t with so much happening how are you and


on Review and the Mortgage Market Review? month: How are you and your firm preparing for the RDR and the MMR?


Putting a spotlight on mortgage fee transparency is welcome. While not top of the FSA’s agenda, it’s sensible to use the time between now and 2012 to review the best consumer solution. Settling for a “one size fits all” approach making life easy for banks and the regulator is no good. Commercial finance brokers faced their “Waterloo” in April 2007 when fee transparency was forced on unregulated mortgages by the Wilson Vs Hurstanger ruling in the High Court. While this came long after M Day in October 2004, it served as a reminder that transparency was necessary and the industry is better for it. In a transparent regime, whether brokers are paid by the lender or the customer, broker fees on commercial transactions have little impact on borrowers. The cost to the borrower is a tax offset event - provided the lender is making the product cheaper to the customer by not paying a procuration fee. But this is difficult to prove in a non-vanilla product model, and cynics will laugh that lenders will do anything other than “pocket” the difference. A bigger concern is for those whose financing is not from business proceeds but out of earned income. For a loan of £200,000 with a £1,000 procuration fee, a 50% rate tax payer would have to earn £2,040 (including PAYE and NI) to reach the same level on a “success only” basis. Using a broker charging an hourly rate with VAT at 20% means the real cost is £2,448. Without entering a debate on the correct hourly rate for IFAs or brokers this would broadly equate to 15 hours work which doesn’t seem atypical for the whole mortgage process today.


Scrapping procuration fees to stamp out product bias is a blunt solution. A sensible cap on proc fees with an encouragement for trail commission would prevent the churn antics of the last cycle. It’s such a pity the model Tony Ward built at Basinghall hasn’t run the full course so lessons could be learnt from that approach. At any rate, a proper debate needs to occur so the consumer interests this process is meant to protect get the best solution.


David Whittaker, managing director, Mortgages for Business


Given that the new coalition government has carried out the conservative ideal of scrapping the FSA, one would be forgiven for thinking that the FSA had too many distractions to carry on discussions around the RDR effectively.


This is not the case of course. While the RDR is not as directly related to our corner of the industry as the MMR (which always reminds me I should be doing something with the children!), it will clearly have at least a subconscious effect on every mortgage broker over the next few years.


My experience goes back way beyond ‘M Day’ and the voluntary ‘Mortgage Code’ into the early 90s, however I don’t pre-date The Financial Services Act like many still around. Initially the concept of charging for advice was completely alien to me, when I became a whole market broker (and self- employed) I quickly learned, as we all do, that there are many occasions when our costs are not covered. You can’t control a chain breaking down, but you can make


provision for this. Between 2005 and 2008 my IDD stated I would charge a £300 fee for mortgages (plus the proc fee), and once I’d explained fully why and what I was doing for the money, I lost little business to those who didn’t charge. Back in 2008, this changed as the market collapsed, and this I see is the challenge. In 2010 brokers are competing against direct deals from lenders and the not insignificant threat of the non-advice internet. For clients buying in this environment, most accept we have to earn a living, but a fee upfront (along with all their other moving costs) can be a barrier. Nobody thinks twice about paying other professionals for their services but the current generation of first time buyers are hard to get in front of you, let alone explain the importance of sound advice.


I have no issues with new exams that the RDR or MMR may bring, but am reluctant to return to a fee charging route as I do not believe this is in the public’s interest at present.


Dean Mason, broker, Masons Financial Planning


sense. Do you want to be a part of the next Bigger Issue? Email nia@thepublishinggroup.co.uk MoRtgage intRoDuceR AUGUST 2010 17


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