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The return of dual pricing

Paul Thomas reports on the return on dual-pricing

Brokers say the FSA’s prediction that the market could enter a phase of aggressive dual-pricing in the next 18 months is already ringing true.

Last week, the regulator published its retail conduct risk outlook, which analyses the risks facing consumers and businesses over the next 18 months. It says further funding pressures in the mortgage market could potentially trigger a “return of the aggressive dual-pricing strategies seen in 2008”.

Four years ago, the mortgage market was suffering after the collapse of Lehman Brothers. Some lenders made the decision to offer lower rates for their direct channel compared with their intermediary channel to support branch networks.

Brokers say some lenders had direct deals more than 50 basis points cheaper than intermediary deals.

John Charcol senior technical manager Ray Boulger says: “I would say the end of 2008 and early 2009, after the Lehman Brothers’ bankruptcy, was the worst time in terms of dual-pricing.

“In some cases, the difference between direct and intermediary deals within a single lender’s product range was as much as 50bps or more.”

Statistics from Money reveal there are now 1,900 products available direct at an average rate of 4.15 per cent, compared with 1,676 products through intermediaries at an average rate of 4.66 per cent. These figures include direct-only lenders such as HSBC.

London & Country associate director of communications David Hollingworth says: “I think we are already heading towards a serious situation of dual-pricing. There are a lot of lenders repricing and the differentiation seems to be widening.

“We are already heading towards a serious situation of dual-pricing. There are a lot of lenders repricing and the differentiation seems to be widening

“If there is not enough money around at a cheap price, then that starts to happen and lenders will always revert to their branches because they are expensive to run.”

Chadney Bulgin mortgage partner Jonathan Clark says if lenders revert to dual-pricing, brokers can adapt by offering advice on all mortgages, whether they are available to intermediaries or not.

He says: “Dual-pricing practices are not as wide-spread as in their heyday in 2008 but it is getting worse. Lenders still have these huge branch networks and they need to be supported in both good and bad times.

“As brokers, we have to adapt to giving a different model of advice. A good broker these days is aware of all products available to their clients, not just the ones they have access to. That way, customers will still recognise the value of advice.”

The Association of Mortgage Intermediaries has called on the FSA to make lenders explain how their actions will affect customers.

Director Rob Sinclair says: “I think the supervision team at the FSA should be asking the banks that adopt dual-pricing why it is the right thing to do. Banks have an objective to protect customers through this process.

“If we are setting up a market where it is cheaper to go direct than through an intermediary, the regulator needs to have a look at that because the majority of borrowers would benefit from advice.”

An FSA spokesman says it is not the regulator’s place to decide distribution channels for firms.

He says: “Lenders are not obliged to deal through intermediaries. How lenders choose to price and distribute their products is a commercial matter and they are not in breach of FSA rules if they choose to go down this route.”

The Council of Mortgage Lenders stresses it is not unusual for lenders to alter their distribution strategies depending on market conditions.

Head of external and member relations Sue Anderson says: “It has always been the case that lenders and other financial services providers, when selling any of their products, have used different pricing strategies through different channels at different times. There is nothing unique to the mortgage market about that, it is entirely normal in financial services.”

Some do not believe dual-pricing will be as damaging this time round. Lentune Mortgage Consultancy director Stuart Gregory says there are still plenty of good broker deals available, which he expects to continue.

He says: “I do not think it will be as much of an issue as it once was. Because of the way the market has changed from 2008, there are some decent comparable deals on the market and that will continue to be the case as lenders cannot totally abandon brokers.

“Nine times out of 10, the deals in the best-buy tables are not always available to all borrowers, whether because of the loan-to-value ratio or the criteria the lender applies.”

Gregory believes that consumers are beginning to value mortgage advice more because it has been much more difficult to get a mortgage since the financial crisis.

He says: “I do not think a return to dual-pricing will affect broker enquiry levels, because I feel customers are now more aware of the fact it is more difficult to get a mortgage and in most cases you need advice through this process.”


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  1. I thought that one of the policies of the FSA was that clients should not cross-subsidise other clients. This isagain and as usual, very much the exhibition of ‘double standards’ by the FSA to their banking friends. It is well known that business done via the branch network is more expensive because of built in costs such as staff salaries, pension schemes, rent, rates, general over heads, miss selling provision etc, wheras the procreation fee payable to a mortgage broker is a comparatively small amount. Their remuneration is only paid on finalisation of the actual business where the intermediary has done most of the work e.g. advice, comparative illustrations, application completion, gathering and submission of required documentation etc. The FSA casually brushing off and stating that there is no detriment to the client is in my opinion ‘ANOTHER DERELICTION OF THEIR DUTY’ to the well being of the client. Allowing some clients to have access to lower rates when their business actually cost more to obtain and be subsidised by clients being charged more from lower costing business channels IS JUST PLAIN WRONG and the FSA NEED TO REVISIT THEIR FLAWED THINKING PROCESS!!!!!! This of course is another example of the regulator ‘taking their eyes of the banks’, when they are micro-managing the broker channel and again in my opinion will come back to bite them.

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