The flat fee debate - transparency is key

The fees debate in the second charge sector rumbles on with the issue of whether a flat fee for seconds should be introduced the key question. There are good points to be made on both sides of the argument of course but for me I think a more significant issue is being ignored and that is that there is a serious lack of understanding of fee structures in our market. It’s fine to quote a flat fee but who’s paying for the valuation? How is the lender commission being shared? What fees can the introducing broker add?

Related topics:  Specialist Lending
Steve Walker
28th October 2016
Steve Walker Promise Solutions
"With such a variety of options; bundled, unbundled, flat fee, upfront... you name it, it is little surprise that the industry is confused."

What is currently common knowledge is that second charge fees, which were once bundled together, can now be unbundled with the client choosing when to pay certain elements. So far so good. However, in most cases clients want to add fees to the loan so the master broker is still taking the risk just as before.

Take the valuation fee for example. The valuation fee is out of the broker’s control and unless the client is willing to pay it themselves the master broker’s fee will have to reflect this.

For a particularly expensive property a broker could find himself paying several thousand pound for a valuation (if the client chooses not to pay it upfront) and the deal may not end up going through. The broker has to price for the risk of abortive costs.

The fact is fees will vary because costs will vary. The lender that is chosen, the size of the first charge mortgage and the provider of it, the value of the new property all have an impact. Master brokers cannot control third party costs and the risks involved in them have to be taken into account.

With such a variety of options; bundled, unbundled, flat fee, upfront... you name it, it is little surprise that the industry is confused. Add to that rumours that some master brokers dream up spurious processing costs to increase their share of the pie no wonder brokers are confused.

Over time I expect fees will level out as we get more used to this new system but in the meantime it is essential that everyone operating in the industry - lenders, master brokers and mortgage brokers - are transparent with their pricing.

One thing is sure, it’s not always about the headline. Master brokers should be transparent (and honest) with you from the outset about the likely fees and how much you will earn. This will differ as will the service you receive and the effort made on behalf of your client. A computer driven result will always be cheaper than an experienced underwriter crawling in to the guts of a case to get a better outcome. I expect brokers and their clients want a fair price for a job well done with some assurances to what that service will look like before they proceed.

We are service industry and price will be influenced by the level of service on offer. Unfortunately, whilst price can be determined upfront, service can be case specific, broker specific or influenced by lenders. It may take some time to find the firm which offers acceptable fees and has the tools, expertise and attitude to deal with you and your client as you would wish.

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