Fee or commission for a mortgage broker, and disclosing both

3 days ago
3 min read

Updated: 2 days ago

Introduction

A broker can be paid by the lender, by the client, or by both. Each model changes which cases are worth taking. Decide deliberately rather than inheriting a model. Procuration-only means a small loan pays little regardless of how difficult it was, so complex cases on modest borrowing become unprofitable. A client fee makes those cases viable and gives some clients a reason to go elsewhere.

The choice is not simply commercial. Regulated advice carries disclosure requirements about remuneration, and those requirements differ substantially between jurisdictions and change over time.

Nothing here is regulatory guidance. Establish what your own regime requires about fee and commission disclosure before changing anything about how you charge.

1. Fee or commission for a mortgage broker decides which cases are viable

Match the model to the work.

Procuration alone suits straightforward, larger loans

Standard employed applicants on mainstream lenders. Volume makes the model work. The work is proportionate to the payment. Those cases fund a volume model.

A client fee makes complex cases possible

Self-employed, adverse credit, multiple income sources, unusual property. These take several times the work for the same procuration fee. Without a fee you will decline them or lose money.

2. Price a fee against the work, not the loan

A percentage of the loan repeats the problem.

Use a flat fee by case type

A standard case, a complex case, a buy-to-let, a portfolio. Define what makes a case complex. Each named and priced. Publish the four figures.

Charge at the point the work begins

An initial fee for the research and recommendation, with the balance on offer or completion. It filters enquiries that were never going to proceed. Keep the initial portion modest.

3. Disclose everything, clearly and early

This is where brokers get into difficulty.

State fee and commission before advice is given

In writing, in plain terms, including what the lender pays you. Most regimes require this and clients increasingly expect it. Put it on the first page of your documentation.

Never present a fee as optional when it is not

Ambiguity about whether a fee applies produces complaints regardless of the amount. Say the figure out loud as well.

4. Be able to justify the fee

Clients accept a fee they understand.

Say what the work involves

Research across lenders, packaging the case, chasing the underwriter, managing the solicitor and the agent. Clients have no idea how much of this happens. List five things you actually do.

Explain what a whole-of-market search is worth

A better rate over a fixed term is frequently worth many times the fee. Show the arithmetic. Compare the fee against the interest saved.

5. Build the protection and renewal income

Fee and procuration are not the whole picture.

Protection is the other half of the business

Better remunerated, recurring, and genuinely relevant to the client's actual position, to somebody taking on a large debt. Raise it at fact-find rather than at offer.

Diarise every product expiry

The remortgage is a known future case. That diary is worth more than any lead source. Contact them six months ahead.

Conclusion

Decide the model against the work rather than the loan: procuration alone suits straightforward larger cases, and a client fee is what makes self-employed, adverse-credit and unusual-property cases viable, because those take several times the work for the same lender payment.

Price any fee as a flat figure by case type rather than as a percentage, and charge something at the point the work begins so unqualified enquiries filter themselves out. Disclose fee and commission in writing before giving advice, be able to explain what the work involves and what a whole-of-market search is worth, and build the protection and remortgage diary that carries the rest of the income. Confirm your own regulator's disclosure requirements first.