FSA tells brokers to charge fees on direct deals

This is not a subject I have touched on within my blog's until now. For the last few weeks, lenders have been listing products through their branch networks the have undercut those available through independent mortgage brokers, the very brokers that feed these lenders with over 60% of their business, and up to 90% in some cases. To deliberately undercut the very people who have supported them and maintained their profits at a time when times have become hard, it an act of despicable betrayal.

Couple this with the FSA's reluctance to ban such practise, saying that they cannot tell lenders how to run their businesses commercially, it is very encouraging to hear that it was announced that The Financial Services Authority has urged brokers to charge clients a fee for advice when advising them to go direct to lenders for better deals. A spokesman for the regulator told Money Marketing that although chief executive Hector Sants has made it clear that dual-pricing by lenders is not a Treating Customers Fairly (TCF) issue, the FSA is not brushing the issue aside.

Jonathan Fischel, head of mortgages and credit unions department at the FSA, made the statement at the Mortgage Business Expo in Manchester today in an attempt to help solve the issue of dual pricing.

But the joint solution between the Association of Mortgage Intermediaries (AMI) and the FSA did not go down well with brokers in the seminar. Many fear they will soon be out of business if the FSA does not force lenders to offer a level playing field. Mr Fischel says "We have been working with AMI on key issues regarding dual pricing. Most sourcing systems do not show direct-only products. As a broker you could form your own KFI (Key Facts Illustration) and then charge a fee for the advice that you have given. You would not have to include the fee in the Key Facts Illustration. This would result in the customer getting two KFIs, one from the broker and one from the lender. As a broker it would be your job to explain to the customer why you are charging a fee and what the difference between your role and the lenders.” Fischel also told brokers that in order to call themselves whole of market they must disclose to the client that a cheaper deal could be found elsewhere. Of course this just adds to a brokers workload, in time and research telephone calls, with its increased costs.

The Federation of Small Businesses has voiced its support for mortgage brokers over dual-pricing, saying: "It is unacceptable for high-street banks and building societies to be freezing out small mortgage brokers in this way. If there are grounds for complaint by independent brokers to the Office of Fair Trading, the FSB would be right behind them."

Many brokers in the seminar called the solution impractical. One broker said: “Lenders make it as hard for you as possible, it’s impossible. It is just not right to charge the client a fee and then send them elsewhere.”

As an independent mortgage broker, I charge my clients a fee in all cases except for first time buyers - who have enough money to find as it is. I must charge such fees if I want to stay in business (which, funnily enough, I do!). The fee received from lenders for introducing clients to them is low enough, and insufficient to run a business such as mine, and make a half-decent living. For the amount of hours I have to put into each individual case, and the cost of telephone calls, dealing with the paperwork, contacting clients many times during the whole process and then to receive just a couple of hundred pounds for maybe 20 hours of time input would make no business sustainable. To have lenders offer dual pricing makes it more difficult to recommend a broker-sourced deal and puts businesses such as mine at risk. It is encouraging to see that the larger lenders (Abbey and Halifax) have already announced an end (in Abbey's case) and a reduction (in Halifax's case) to such dual-pricing practises. I hope the situation turns around soon, for everyone's mutual benefit.