Landlord mortgages may cost more

Landlords may find arranging a buy to let mortgage more expensive as an upheaval in the way financial advisers are paid threatens to ban lenders paying commission or other inducements to recommend a loan.

Lenders and regulators argue that procuration fees – the money or reward paid to a broker arranging a buy to let mortgage – can distort the market and lead to advisers recommending the wrong products to landlords.

The row has simmered for some time, but came to a head at the Council of Mortgage Lenders (CML) annual conference.

CML chairman Martin Van der Heijden, who has a second job as head of lending at HSBC, decried procuration fees as hidden charges for borrowers even though they are declared on mortgage illustrations.

IFAs will have to charge a fee for advice rather than take commissions under the Financial Service Authority’s retail distribution review, which covers financial products like pensions, insurance, savings and investments.

Recent polls suggest that more than half of consumers will not bother to deal with IFAs if they have to pay a fee for their services and will go directly to providers.

Mortgage procuration fee payments vary between lenders and brokers, but average around £300.

The cost is paid out of arrangement fees or other charges to the loan.

“We have to make distribution work for the customer – the quality of advised (sales) is sometimes inconsistent,” said Van der Heijden.

“Hidden procuration fees, the differentials that exist, staff incentives and direct channels can distort choice. Sometimes the product sale fails a key test that I think we should always hold ourselves against – the product that was chosen should be the right one for the customer. That should be true all the time.”

Intermediary Mortgage Lenders Association (IMLA) executive director Peter Williams disagrees with the argument against procuration fees.

“Mortgage advisers have to pass professional qualifications, and there can be few industries that are as transparent when it comes to disclosure of fee income,” he said.

“All mortgage offers come with illustrations which clearly state how and how much intermediaries are remunerated – usually no more than 0.5% and often less. In addition, differentials are not paid by product thus avoiding any specific bias, and there are no volume overrides.”

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