When does political speak such as, ‘We always keep these types of things under review’, simply mean, ‘Don’t hold your breath, we’re never going to change’.
Certainly, in our market, when we discuss product transfers (PT) and the lower level of proc fees paid to advisers when it comes to this business.
For what it’s worth we know that conversations on this topic are a constant thorn in the side for many lenders. We often get the distinct impression many wish the intermediary community would simply bite the PT reduced proc fee bullet, and simply stop drawing attention to the disparity that exists.
But that would, we’re afraid, neglect the ongoing shift we have seen in the mortgage market, and indeed would neglect what is anticipated to happen in the future.
Lenders certainly don’t overlook or ignore the shifts in the lending landscape, do they?
They have to react to them and cut their cloth accordingly. When the Mortgage Market Review (MMR) came out, they didn’t carry on regardless with models which continued to ignore the advisory distribution channel, they recognised it was in the ascendency, they would be receiving the vast amount of business via it, and they shifted to support it more.
Except perhaps when it comes to PT business, because at that time, the advisory community had no clear idea of the volume of this type of lending, who was taking the lion’s share, or why they were being paid less for this type of business?
Some of those questions were answered during 2020 when we began to receive regular data on PT business from UK Finance, and there’s no doubting this has become more and more important to advisers, not least because PT business has grown and grown.
You’ll be unsurprised to learn 2023 was the effective high point of PT lending since we started to see the data – £219bn, up from £168bn three years ago, and while it is predicted to dip to £202bn this year and £195bn in 2025, it is clearly a huge part of our market.
We’ve read a number of articles this year – perhaps quite rightly – reflecting on how a more competitive, lower interest rate environment might pave the way for more remortgage business in 2024/25, because more borrowers will be able to meet affordability criteria and move away from their existing lender.
That may well be the case, but we should also reflect on remortgaging as a percentage of PT business in recent years, what it is likely to be in the future, and what that might mean for advisory incomes on these lower proc fees.
For instance, back in 2020, remortgage business (all £93bn of it) was 55.35% of PT business (£168bn), and while it did climb to just over 60% in 2022, reflecting a greater degree of parity between the two, PT was still very much in the ascendency.
In 2023 it dropped significantly to 38.81%, and is anticipated to be very similar over the next two years. It shows how, around three out of five existing borrowers, are more likely to be taking a PT from their existing lender, rather than remortgaging. And this covers both homeowners and buy-to-let.
Plus, of course, there is a lack of clarity around the level of PT business that goes through advisers anyway. Years ago, pre-the release of those lending figures, it is widely believed advisers wrote only a very small amount of this business, and while that figure has improved, there’s no way it is anywhere near the 85-90% lending share that advisers now take across all purchase/remo business.
In other words, PT lending activity has been at record levels, advisers get less of this business, and the business they do write is paid – on the whole – at a reduced rate. And lenders wonder why advisers and their distributors are keen to keep talking about this and its inherent unfairness?
For much of this debate, lenders have held the same line, perhaps under the impression no one will move and therefore they won’t have to. However, at the start of January, Bank of Ireland announced it would be improving its PT proc fee rates from 0.25% to 0.3% – still some way off the 0.5% they pay for new buy-to-let business and the 0.4% they pay for residential, but still a big step in the right direction and, perhaps, a tacit acceptance that the status quo is untenable.
Will others follow? Who knows as yet, but in a highly competitive marketplace where you may have no chance of competing on rate, perhaps a recognition of what advisers actually do for PT business and how there should be greater proc fee parity, is a chance to come out into clear ground and be recognised for it?
The argument that, ‘Advisers don’t do any work for PTs’ or it’s ‘Money for nothing’ are not just wrong but offensive to our community, and we hope others will follow Bank of Ireland’s lead here, even if they are not willing to go quite as far as LBG lenders crucially do.
While we await to see how this scenario plays out, it makes it even more important to not just have access to lenders who offer a better procuration fee for PT business, but of course to benefit from the more competitive terms that are offered via distributors, such as networks like JLM.
Make sure you have all the market to work with, and you can achieve not just the best possible outcome for your client, but also for your business. Voting with your feet and continuing to use your voice in this argument will be the only way we get change, and will send the strongest of messages to those who, up until now, have not wanted to address this.
Rory Joseph is director and Sebastian Murphy is head of mortgage finance at JLM Mortgage Services