The fees issue
The fees issue
When it comes to fees on second charges there are many opinions and probably as many options. It’s therefore important to be clear on what each option really means as your client is ultimately paying for it.
You may be familiar with the model adopted prior to MCD where the fees were significant and included all the abortive valuation costs, consents and references. As a broker you could allow the loan master broker to deal with the sale and you still earn half of the total fees and lender commission after deduction of costs. Surprisingly, two years on from MCD, some firms still operate this model despite the lack of transparency, rumours of falsely inflated costs, high fees and the fact that the introducing broker may have been perfectly happy to charge clients a lower fee and earn less as a result.
Then came along an unbundled version of this where the valuations fees are charged separately, the introducing broker knows exactly what the master broker is charging and can reduce his/her fees to if desired. Usually, apart from the valuation cost, the other costs are normally absorbed by the master broker fee. Whilst this is not 100% transparent, these costs are small and it saves confusing consumers with multiple ESIS’s being issued when another cost creeps in. Certainly everyone knows where they stand at the outset.
The unbundled approach above can work well for referrals or where the broker wants to give the advice on the loan themselves. However, inline with the mortgage sector, models have emerged where far smaller fees are charged upfront. These tend to apply where the master broker is used as a packager but the detail behind the headline needs deeper consideration. The upfront fees are non refundable so make sure your master broker is being thorough and don’t expect to receive any of the lender commission. Consequently you will need to charge a higher fee to maintain your earnings so not only is your client risking the upfront fee, there is also an additional fee to pay – yours. Great news for the master broker who can claim to charge low or zero fees. That reputational risk now falls to you unless you want to earn significantly less.
There will always be those charging more because they can get away with it and others offering a budget version with potentially a service to match – just like short haul flights. Check out the real costs and decide which model you want to entrust your valued clients to.
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Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status. We may receive commissions that will vary depending on the lender, product, or other permissable factors. The nature of any commission will be confirmed to you before you proceed.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Representative example
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Representative example
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Unsecured Loans
Representative example
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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