This is where we keep you informed about all the latest mortgage industry developments.
This time we'd like to share with you just why mortgage brokers choose to charge fees for their expertise.
Now, if I had one pound for each time I’m asked this!
The explanation of this will explain why the Broker Community has needed to adjust their methods.
Firstly, what is ‘free’ advice? Are we talking about initial discussions when the adviser gives several hours of their working day to run through different permutations to establish whether their plans are viable?
Or is it once they’ve done that, is it the many hours it takes to research, recommend and send a mortgage application to the lender for their client?
During the ‘housing boom’ I used to deal with mortgage brokers every day as part of my role with a high street bank. I was an adviser, but also an underwriter.
I can say, hand on heart, that 99% of mortgage brokers at that time didn’t charge a fee. It was pure commission, paid only on completion – so, if a client pulled out of a purchase halfway through, the broker would be paid nothing.
Not a thing – potentially for three, or six months of work. Imagine that!
Since the recession in 2008 the mortgage market has gone through, continued, unprecedented change. Increased regulation, supervision and restrictions on lending have changed the market completely, with many borrowers not even realising – until they engage with an adviser.
For mortgage brokers, what does that mean? More work required on behalf of the lender in order to satisfy the regulator’s increased requirements, and greater amounts of research required before a recommendation can be provided and an application submitted then managed to completion.
So, as brokers we’re all working harder for you, our clients – and our ‘commission’ income has in most cases, flatlined as lenders look to still make a profit themselves whilst having to cover additional regulation charges.
A £100,000 mortgage can in most cases, provide a commission of around £350 – before a compliance company or mortgage club can take a proportion (normally around 10%), then the broker can look to cover the following – compliance membership charges, Regulator Charges, FSCS levies, Professional Indemnity insurance and other operating costs.
So, there you have a brief explanation of why most mortgage brokers now have to charge in order to continue to provide their professional services.
Larger firms with strong online presence are normally backed by Hedge Funds - and they work on volume, not necessarily quality of service.
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You may be used to 'FREE' mortgage advice - here's why we charge..