There’s something really safe and reassuring about the saying ‘same old, same old’. And while we may live in volatile times, there’s no end in sight for our love of buying, or, in the case of most young Londoners, attempting to buy, property.
A man’s home is quite clearly his castle, and mortgage brokers have long been a central part of our house-buying experience, with over 70% of all mortgages now sold through brokers. And although digital mortgage brokers like Habito and Mojo are shaking up the market, brokers are set to be a key part of the market for some time. But what really drives your mortgage broker? Is it whether you’re getting the best deal and quickest turnaround, or whether they’re getting the highest fees?
Mortgage brokers typically charge an upfront fee and also receive a fee directly from a lender for placing business with them. This fee, called a procuration fee, or ‘proc fee’, is typically between 0.3% and 0.6% of the value of a mortgage. Therefore, placing a half-a-million-pound mortgage with a mortgage lender offering a 0.4% proc fee could well mean a £2,000 bonus for the broker – a pretty tasty amount.
For equity release or lifetime mortgages, procuration fees tend to be just north of 2%. Little wonder, then, that lifetime lending is a particularly fast growing area.
As mortgage lenders offer varying procuration fees, there’s long been a question around what really motivates brokers. Are they genuinely looking to get the best deals for their clients? Or do they want to send everyone to the lenders who pay the biggest fees?
This was examined in the Mortgage Lender Benchmark, which found that, overall, there’s no correlation between a happy broker and the procuration fee on offer. In fact, those lenders offering the very highest fees are often average or below average performers when it comes to broker satisfaction.
This research also found that Digital Mortgages (Atom Bank’s mortgage offering) was viewed by brokers as the speediest lender on the market (pipping Halifax for intermediaries to the top spot). The highest rated large building society was Coventry Building Society. Barclays and Metro Bank both performed poorly.
The good news is that brokers, on the whole, appear to view the client as king. They understand that if the client is unhappy, they may well look for another broker to help them secure a mortgage. For most brokers, the risk of losing the next piece of business isn’t worth just aiming for the highest fees.
For consumers, the bigger question is around trust. When making the (likely) biggest purchase of our lives, which brokers can we rely on to put our needs before their bank balance?
Brokers that keep their eye on the customer could well command more trust and loyalty in an industry that continues to evolve. Any that succumb to the temptation to place business with poorer performing lenders (who may be offering higher procuration fees) risk damaging the industry for years.
And for any brokers who think this is academic: take a read of this review left by a customer for one specialist mortgage lender in the last few days:
'Avoid, avoid, avoid! They pay high commissions to brokers to push them to clients.'
It’s no doubt the case that most mortgage applicants won’t know the ins-and-outs of procuration fees, but the suspicion often remains that some brokers are motivated by a lender’s bounty, and not by the needs of their clients. These relationships can’t end well.
Mike Fotis is the founder of Smart Money People and a former financial services management consultant.