Customer retention is one of the biggest challenges currently facing mortgage lenders, but now it seems that some providers are finally waking up to the important role that brokers can play in helping to keep borrowers on board.
BM Solutions has become the latest provider to pay a procuration fee to intermediaries that move existing BM customers to another one of the lender’s products. Although BM stops short of calling the payment a ‘retention fee’, the lender admits the scheme has been designed to strengthen relationships with both brokers and borrowers.
At the moment, the fee is only payable to intermediaries under BM Solutions ‘Credit Repair Initiative’, whereby brokers port customers from a BM Solutions’ non-conforming product to one of its near-prime or mainstream mortgages. The lender also stresses that intermediaries must ensure they have explored all other options, so the recommendation to stay with BM constitutes best advice.
The credit repair initiative will be trialled for three months, at which point BM says it will review the success of the scheme and feedback from brokers. However, there have already been suggestions from market observers that not only could the lender continue to offer proc fees for retained business moving from non-conforming to more mainstream products, BM may even extend such broker payments to its other ranges.
If it did so, it would be joining a very small number of lenders that currently offer some form of fee for potential remortgage business that actually stays put. Currently it is believed that only Woolwich, Accord Mortgages and First Active offer similar schemes. Other lenders will certainly be watching the progress of the likes of BM and Woolwich, so we could soon see a flurry of providers paying retention fees to brokers.
Matthew Grayson, spokesperson for BM, says any suggestion that the lender will extend the initiative is ‘pure speculation’. He points out the aim of the scheme is to help non-conforming borrowers to repair their credit.
Grayson explains: “For the first time we have given brokers an alternative to remortgaging their clients to another lender. We have given them the option of transferring their clients to a near-prime or mainstream mortgage with no additional fees such as valuations or legal costs. We are giving greater choice to the consumer.”
Although keen to stress that brokers must follow normal regulatory procedures to establish that sticking with BM is the best option for clients, Grayson believes the lender’s new scheme will find favour with the FSA.
He says: “This is the first time a lender has demonstrated proactively how a borrower can move out of non-conforming towards the mainstream, and we’re throwing down the gauntlet to other lenders.”
“It is a very strong story for intermediaries to be able to go back to their clients and give them the option of staying with BM, and it is a very strong message for the FSA as it actively demonstrates our commitment to ‘Treating Customers Fairly’ (TCF).”
Logical next step
Accord Mortgages launched its own retention fee more than a year ago, paying intermediaries a flat rate fee of 0.20 per cent if their clients stayed with the lender after their previous Accord deal came to an end. Announcing the innovation last February, Accord managing director, Linda Will, said: “Accord has always believed in rewarding brokers for their continued relationship and was one of the very few lenders to pay brokers for advising their clients to take further advances. This is the logical next step.”
At a time when lenders are increasingly coming under fire for cutting intermediaries out of the equation and dealing with customers directly, Accord is proactive in its relationship with brokers by actually writing to them when their clients’ existing Accord deal is coming to an end, advising them of new products.
The lender has made it as straightforward as possible for brokers to port customers to another Accord deal by setting up a simple online transfer request. Again Accord points out that brokers must ensure that remaining with them is best advice for their clients, but crucially the lender knows that it can only retain borrowers if it can offer them competitive products.
Will says: “This is not a bribe to brokers – the fee is recognition of the work they have done setting up the deal, which is just as much work as a remortgage. If our products are good then they will be attractive to existing customers. Of course, not all lenders make all their products available to existing customers. If they don’t, and the deals on offer are not competitive, then it makes it hard for the broker to recommend your products.”
Will believes too many lenders treat their brokers unfairly by cross-selling other products to their customers, eroding the relationship between client and intermediary, as well as building up mistrust between brokers and lenders. She says that, seeing as many lenders rely on brokers for 40 per cent to 50 per cent of their business, they are ‘biting the hand that feeds them’.
However, Will says that intermediaries should not take such lender practices lying down. She says: “Brokers have the power to change the market by not dealing with those lenders who act in this way. You must work in partnership with brokers and not treat them like a commodity.”
Not simply a shortcut
The offering of a fee for retained business must not be seen as a short cut for brokers to simply tell their clients to stay put without doing their homework and considering whether it truly is the best option for a customer.
Although proc fees for business that remains with the existing lender is not against current mortgage regulation, the FSA would probably take a dim view of any broker who cannot provide documentary evidence to show that they carried out an up-to-date factfind on their client and researched the market to identify the best options.
Rob Griffiths, associate director of the Association of Mortgage Intermediaries (AMI), welcomes the move to offer brokers retention fees, although he also offers a note of caution. He says: “It’s good to see that lenders are recognising the good work that brokers do, but intermediaries must remember what they are being paid for – offering good advice. Intermediaries must be aware of that and need to follow the process in keeping with regulation.”
Griffiths says that the introduction of proc fees for retained business shows just how big an issue retention is to lenders and how much the industry is changing. 10 years ago, lenders offering great interest rates and incentives to win over remortgage business dominated the market, but now lenders are realising that retention is key to continued success.
The situation has been compounded by the fact that soaring release fees, arrangement fees and other administration costs are reducing whatever savings a mortgage borrower could make by switching to a new deal, making it less and less worthwhile for them to remortgage.
In such a marketplace, lenders must wake up to the importance brokers have in building long-term relationships with borrowers. They are not only advising their clients about the best deals currently available, they are also looking at borrowers’ future options. For example, if a lender has a track record of consistently offering competitive deals, then a broker may recommend them over one that has a headline grabbing rate, but also a high SVR or a tendency not to offer such good products once the existing mortgage deal has finished.
Shift in attitudes
David Hollingworth, spokesperson for London & Country, believes retention fees offered by the likes of Woolwich and Accord reveal an overdue shift in lender attitudes towards intermediaries. He explains: “What this indicates is a more in-depth partnership approach to working together, instead of an adversarial approach as the deal comes to an end.”
Hollingworth says that, in the past, some quarters of the mortgage industry had questioned whether some brokers purposely switched their clients to different lenders at the end of each deal. He says: “I think some people have felt that not all brokers consider existing lenders when looking at new deals, thinking that they move their clients around willy-nilly to earn proc fees. I don’t think that is the case.
“Particularly now in a regulated environment, intermediaries have to look at the market and consider what’s in the client’s best interests. If the best option is for the borrower to stick with their existing lender, then I think it is reasonable that the broker receives a fee for that. It recognises the work the broker has done to reach that point.”
With only a handful of lenders currently offering such proc fees, some intermediaries believe it is down to brokers themselves to be more proactive when it comes to their own customer retention.
Danny Lovey, sole trader at The Mortgage Practitioner, says he always writes to his clients when their existing deals are coming to an end. “You have to keep in contact with your clients so you can advise them of new deals that are coming up.
“If the client’s existing lender has the best deal and they can transfer across easily, then my advice would always be to stay with that lender. But still, the adviser will have done a lot of work and ended up earning nothing. It makes sense for the lender to pay some form of proc fee – intermediaries can not live on fresh air.”
Yet Lovey says that often dealing with a client’s existing lender can be extremely frustrating. He says many lenders refuse to give mortgage account information to brokers about their own clients, usually citing Data Protection rules. Lovey believes that, at best, this is ignorance on the part of the contact within the lender, and at worst it is a deliberate attempt to cut the broker out of future business.
“There is a lot of room for improvement in the relationship with intermediaries and lenders,” Lovey explains. “A lot of lenders don’t appreciate the value of intermediaries – we are just a way of getting business for them. The thing that always annoys me is the way that lenders are on the phone to your client almost immediately after the deal is done, cross-selling and offering them products such as home and contents insurance, payment protection or even further advances on their mortgage.”
Lovey also points out that, although lenders may be reluctant to pay fees to brokers when the business comes from an existing customer, the loss of a customer and the cost involved in recruiting new customers could be much more than any proc fee.
Short-sighted strategy
As the cost of remortgaging increases due to spiralling exit and arrangement fees, some lenders may even feel that they don’t need to do anything to retain customers other than keep their rates reasonably competitive. If that were the case, then why would they need to pay retention fees to brokers?
But that would be a short-sighted strategy, because after all this is business and it can’t be too long before providers realise that they still need to woo borrowers away from their competitors and start offering incentives to compensate customers for the costs they incur when switching. And who will they rely on to sell these products? Intermediaries of course. So, yet again, this shows just how vital brokers remain in the mortgage marketplace today.
The introduction of retention fees is an important step and proves the value that brokers have in the market. It can not be long before more providers wake up to that fact and start paying intermediaries their worth for the work they do.
Paul Beadle is a freelance journalist
