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Mortgage Brokers are also known as intermediaries. They are the middle man – the mediator between you, the customer and the lender.
The Mortgage industry is a business and lenders are in constant competition with one another. They compete with their interest rates, product benefits and last but not least, procuration fees.
The procuration fee is a percentage of your Mortgage that the intermediary (Mortgage Broker) is paid by the lender for using their services and sending business their way.
Both the lender and Mortgage Broker benefit from helping you! One funds your purchase and the other arranges the Mortgage for you.
It’s a, “You scratch my back, I scratch yours” scenario.
When you borrow money from the bank, you pay back what you borrowed plus interest. So although the bank is facilitating and funding your Mortgage, it’s not a good will gesture, it’s business!
How the Bank benefits
You borrow £143,822 with a 1.74% interest rate.
You actually pay back £271,417.44
This means that you pay back £1.88 for every £1 that you borrow.
How the Broker benefits
The average procuration fee is 0.3% – 0.5% of your Mortgage Balance
Using the above Mortgage as an example, the procuration fee earned on £143,822 is £719.11 (0.5%)
However, many Brokers are in
*Mortgage Clubs and would loose a cut of the “proc fee” to the club. So after deductions etc, they may walk away with around £550.
Note: The procuration fee is only paid to the Mortgage Broker on completion. This is, once the purchase, remortgage or product transfer has been completed.
Therefore you can understand why the larger Mortgage Brokers can get away with not charging for their services.
This is because they submit many Mortgage Applications with a variety of balances over the course of weeks/months. If they submit say 100 Mortgage Applications consistently a week for 4 Months, buy the end of the 4 Months, that’s 1,600 Mortgage Application. At the end of the 4th month, roughly 800 of those people would have completed on their remortgages, 400 completing on their Purchases and 400 non completions with a variety of unforeseeable issues: sellers pulling out of the purchase, the intended property being down valued and deemed unsuitable, the applicants circumstances changing etc.
1,200 completions with an average procuration payment of £700 is £840,000.
Now do you see why they don’t charge?
Mortgage Brokers I’ve either used, worked for or been affiliated with that I’d recommend are:
*A Mortgage Club is a network many Mortgage Brokers belong to. By belonging to these, they have access to a panel number which they use in order to submit Mortgage Applications to lenders.
The Mortgage Club/Network facilitates the Brokers ability to advise, place Mortgage Application and therefore take a cut of their procuration income. The two main Mortgage Clubs/Networks out there are Legal & General and Openwork.
Despite having to abide by the standards of the clubs/networks, Brokers also have to adhere to the FCA standard and therefore have their own FCA registration number.