The mortgage rate war is harming lenders and brokers in the present and future, John Charcol’s managing director Walter Avrili has warned.
On Tuesday the Bank of England revealed that average mortgage rates fell again from 3.26% in the fourth quarter of 2014 to 3.01% in the first quarter of 2015 – the lowest rate ever recorded.
While this may be good news for the consumer Avrili said this is terrible news for lenders and intermediaries.
He said: “The constant rate cutting war to secure new business is leading to the shrinking of margins for lenders and as a consequence is harming the industry because lenders are unable to pay intermediaries what they need to invest in both systems and people, which is the future of the industry.
“The customer should be charged the proper rate to pay for not only the risk and processing that is involved in a mortgage but also for future investment in the industry, very much like research and development costs in other industries.
“This would encourage lenders, but in particular intermediaries, to recruit, train and bring in new blood to the industry.”
He added: “The future growth of the intermediary sector is great news for the consumer in so many different ways such as choice, speed and service that they should not be overly concerned about the odd five basis point more or less on the rate.”
At the same time many within the industry are calling on lenders to raise procuration fees to reflect the increased time brokers are spending on applications post-Mortgage Market Review.
Ray Boulger, senior technical manager at John Charcol, said: “Every broker would agree that proc fees are too low. If they were to rise by even 10 to 15 basis points that would be significant.”
He called on lenders to raise proc fees to reflect the fact that brokers are taking longer per case.
He added: “The fact find meeting takes longer and extra time is spent liaising with lenders and providing more information.
“What really affects the time is if you submit an application and it gets rejected, then you’ve got to start the whole process again.
“If one takes the view that proc fees are there to recommence the work that the lender is doing they should be raised.”
Andrew Montlake, director of London-based brokerage Coreco, agreed. He said: “There’s an old adage: a fair day’s pay for a fair day’s work.
“At the moment brokers are doing a lot more work and it seems right to pay them accordingly.”
Boulger reckoned raising proc fees would also enable brokers to charge lower client fees. He said: “Clearly the more revenue you get from one source the more flexibility you get from other sources of revenue.”
But Avrili disagreed with his colleague. He said: “We need to value our service – no fee equals no value. It’s simple. We are a profession, we will get more regulated, we will need to take more exams and to be seen in the same light as lawyers and accountants.”
Montlake said he would be happy if all lenders paid the same procuration fees for different kinds of deals, as proc fees in Buy-to-let are higher despite the industry being unregulated.
He said: “I would be happy for all lenders to pay the same proc fees. Why should packagers get more than the average broker? What do they do differently?
“Unless they are a route to market on very specialist deal on a vanilla level I fail to see what the packager adds.
“They do no more work than the average broker who sits there packaging his own cases anyway. It’s the same with directly authorised and appointed representatives. What’s different?”
Usually lenders pay ARs a marginally higher proc fee than DAs while some master brokers command higher proc fees still. Historically in the unregulated short-term and specialist sectors lenders would pay additional proc fees – known as overrides – to distributors to guarantee volumes.
Montlake added: “If they do charge different fees it shouldn’t be linked to volume although it could be linked to quality, so lenders would pay more for the deal being packaged well with all the documents up front so their work is minimal.”
Richard Hanlon, principal at Mortgage Planners in Dundee, said a flat proc fee structure would also be fairer to brokers in parts of the UK with lower house prices, as he conducts an average case size worth £140,000.
He said: “I wouldn’t say I’m unfairly paid but if somebody is living in a part of the country where house prices are significantly higher they get far more for the same amount of work.
“I probably do three or four cases to match up with one case. I think that’s unfair. I’m doing a lot of work for not much reward.”