Should brokers charge for their services?

To charge or not to charge, that is the question – and it’s an issue that’s as old as the hills in the mortgage industry. Should brokers charge for their service, particularly when they pick up a fee from lenders? Everyone has a view it seems, everyone has their own approach to how they make money, and so contentious is the debate that no two views are exactly the same.

Broker Luther Yeates (pictured left) is head of mortgages at Orton Financial, which does generally charge fees as a brokerage. “We taper them as the loan size increases,” Yeates told Mortgage Introducer. “So all clients over one-and-a-half million, for example, we won't charge a separate fee. While I'm generally in the camp of fee charging, I still think there should be a fair balance to it. We quote from the beginning. Some cases you win, some cases you lose in that some cases turn out to be five times as much work as you're expecting. Some could be half as much, but it's something where we'll communicate that at the beginning, so it's fair going in, in terms of what you can expect.”

Mortgage adviser Emily Franks (pictured second from left), director of Emily’s Mortgage Services, compares how brokers and estate agents are paid. “Brokers should charge a fee,” she said. “When they sell a property, agents can get 1% of the property value - brokers are getting 0.35% on average of the mortgage value. So if the property value is £140,000, the average estate agent is going to get £1,400 and I'm getting £800 because the loan is £90,000. I'm not turning my nose up at it, but I am highly regulated, highly skilled, and yes, I don't get paid as much as an estate agent, which feels a little bit mean.” She added: “It's a bit like paying for parts and labour, isn't it? When you have any other kind of industry, especially the construction industry, you pay for your parts and you pay for the time that somebody spends on it. So yes, I do believe that we should charge a fee. I don't think it should be extortionate. There are some charging two-and-a-half or three thousand pounds - that's insane.”

Lock and Key Mortgages was set up by broker Graham Lock (pictured centre) to be fee-free. “It does seem like quite an impassioned debate,” Lock said. “It's hard for a customer to see the value of a fee until they've experienced what you would do or how long it will take. Sometimes, I do look at a case and I think ‘Do you know what, that's a nightmare because it's complex and is going to be time consuming.’ I totally get why brokers do charge, but I think it is really hard as a customer to think, ‘Well, this app is telling me Santander, the broker's telling me Santander, but that broker is going to be charging me £300?’ From a retention perspective, I think the retention would be higher for a non-fee charging broker, compared to fee charging.”

Meanwhile, there’s something of a hybrid payment model offered by broker Amanda Law (pictured second from right) of Amanda Law Mortgages, “Nine times out of 10, we don't charge a fee,” she explained. “We take the commission from the lender, but there could be instances for a more complex case where we would we would charge a fee, so it's not always fee-free. I know some brokers charge a fee for every single case that they do, and they're within their rights to do that. I think it's each to their own.”

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The importance of charging transparently

Transparency is key, suggests Ben Perks (pictured right), managing director of Orchard Financial Advisers. “If people are charging excessively, they should be prepared to answer questions on that,” Perks said. “I've got no problem if firms feel that they need to charge more commercially and if they want to do that, fine. But there they should be absolutely prepared to justify that with the client or the FCA in the extreme.” He continued: “We charge a small application fee - very competitive, by industry standards - only at the point of application, so all the research and everything that we do for the client pre-application is at our own cost. We don't charge anything for that. It's never caused an issue and absolutely no problem in that we provide the quality service that more than justifies what I say is a very small application fee upfront.”

Amar Dhanota (pictured inset above), co-founder and specialist adviser at London-FS, believes it’s about valuing your time as a broker. “I know what I'm bringing to the table,” Dhanota said. “I don't charge any fees until the client is ready to go. I always say to them, ‘Look, I'm not charging you for the initial advice, use me to review your documents, do what you need to do - I'm not charging you for that, and then, if you decide to do it yourself, or you find a fee-free broker, at least you've got the advice.’ We always have a set fee structure, and's always discussed with the client. The client can say yes or no. I don't know how people don't charge fees, but different businesses, different ways.”

For broker Kelly Worthington (pictured inset abpve) though, director of All You Need Mortgages, charging a fee is entirely justified.  “I stand by the charges,” Worthington said. “I'll charge a fee up to a £300,000 loan amount. Anything above that, I don't charge because your procuration fees are different. From a broker's point of view, it's about our expertise. We've got access to the market rather than just one lender. We monitor the market, it's personalised to what suits you and what you're looking for, but also in the background, it's all the compliance that we have to do now as well. We pride ourselves on it all and it comes at a cost.”