Reductions in fees by second charge master brokers still have a long way to go to appeal to a wider range of mortgage advisers, according to one specialist lending packager.
Tony Salentino, director at Complete FS, said the right course of action is for the industry to renounce the old fee structure and introduce a flat application fee.
Since March this year, the EU Mortgage Credit Directive brought regulations of second charge mortgages in line with first charge, meaning fees are allowed to be charged upfront, putting pressure on packagers to change their charging structures.
In May, his firm unveiled a new charging structure for second charge loans which scrapped a master broker fee and replaced it with a flat application fee of £199, plus valuation and legal fees.
“We are delighted to see that some master brokers have followed our lead by cutting fees, but many have not or have made only cosmetic changes,” stated Mr Salentino.
“What is important is that the client can see exactly what he is paying for. Advisers now have more clarity, which means they can confidently compare a first charge remortgage more clearly with a second charge loan.”
He suggested costs are increasingly going to come under the microscope and for the second charge sector to continue its growth, then reduction of fees and more transparency are going to be important in persuading first time adviser users to properly consider a second charge option for clients.
“There are plenty of good reasons why a second charge loan is suitable, but costs are a major factor in that calculation.”
Liz Syms, chief executive of Connect for Intermediaries, said more moves like this are likely, pointing out her firm just lowered packaging fees to £395 at the beginning of April.
“Large fees of typically 10 per cent of the loan were accepted practice in the past, as distributors could not charge clients up front fees for things like survey reports and references,” she explained.
“This meant that the distributor would have to pay these costs from their own funds and would be out of pocket if for any reason the loan did not complete, while charging larger fees on loans that did complete helped recoup aborted case costs.”
Ms Syms said changes bought by the MCD mean survey and reference costs can now be charged to the client upfront, so it was inevitable other fees could and would reduce.
“I think as time goes on, the market will continue to become more competitive. We may even see new lenders and products in the market coming from lenders who traditionally have operated just with first charge mortgages.
“Now that the regulation is the same, why would they not consider also offering second charges?”
Bradley Moore, director for second charge mortgages at Bright Star, said although some master brokers publish low broker fees, it does not state if they are subsequently allowing the introducing broker to charge a separate fee in conjunction with the loan.
“Further still, by getting a ‘reduced application fee’, the customer is expected to meet associated set up costs for the loan and run the risk of losing those said fees in the event their loan doesn’t complete,” he stated.
“That clearly suits some firms, but given the option, many borrowers would prefer to allow the master broker to carry the inherent risk of these set up costs and only ultimately pay their ‘broker fee’ when they know the funds are available.”
peter.walker@ft.com
