Place a mortgage and win a motor

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WITH fewer and fewer people looking to buy a property, the competition for mortgage business has reached fever pitch. In fact, lenders are so keen to get their hands on your business that they will not only offer massive discounts and cashbacks; they pay "introducers" - mortgage brokers or independent financial advisers (IFAs) - a big fee if they place a mortgage case with them.

While you would not expect advisers to do their jobs for nothing, home buyers may ask themselves whether the advice they are getting is strictly impartial, given some of the rewards on offer.

Private Label Mortgage Services, a mortgage design and distribution company that markets lenders' products through the IFA channel, has even gone one step further by offering advisers a range of prizes that puts The Generation Game to shame.

A private bulletin recently circulated by the company to thousands of independent advisers outlines the prizes. "We will be paying you pounds 100 per completion on this product and allocating a massive 500 points per case. So just 10 cases earns you pounds 1,000, plus a luxury weekend. Twenty cases earns you pounds 2,000 and a Ford Fiesta. Thirty cases earns you pounds 3,000 and a Fiat Punto Cabriolet. And 60 cases earns you pounds 6,000 and all three prizes! You have until 1 March, 1997, to go at these prizes while earning substantial payments in addition," it says.

The product it is keen for advisers to push is a "near 3 per cent discount for two years" with the Britannia Building Society. Private Label itself will earn substantial commission payments from the top-10 building society for the business generated. Given the obvious threat to advisers' independence posed by the prizes, it is hardly surprising that the bulletin comes with the words: "Must not be shown to members of the public."

A survey published this week in Your Mortgage magazine reveals that there are over 40 lenders who offer advisers a "procuration fee". This is a cash payment made to advisers by lenders for bringing them the business. These payments can amount to pounds 400 for each mortgage case that completes. And there are other income sources as well. An adviser, having accepted the procuration fee, could also receive a substantial commission payment from an insurance company if he recommends that the borrower take out an endowment policy to repay the loan capital.

But Ian Darby, marketing director of leading mortgage brokers, John Charcol, defends the fees. "Procuration fees are now widely available in the mortgage market, and they are entirely justifiable. After all, what banks and building societies are doing by offering fees is making sure they have every distribution outlet for their products covered - something you would expect them to do. Intermediaries are also the cheapest form of distribution available."

He says intermediaries are an extension of the branch network for banks and building societies and that there is nothing exorbitant about the fees awarded. "Building societies and banks have had it made for years. They have been getting good quality business without having to pay for it. Now they are paying not unreasonable fees for the services of an experienced adviser who will market and sell their products," says Darby.

The depressed state of the housing market has meant lenders have had to be innovative in their product design in order to stimulate business. On the whole, this has been good news for home buyers who benefit from cheap and increasingly tailored products, and for the intermediary, as borrowers are more likely to need help in understanding what exactly they are being offered.

In the past, lenders have gone to great lengths to reduce the level of business that comes from third-party advisers. Banks and building societies now appear to have reviewed their policies on this distribution outlet and are seducing advisers once again.

But when you go to your financial adviser for mortgage advice, he is supposed to scour the whole mortgage market to find the home loan that is right for you. It is likely an IFA's integrity will be preserved if there is only a couple of hundred pounds at stake.

But when 25 of his clients have placed their mortgages with one particular lender and he knows that just five more with that lender will bring him pounds 3,000 and a Fiat Punto, who knows? People thinking of going to any third- party adviser for mortgage advice have a right to question the "I" in IFA.

q James Hipwell is deputy editor of `Your Mortgage' magazine.