If you ask the average small businessman how he or she keeps their business going in the face of larger players in the market, they will often cite keeping a loyal customer base as one of the primary factors. However, the mortgage industry seems to be a bit of a paradox as customer retention was often left behind in terms of priorities.
This now looks to be changing as more lenders start to introduce retention fees into their propositions. A feature that brokers have called for in the past, it now seems lenders are waking up to the fact that repeat business is important and they are rewarding brokers who help them achieve this.
John Smith, sales and marketing director at GHL Group, says: “With competition as fierce as it is, lenders are increasingly looking at ways to retain businesses. Retention fees for brokers have been long overdue. It has always baffled me that lenders are extremely good at being innovative with product design and clever marketing, but poor at best at retaining the consumer’s mortgage once they have it.”
Ironing out the detail
With Halifax’s recent move to include retention fees in its offering, many industry commentators believe other lenders will soon follow due to Halifax’s share of the market. However, while this is a positive move for brokers, how will this function? For directly authorised (DA) brokers, the transaction should follow the same path from lender to broker. However, will it be the same for appointed representatives (AR)?
The simple answer is yes, with the pathway the same as it would be for new business.
Bill Warren, director at Complete Mortgage and Loans Service, says: “From a practical point of view, networks would want to work in the same way as new business and I would expect they would want to take a slice of the fee as there is a little bit of work involved.”
Therefore, it would seem at face value that retention fees won’t affect the relationship between the mortgage lender, the network and the intermediary. However, there are other areas in which retention fees have thrown up uncertainty.
For example, will retention fees become another tool in the networks armoury? Networks already negotiate exclusive products and enhanced fees for their members so will retention fees become another battleground where companies compete for exclusive deals.
Tony Jones, managing director at Pink Home Loans, comments: “Networks negotiate good product deals with lenders and I expect the same for retention fees. Halifax are market-makers and as it is doing retention fees, I’m sure we will see other schemes in the market soon enough and networks will be in a position to negotiate the best deals for their members.”
A contentious issue
However, Sally Laker, managing director at Mortgage Intelligence, believes: “I have no idea if lenders will do exclusive retention fees. Products in the past have been exclusive but I don’t know if they will have exclusive retention products. It is far too early in the strategy to tell but maybe further down the line we might see something.”
It is an area which probably won’t be explored until more lenders offer a retention proposition. But as Jones points out, Halifax will probably be followed by others. Therefore, we may not see any moves towards exclusive retention offers just yet, with Halifax dismissing this from its perspective.
Paul Fincham, senior press officer at Halifax, comments: “Retention fees for brokers will have absolutely no affect on our dealings with networks. They will remain the same”
In reality, whatever stance is taken by mortgage lenders and networks in regards to retention fees, it is up to the intermediary to make sure they are getting the right deal for their client. Paying brokers is a contentious area when it comes to compliance issues, as while it seems right to pay brokers for the work they put in, even if the client ends up staying with the same lender, the intermediary must be seen to be researching the whole market to be sure of getting their client the best deal. This is important as it is the intermediary who is at the coalface and will be responsible, in the Financial Services Authority’s (FSA) eyes, for the choice the client eventually makes.
Warren comments: “Lenders should pay a retention fee but brokers have to make sure it is right for the client to remain with their lender. The broker may be being pressurised by the client, saying they are being offered a good deal by their current lender but six months down the line, the client may be thinking it wasn’t the best deal and it will end up being the broker that suffers.”
