Unprecedented levels of growth, both in terms of business levels and house prices, meant that being a mortgage broker once seemed like the land of honey (and money).
After working for lenders for just over a decade, I had spent two years working for an independent financial adviser firm as its mortgage broker.
Lender procuration fees for complex mortgage applications were high, with some around 1 per cent of the mortgage sum on offer.
There were few ‘retention commissions’ generally, and with interest rates higher than they are now, many borrowers preferred to review their mortgages every two years.
Then, in 2008 the market turned.
Lenders pulled out of the market. US-backed lenders pulled mortgage offers as funding was restricted. The fallout began.
More responsibility passed to mortgage brokers for lender affordability and processing, many brokers expected to see some increased remuneration.
Soon, within 12 months it was very difficult to obtain 75 per cent loan to value mortgage finance. With the downturn came redundancies.
I was one of those affected. As I’m clearly a sucker for punishment, I entered the fray with my own mortgage brokerage in 2009.
Given the times experienced, any mortgage broker who was involved then and did not walk away deserves far more than just praise. Suddenly the level of mortgage brokers in the UK dropped from 36,000 down to around 12,000.
Lenders became more reliant on brokers, seeing as they also had reduced their own adviser numbers in their branches as demand for mortgages decreased dramatically.
Then came the Mortgage Market Review.
More responsibility passed to mortgage brokers for lender affordability and processing, many brokers expected to see some increased remuneration – after all, a lender who paid 0.35 per cent gross to a broker in 2008 should see the added value of the broker relationship, surely?
Some lenders adapted, noted the increased workload and regulatory costs that brokers incur, and amended their offering – those lenders deserve much applause and support.
Other lenders, however, still see the situation as ‘nothing has changed’ – and that needs addressing.
Year on year, costs to trade for mortgage brokers increase – they never reduce.
Therefore, if a lender now only pays brokers the same commission as they did 10 years ago, do they value brokers in the same way?
I wonder if the hierarchy in mortgage lenders have seen their own pay frozen for 10 years.
We progressed, and lenders decided brokers would be the right outlet to retain borrowers for them.
Some lenders approached this issue, and payment level as equal to the work and responsibility that mortgage brokers put into a ‘new’ mortgage transaction.
Other lenders decided, based on their own processing being reduced, that the brokers involved only deserved 50 per cent (or even less) of the standard procuration fee.
Some lenders still won’t pay mortgage brokers to retain the borrower for them.
Brokers have to justify fully for compliance reasons that the borrower is best suited to stay with their current lender, rather than to move to a different lender.
So, in turn, they are working just as hard to benefit the client, for sometimes 50 per cent less than they could earn if the borrower was to remortgage.
It is irrelevant for a lender to claim that because they work less to switch a borrower that a broker should earn less.
It’s the opposite – less processing means a more profitable borrower for the lender. Paying a broker less just increases the profit.
Recently, a lender representative commented at an industry event that “lender procuration fees were under pressure” due to low interest rates.
Brokers naturally commented on this, confident in the belief that the first parties to suffer would be the brokers themselves.
Lenders now have lower levels of staffing in branches.
We hear from clients who have been told that mortgage advisers only visit a town branch one week in three – so unless lenders decide to instead concentrate on Skype interviews or plan to recruit more staff post-Brexit, they will need mortgage brokers to help them achieve their targets for their shareholders.
Yes, brokers are charging client fees where necessary to make ends meet, but if procuration fees truly reflected the level of professional regulatory responsibility that is placed upon us, more brokers would be successful without them. We’re not all backed by hedge funds.
When lenders look to boost their lending pipeline, brokers deliver.
It is time to treat brokers fairly and review the level of procuration fees – deliver change.
Stuart Gregory is managing director of Lentune Mortgage Consultancy
