What are brokers views on procuration fees in today's market?

They discuss whether more regulation is needed

What are brokers views on procuration fees in today's market?

Nottingham Building Society recently increased its procuration fee to 0.30% on all residential retention products, but is there more to be done regarding procuration fees?

Mortgage Introducer reached out to brokers to discuss whether further increases are needed across the board.

Why is more regulation needed regarding procuration fees?

Scott West (pictured), director at Propertyze Consulting Limited, said procuration fees are always a point of contention as brokers will forever want to earn more.

While West believes the procuration fee should not impact the advice provided, if all else is equal with the product and costs, brokers will always choose the higher-paying lender.

“This is particularly true for regulated standard residential mortgages; there needs to be an element of consistency across the board for the minimum fees earned from lenders to ensure fair advice is available for the client,” he said.

For a £60,000 remortgage with a procuration fee of 0.3%, West said, this equates to £180 for the broker, which will see many brokerages unwilling or unable to assist with the case simply due to the economics of processing it, alongside covering administrator and compliance overheads.

“It also needs to be considered that a large majority of these procuration fees are paid out through mortgage clubs, who will take 10% or even more in some cases,” he said.

Will procuration fees increase?

Stephen Perkins, managing director at Yellow Brick Mortgages, said as lenders fight for market share and mortgage retention, some will look to procuration fees to see if they can win more business among brokers

“I believe one element that should change,” Perkins said, “is that product transfer procuration fees should be treated the same as new business.” He believes there is still plenty of work involved to justify the advice of staying put.

“Otherwise, I think procuration fees are at a fair level currently, but these are higher through a network than directly authorised firms receive,” he said.

David Stirling, independent financial adviser at Mint Mortgages & Protection, said remuneration by procuration fees from lenders has not increased in decades.

This, he said, was understandable in the era of sub-2% lending, when giving away up to 0.4% as a procuration fee was a large proportion. However, as interest rates have risen considerably since the days of sub-2% deals, Stirling believes there must be an argument for an increase.

“Some banks aggressively target introduced clients with product density, such as life insurance, bank accounts and buildings insurance, so they really do make massive profits from brokers’ recommendations,” he said.

Finally, Samuel Gee, director at Manning Gee Investments, said procuration fees are a lenders’ way of getting brokers to do all the work around documentation and packaging a case, and they do not reflect the risk of the advice process taken on by brokerage firms.

An increased procuration fee, Gee said, is a first step, but he believes the system should be overhauled to recognise the work and risk undertaken by firms.

“The latest news from Nottingham Building Society that it had increased its procuration fee is a step in the right direction, and is leading the way for other lenders to follow,” he concluded.

What are your views on procuration fees in today’s market? Let us know in the comment section below.