It has been a busy start to 2024 in terms of enquiries, but it’s important to be mindful of how broker firms seem to be squeezed from all angles at present.
Costs have gone up across the board. For those firms with fixed costs, this isn’t just their rent and bills, but also regulatory fees, various subscriptions, lead acquisition and staffing.
The squeeze is also on from the government. If you are trading as a limited company, you will have seen the tax advantages of being paid via dividend erode over the years, and of course corporation tax has risen from 19% to 25%.
Some principals among you must surely have pondered on whether the risk was worth the reward.
I can envisage a lapse back into non-advised sales…
Consumers are expecting that bit more too. In 2023, possibly due to the cost-of-living crisis, we all experienced clients wanting the deals they had locked in to be checked, re-checked and re-checked again pre-completion (our record was seven times) to ensure their monthly payments were kept as low as possible.
Indeed, many broker firms now promote this re-checking service as part of their pitch.
‘Fair value’ broker fees?
Finally, broker fees. There are many fee models out there, but for firms that tend to deal in lower loan sizes (like us, for example, in the North of England) it is necessary to charge a fee to make a profit. We have just had word from lenders that they are examining whether the broker fees charged represent ‘fair value’ as part of the Consumer Duty.
…don’t let that be the legacy of the Consumer Duty
This is an interesting development. We are constantly told by lenders how important brokers are; lenders have all reduced the size of their D2C proposition; and we are a convenient and inexpensive lead generation model for them when they decide to ‘turn on the tap’. This relationship works well but, for it to continue to flourish, firms must be allowed the autonomy to turn a profit.
If this is just a research exercise by lenders to see who is charging what, and to root out any remaining rogue firms that charge unjustifiably high fees or routinely add them to the mortgage, then that’s great. But it would be good to hear from them exactly why this exercise is taking place.
Proc fees
Which brings us to proc fees. Standard proc fees haven’t gone up for years and it’s high time they did.
I was re-reading an article on this the other day. I’ve picked out a few quotes:
“Some brokers believe proc fee levels are still not commensurate with the amount of work required from the intermediary sector.”
We all know that the costs to provide the service have all increased, and 0.2% for a product transfer is no longer enough to make it viable
“Proc fees have certainly not increased in line with the amount of work that is now required…”
“We are spending more time on each case… the payments for brokers have not evolved. This needs to change, rapidly. Too often the amounts on offer are just accepted by brokers but we should fight more for better terms.”
Sound familiar? Well, it probably should, especially since these quotes were taken from a Mortgage Strategy article by Samuel Dale in March 2016!
We also work in the later-life space and the proc fees payable seem a much fairer representation of the work that goes into each case, although lenders pay higher commissions to the bigger broker firms. It’s 2024 — surely lenders have enough data to base their proc fees on quality over quantity?
Many broker firms now promote this re-checking service as part of their pitch
Broker firms that package cases well are saving the lenders money, but for some reason this is not reflected in the remuneration.
We all know that the costs to provide the service have all increased, and 0.2% for a product transfer is no longer enough to make it viable. We all believed in the MMR when it came out, but if this issue is not addressed soon I can envisage a lapse back into non-advised sales.
Don’t let that be the legacy of the Consumer Duty.
Malcolm Davidson is managing director of UK Moneyman
This article featured in the February 2024 edition of MS.
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