With mortgage volumes falling and property transaction levels heading towards numbers last seen during the first lockdown at the start of the pandemic and set to worsen, many commentators have said this this might spell the end of fee-free broking.
In light of this, Newspage asked brokers their thoughts on the fee-free model of mortgage broking, and what the future hold for the approach given the current market.
Their thoughts, provided exclusively to The Intermediary, are below.
Reaction:
Gary Bush, financial adviser at MortgageShop.com:
“It’s been proven over decades now that labelling a financial advice firm ‘fee-free’ for all applicants isn’t financially viable and the amount of these companies struggling with ongoing losses and huge debts proves this.
“During the recent market chaos this is hurting these companies dramatically.
“The contraction in transactions followed by numerous potential additional application submissions to alternative lenders, due to numerous rate changes, needs to be paid for, and the cupboard it seems is getting bare for these companies.
“Financial firms that offer flexibility over charging clients fees, or indeed not, depending on circumstances, have a greater ability to ride out these storms.”
Luke Thompson, director at PAB Wealth Management:
“The fee-free model will always be difficult to make work.
“As an example, an adviser I know recently told me about a product transfer they had processed with a procuration fee of £83.
“No client fee and no new insurance written. This case is not worth the time and effort to them from a financial viewpoint, but they are just hoping that they will get a further client referral in the future.
“This type of business can show the folly of being fee-free as although this is a mortgage on the books, the lack of income generated makes it feel practically worthless.
“If the volume of business isn’t there then I struggle to see how brokers can make the fee-free model work in the long term as it is all about churning through the numbers and hoping you get enough cross-referrals to make it work.”
Martin Stewart, director at London Money FS:
“The regulator and banks would be foolish to miss a trick here and not look to rebuild the industry out of the impending downturn.
“It’s always easier to turn the screw when there’s not much resistance to push against.
“This won’t be a popular opinion, but progress is painful; otherwise, we’d all still have gills.
“This industry has not moved forward since 1996 other than we now use fewer stamps.
“There is a pivotal and seismic moment due for us all, and not a moment too soon, in my opinion.”
Justin Moy, managing director at EHF Mortgages:
“I believe there is plenty of space for small or no-fee brokers to exist, with plenty of cost conscious borrowers looking for assistance at this difficult time.
“Many firms that have been charging thousands upfront, or a percentage of the mortgage, will feel more uncomfortable amid current market conditions and the recent Consumer Duty implementation.
“Borrowers need to understand mortgage brokers will have similar ranges of mortgage lenders and deals, just their expertise may differ, but those with little or no fees can survive if their costs are low, whereas larger firms with high fees often have high numbers of admin staff and premises costs, and that may be the challenge over the next few years.
“Lenders need to look at the remuneration provided to brokers, who deliver around 80% of all business levels, which would also help eliminate excessive fees.”
Rhys Schofield, brand director at Peak Mortgages and Protection:
“It certainly isn’t the death knell for fee-free brokers but what is apparent is that the model works if you are also good at recommending protection and ancillary services such as good quality conveyancing or surveys.
“Good luck making a decent living on procuration fees only, however.”
Stephen Perkins, managing director at Yellow Brick Mortgages:
“I don’t see much change in regard to broker fees.
“Clients will still be happy to pay a reasonable fee for appropriate service, as compared to other house buying costs they are not excessive.
“There may be more challenges on fees for remortgages, especially with some decent product transfer options available for free.
“Fee-free brokers usually have a low-cost model, so even with lower volumes driving down their margins, I don’t foresee them having any major problems.”
David Stirling, independent financial adviser at Mint Mortgages & Protection:
“This will weed out the chaff from the mortgage advice industry.
“A combination of aggressive marketing from lenders at mortgage renewal dates and the increasing use of artificial intelligence (AI) makes now a very uncomfortable time for the traditional mortgage broker.
“Clients will usually seek a fee-free broker, especially in a cost-of-living crisis. They have the same deals available as the fee-charging brokers, after all.”
Ranald Mitchell, director at Charwin Private Clients:
“This is a crazy industry where consumers expect brokers to receive no remuneration directly from them, but instead to rely on paltry commissions paid out by lenders that have not increased in my career lifespan.
“With increasing costs such as marketing, regulatory fees, business rates, taxation, and staffing, it is hard to see how being fee-free can be sustainable.”
Scott Taylor-Barr, financial adviser at Barnsdale Financial Management:
“Fees free brokerages have existed in the mortgage market for a very long time and have weathered many downturns, so I have no doubt many will remain viable going forward.
“It may mean they need to downsize, which could see some very talented brokers looking for new jobs or setting up on their own.
“I think we will also see a rise in protection applications.
“As brokers see fewer clients, they will have time to have a more in-depth and rounded conversation, allowing them to recommend and arrange more protection for their clients, which is no bad thing as we all know there is a massive gulf between the level of debt most UK households have and the level of protection they hold.”
James Bull, mortgage broker at JB Mortgages:
“A fee-free model of being a mortgage broker was never financially viable in the first place.
“Ever-increasing regulation means it takes longer and longer to package up cases and make sure they are compliant. As client circumstances get more complicated, a straightforward vanilla case is becoming the exception rather than the norm.
“More specialist cases mean more time is spent upfront researching lender criteria. I have always felt that our fees represent excellent value for money when you consider the time and expertise that goes into being a mortgage broker.”
