Dual-pricing of mortgage products is continuing to cause problems for mortgage brokers and their clients, according to Home Buyer Systems (HBS).
The cost of cheap fixed-rate deals available through intermediaries has increased for the average second time buyer, according to figures from Defaqto, although the cost of first time buyer products has come down.
An analysis by HBS on 24 June shows the cheapest intermediary mortgage product for first time buyers would cost £2,002 more than the cheapest direct product over two years. By 4 July, the gap had narrowed to £1,515.
However, the gap between the best second time buyer deal for intermediaries and those available directly from lenders has risen by £83 over two years, from £1,280 on 24 June to £1,363 on 4 July.
The figures are based on the Council of Mortgage Lenders’ (CML) definition of a first time buyer, who has an average purchase price of £127,500 and LTV of 90%, and a second time buyer, who pays an average price of £185,000 with a 73% LTV ratio.
As a result of the increased cost of intermediary mortgage deals, second time buyers visiting a broker who only sells intermediary products will pay an average of £56.80 more each month, while a first time buyer would pay £63.12 extra.
Richard Angliss, managing director of HBS, comments: “The figures are fluctuating considerably each month as lenders rapidly reprice their mortgage ranges, but the cost of intermediary products is rising, and even direct deals are becoming more expensive."
The total cost of direct deals for second time buyers over two years increased by 0.6% to £24,758, while first time buyers were paying £19,841 on average, up 0.5%.
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"Your article lends even more weight to the issues of dual pricing, however the biggest issue facing the client is that intermediaries CANNOT recommend ANY direct product without a KFI produced by the lender.
As fee based IFAs we are unable to give our clients the best advice as many of the lenders have no KFI facilities available to the intermediary marketplace.
How can this be treating customers fairly?" Roy Miles, Tinsdale Investment Management
"Just to clarify the situation an adviser is responsible for the production of a KFI which correctly reflects his involvement in the transaction, this clearly would not be available from the lenders system as the direct products are largely created on the basis that intermediaries are not involved. The lender will issue their own KFI as part of their own sales process.
Speech by Jonathan Fischel, Head of Mortgage and Credit Unions
at the Mortgage Expo
15 May 2008
We know that some of you would like to be able to make recommendations on products that are not available to you but that the requirement to provide the customer with a KFI has prevented you from doing so because most sourcing systems do not have details of direct products. We are aware that AMI have been looking at potential solutions and will continue to discuss this with them.
On the content of the KFI we have been asked for our view on the fact that any broker fee charged for the advice will not be included in the lender's KFI or offer documentation (because it is a direct KFI). Our view is that, in such a scenario, the adviser fee would not need to be included in the lender KFI/offer. What the lender is illustrating is the cost the customer needs to pay in order to obtain the credit on offer. The advice fee is not part of that. It so happens that the customer has paid that fee as part of their route to the product, but it is not a necessary condition for the credit. Therefore, the adviser fee does not need to be included in the APR or section 8 of the KFI produced by the lender.
Clearly, the customer is going to be receiving two KFIs in these circumstances: one from the adviser and one from the lender. As well as showing differences in fees, there may also be a difference in section 2, as the lender may be selling the product on a non-advised basis. These differences are in line with the rules, and will accurately reflect the different parts being played by the two firms in the transaction. However, the potential exists for some confusion on the customer's part, and the adviser may be able to manage this by explaining the different roles the firms are playing and the resulting differences in the disclosures they will provide. Also, it is perhaps worth reiterating that the adviser is fully responsible for ensuring their KFI is accurate (within the given tolerances)." Allison Griffiths, Director, Home Buyer SystemsIFAonline
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