Call for action follows new policy change by lender
The mortgage industry can do more to standardise procuration fees for retaining customers, a leading brokerage suggests – and by properly rewarding them, it believes lenders will encourage loyalty from advisers.
The rallying call from London-based broker John Charcol, came after Suffolk Building Society announced that it would pay retention proc fees for brokers acting on product transfers, for new requests made after October 1. The procuration fee will be 0.2% of the retained balance, payable for all existing customers switching mortgage products.
It follows a recent decision by longer-term lender April Mortgages to respond to broker feedback and simplify its procuration fee structure. Brokers, it said, would now receive an initial procurement fee of 45bps at completion, plus an additional 30bps on every fifth anniversary of the mortgage, for the remainder of the fixed term. They would receive an initial procuration fee plus one additional 30bps payment for a 10-year fix, or two additional 30bps payments for a 15-year fix. It has also launched a simplified procuration fee rate of 45bps for both product transfers and further advances.
Procuration fees – the commissions paid to intermediaries - have long been a contentious issue within the industry, with some advisers feeling they aren’t properly rewarded for the work they do, particularly since the introduction of Consumer Duty has made the process more involved.
Do retention procuration fees value brokers?
“More can certainly be done across the industry to standardise and increase procuration fees for retention purposes,” said Nicholas Mendes (pictured), mortgage technical manager and head of marketing at John Charol.
“The historical bias towards paying more for new customer acquisitions compared to retaining existing customers undervalues the long-term customer relationship. By compensating brokers for retention, lenders can enhance loyalty - both from brokers and customers - and reduce customer attrition.
“The decision by Suffolk Building Society to pay retention procuration fees is a positive and well-received move. It acknowledges the effort that brokers put into ensuring customers receive the best possible deal when their current mortgage product matures.
“By extending procuration fees to product transfers, Suffolk is recognising that advising an existing customer is just as valuable as sourcing new business. This helps ensure that brokers feel motivated and fairly rewarded for providing ongoing, high-quality advice to their clients, ultimately benefiting customers as well.”
Brokers provide significant value to customers by helping them navigate complex mortgage products, often finding deals that the customer would otherwise miss, reasoned Mendes.
“In return, brokers rely on procuration fees as a major source of income,” he said. “The ongoing debate over the adequacy of these fees revolves around whether they truly reflect the work that brokers do, especially for complex cases or for retaining existing customers.
“Complex cases can take significant time to complete due to lenders' underwriting processes, which understandably take a more thorough approach to lending. This often involves continuous dialogue with the client, as lenders may push back with further questions, which can lead some brokers to pass these types of clients elsewhere.”
Similarly, with product transfers in a rate environment that is repricing downwards, it is not always a simple case of rekeying an application with the existing lender, Mendes noted.
“Brokers must continually review the entire market to find the best available options, which makes it disappointing when lenders fail to account for this effort in their decision-making process,” he said.
“Retention procuration fees are typically less than those for new business. Many brokers argue that retaining a customer and advising them to switch products within the same lender should be properly compensated, as it requires the same level of diligence, analysis, and customer interaction as securing new business. When lenders do not compensate brokers for retention work, it can be perceived as undervaluing the service they provide.”
READ MORE: Coventry to pay proc fees on further advances | Mortgage Introducer (mpamag.com)
How are lenders addressing procuration fees?
Some lenders are stepping up on this issue – among them Coventry Building Society and Mansfield Building Society. Family Building Society last year announced an increase to the commission it paid brokers for mortgage product transfers, to match the procuration fees paid for new business purchases and remortgages - 0.40% for owner-occupier mortgages and 0.50% for buy-to-let mortgages.
It said recently that appreciated the hard work that intermediaries have had to do in an ever changing interest rate environment. It acknowledged too that since that since Consumer Duty came in, the advice process that intermediaries have had to follow for arranging a product transfer is very similar to arranging a new mortgage. It said broker feedback had been very positive, with many saying they wished other lenders would adopt a similar approach.
Announcing its policy change yesterday, Suffolk Building Society said brokers would be required to be registered with the society’s origination platform, Suffolk Online, to carry out a switch. All procuration fees would be paid within 28 days of a product transfer and the procuration fee would need to be evident in the offer to be payable, it added.
“We’re pleased to be announcing the launch of retention proc fees,” said its head of intermediary relations and mortgage Sales, Charlotte Grimshaw. “We believe it’s an acknowledgement of the hard work and advice that brokers give to customers maturing from their current products.
“It’s always important for customers to receive advice and support to ensure good outcomes. In the current financial climate customers are proactively speaking to their brokers to get the best advice and we want to support that.”
