IFA fees on mortgages
Discussion
I need to renew my mortgage in the next few weeks when the 2 year fixed rate comes to an end. I remember when I took out the mortgage 2 years ago that the mortgage paperwork said the broker would be paid a fee off approx £2250 which I thought was pretty toppy for the work they did but fair enough because they knew which product would suit my financial circumstances best.
On renewal, will they be paid a similar fee if I go through them? For a renewal, it seems very straightforward just going through the lender themselves because there is no underwriting involved. If I do go through the broker, the rates are the same but the bank makes less money because they presumably pay the broker.
No skin off my nose either way, but I am curious to know why a lender would pay a broker fee on a renewal if the renewal process is so easy for the borrower to do directly with the lender? I'd have expected the lender to make it slightly more expensive for the borrower to go through a broker so as to try to encourage the renewal to be done directly between lender and borrower.
On renewal, will they be paid a similar fee if I go through them? For a renewal, it seems very straightforward just going through the lender themselves because there is no underwriting involved. If I do go through the broker, the rates are the same but the bank makes less money because they presumably pay the broker.
No skin off my nose either way, but I am curious to know why a lender would pay a broker fee on a renewal if the renewal process is so easy for the borrower to do directly with the lender? I'd have expected the lender to make it slightly more expensive for the borrower to go through a broker so as to try to encourage the renewal to be done directly between lender and borrower.
MrJuice said:
I need to renew my mortgage in the next few weeks when the 2 year fixed rate comes to an end. I remember when I took out the mortgage 2 years ago that the mortgage paperwork said the broker would be paid a fee off approx £2250 which I thought was pretty toppy for the work they did but fair enough because they knew which product would suit my financial circumstances best.
On renewal, will they be paid a similar fee if I go through them? For a renewal, it seems very straightforward just going through the lender themselves because there is no underwriting involved. If I do go through the broker, the rates are the same but the bank makes less money because they presumably pay the broker.
No skin off my nose either way, but I am curious to know why a lender would pay a broker fee on a renewal if the renewal process is so easy for the borrower to do directly with the lender? I'd have expected the lender to make it slightly more expensive for the borrower to go through a broker so as to try to encourage the renewal to be done directly between lender and borrower.
It's actually the opposite...….lenders WANT the mortgage to be done via an intermediary...…..and as such they often provide us cheaper rates than clients have access to directly...…..the worst that will happen is that you get the same rate you could directly...….or you could get a cheaper rate......either way, you are no worse off.On renewal, will they be paid a similar fee if I go through them? For a renewal, it seems very straightforward just going through the lender themselves because there is no underwriting involved. If I do go through the broker, the rates are the same but the bank makes less money because they presumably pay the broker.
No skin off my nose either way, but I am curious to know why a lender would pay a broker fee on a renewal if the renewal process is so easy for the borrower to do directly with the lender? I'd have expected the lender to make it slightly more expensive for the borrower to go through a broker so as to try to encourage the renewal to be done directly between lender and borrower.
The reason for this is that all UK mortgages have to be advised...…...no longer can a bank provide you with an information only service......it's for this reason that when you do a mortgage directly with a lender you have to sit through a number of two hour phone calls or get told to go to a branch at a weekend.....the bank has to be able to fully assess your suitability and eligibility for the product and provide you with the required advice.....the entity that provides the advice is then responsible for it...….meaning if that for some reason it turned out to be the wrong thing for the client to have done and a complaint arose......it's the lenders PI on the hook......therefore lenders would much prefer all applications these days to come intermediaries.....if it goes pear shaped, it's the broker and their PI on the hook...…….so lenders would rather shift that exposure to brokers by paying them a few hundred quid and giving them cheaper rates.
Also, the banking world is changing......for a bank to give advice, the infrastructure needed is huge......staff......branches, call centres, training and qualifications...…..with banks retreating from high streets and closing down branches all over the UK, it's actually now a hindrance for them......when they get an application from a broker they get it fully packaged and ready to go...….ID, Proof of Address, pay slips, bank statements, affordability checks, proof of deposit...….rather than starting from scratch with a client across multiple branch appointments or scheduled phone calls etc...…..it's also worth noting that acceptance levels are significantly higher via brokers than direct.
The percentage of applications now coming from intermediaries is now at 80% of all UK applications because of the above points;
"Branch sales drop
According to research by IRESS, half of the 21 lenders it questioned offer, or are about to offer, a digital self-service proposition, where current application acceptance rates are typically far lower than those submitted through brokers.
The Mortgage Efficiency Survey also found that intermediaries increased their share of applications to 80% of the market, up from 76% last year. All other channels saw a reduced level of activity, with branch sales seeing the largest drop of 37% on 2016 figures."
Hope that helps to answer your question!
Thanks Sarnie for your insights, however, it appears that you are referring to the situation where a new mortgage is being taken out. Or perhaps someone is switching lender.
With a rate change with an existing lender at the end of a fixed period, I am merely clicking the box that says my financial circumstances have not changed and I want to enter into a 2, 3, 5, 10 year fixed period at whatever rate. No need for all the underwriting and explanation of x, y and z. In this circumstance, it appears the lender is giving a fair chunk of cash to the broker. If everything you mentioned in your reply to my question applies to rate changes as well, fair enough. But if there's no extensive process with a rate change, why would the bank be so generous towards the broker. Seems quite removed to how banks usually operate.
With a rate change with an existing lender at the end of a fixed period, I am merely clicking the box that says my financial circumstances have not changed and I want to enter into a 2, 3, 5, 10 year fixed period at whatever rate. No need for all the underwriting and explanation of x, y and z. In this circumstance, it appears the lender is giving a fair chunk of cash to the broker. If everything you mentioned in your reply to my question applies to rate changes as well, fair enough. But if there's no extensive process with a rate change, why would the bank be so generous towards the broker. Seems quite removed to how banks usually operate.
MrJuice said:
Thanks Sarnie for your insights, however, it appears that you are referring to the situation where a new mortgage is being taken out. Or perhaps someone is switching lender.
With a rate change with an existing lender at the end of a fixed period, I am merely clicking the box that says my financial circumstances have not changed and I want to enter into a 2, 3, 5, 10 year fixed period at whatever rate. No need for all the underwriting and explanation of x, y and z. In this circumstance, it appears the lender is giving a fair chunk of cash to the broker. If everything you mentioned in your reply to my question applies to rate changes as well, fair enough. But if there's no extensive process with a rate change, why would the bank be so generous towards the broker. Seems quite removed to how banks usually operate.
I am referring to product transfers also yes...….With a rate change with an existing lender at the end of a fixed period, I am merely clicking the box that says my financial circumstances have not changed and I want to enter into a 2, 3, 5, 10 year fixed period at whatever rate. No need for all the underwriting and explanation of x, y and z. In this circumstance, it appears the lender is giving a fair chunk of cash to the broker. If everything you mentioned in your reply to my question applies to rate changes as well, fair enough. But if there's no extensive process with a rate change, why would the bank be so generous towards the broker. Seems quite removed to how banks usually operate.
Who is your mortgage with?
MrJuice said:
Virgin Money
Do you know if VM offer an offset mortgage? Can't see any products online..
So, Virgin Money pay 0.36% to the advisor for new mortgages...………..this is reduced to 0.31% for product transfers, to reflect the lesser work required but it's worth noting that from a brokers point of view, it's not simply a few presses of a button, it's still a transaction that they have to process, report to their network and the FCA and carry out the usual compliance and due diligence...….almost all of this doesn't involve the client but it's still work all the same, just a bit less than a full application, which is what the lenders payment reflects.Do you know if VM offer an offset mortgage? Can't see any products online..
Virgin Money are one of the only lenders to pay transfer rates at that level......most pay circa 0.16% meaning it's under half what was paid initially, again to reflect the reduced work required.
Virgin Money do not offer Offset rates......
Sarnie said:
So, Virgin Money pay 0.36% to the advisor for new mortgages...………..this is reduced to 0.31% for product transfers, to reflect the lesser work required but it's worth noting that from a brokers point of view, it's not simply a few presses of a button, it's still a transaction that they have to process, report to their network and the FCA and carry out the usual compliance and due diligence...….almost all of this doesn't involve the client but it's still work all the same, just a bit less than a full application, which is what the lenders payment reflects.
Virgin Money are one of the only lenders to pay transfer rates at that level......most pay circa 0.16% meaning it's under half what was paid initially, again to reflect the reduced work required.
Virgin Money do not offer Offset rates......
That makes sense, thank you again for your insights. Virgin Money are one of the only lenders to pay transfer rates at that level......most pay circa 0.16% meaning it's under half what was paid initially, again to reflect the reduced work required.
Virgin Money do not offer Offset rates......
I must say that a four figure sum for this work seems overly generous but my broker is a good guy and thoroughly deserves his remuneration. He got me my mortgage when many others said it definitely was not possible in the timeframe I required.
MrJuice said:
That makes sense, thank you again for your insights.
I must say that a four figure sum for this work seems overly generous but my broker is a good guy and thoroughly deserves his remuneration. He got me my mortgage when many others said it definitely was not possible in the timeframe I required.
In that case, he deserves it, you get what you want without any additional cost....and Virgin Money retain your business...….everyone's happy! I must say that a four figure sum for this work seems overly generous but my broker is a good guy and thoroughly deserves his remuneration. He got me my mortgage when many others said it definitely was not possible in the timeframe I required.
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