The Loans Engine is scrapping its all-encompassing master broker fee and replacing it with a simple application fee, much more in keeping with the first-charge mortgage market.
The new fee will be £295 and will be collected at application stage, after the decision-in-principle is confirmed from the lender, but just before The Loans Engine team start packaging the case.
Intermediaries referring cases to The Loans Engine will also be able to charge their client a fee and the new model gives the flexibility intermediaries/networks/clubs seek, but most importantly gives them the ability to control client costs, at a sensible level they can justify.
Prior to the FCA regulation of second-charge mortgages, The Loans Engine (under the rules of the Consumer Credit Act) were prevented from retaining any fee greater than £5 on cancelled applications. This resulted in a bundling of direct costs, such as valuation and lender reference fees, into one master broker fee.
Now that seconds fall under MCOB, it has given master brokers like The Loans Engine the freedom to adopt a charging structure which will be familiar to intermediaries.
The scrapping of the master broker fee will minimize and tailor the set-up costs for a second-charge mortgage. Many customers will now choose to pay the set-up costs from their own resources, rather than adding them to the loan and incurring interest charges on the fee, which will of course significantly reduce their borrowing costs.
Ryan McGrath, Chief Executive of The Loans Engine, said: “By changing to an application fee model we are leading the field in our sector and this is a big, bold, first-adopter move that should sit much more comfortably with those first-charge mortgage advisers who might have previously been uncomfortable with the level of fees charged in the seconds market.
“We will give control to the intermediary, network or club, to set their earnings at a level which works for them and is fair to the client.
“We hope to draw in those mortgage intermediaries who may have felt previously disenfranchised from the sector.”
Jeremy Duncombe, director, Legal & General Mortgage Club, added: “Scrapping master broker fees is a bold move by The Loans Engine but one the market certainly needed. We work closely with our panel of master broker firms and this move should encourage intermediaries to re-look at their proposition in order to ensure the best possible solution is found for the customer – which may include a second charge. With reducing rates and charges, there really is no reason for intermediaries not to include second charges as part of their holistic mortgage service to clients.”
And Martin Reynolds, chief executive, Simply Biz Mortgage, said: “The second-charge mortgage market is currently in the midst of big changes and this will continue for a while as all parts of the distribution chain realign their models. Fees have always been a contentious area and it is good to see The Loans Engine taking a bold step and moving to this new model. As one of our preferred partners I believe our members will embrace this new stance and engage in greater numbers to fully understand the opportunities and benefits to their clients within the second-charge market.”
As one of the UK’s largest Master Brokers, The Loans Engine has a 28-year heritage and is responsible for one in 10 of all UK second charge loans.