

Chilton says it is not intermediaries who should see Hargreaves Lansdown as a major threat but lenders themselves.

He argues: “If Hargreaves&#39 main pitch is rebating proc fees then it could threaten direct lender distribution. If someone sees a Halifax product they want, why not go to Hargreaves Lansdown and get some money rather than go through the lender?”

Hargreaves Lansdown is confident that its mortgage arm will work saying it wants to become “the best place in Britain to buy a mortgage”.

It is already talking about the next phase of development when people can source their mortgage online through Hargreaves Lansdown&#39s website, buy it there and get some cash back in return.

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