AMI questions bridging overrides
Robert Sinclair, director of AMI, said although the practice was perfectly within the limits of the law in an unregulated market he asked whether it was acceptable any longer.
He said: “If within the mainstream mortgage market overrides are not allowed why is it acceptable in the bridging market?
“Is it a fair inducement given the number of regulatory changes going on at the moment?”
There are rumours that some lenders in the unregulated bridging market share borrowers’ monthly interest payments, trail commissions and exit fees with brokers to encourage them to submit more business.
Richard Deacon, sales and marketing director at Masthaven, confirmed they offer introducers incentives on the unregulated side of the business.
He said: “It’s difficult given the plethora of new market entrants competing for business and we want to reward our better brokers for sticking with us when they might be able to place a deal at the same rate and on the same terms elsewhere.
“We forego some of our fee and give it to our brokers because we want to cement the relationship for longer.”
Mark Posniak, head of marketing and operations at Dragonfly Finance, said: “Our view is that all fees and charges should be disclosed to the borrower at the outset of the loan and that no fees should be hidden.
“We don’t feel there is a tension created for brokers introducing business as we would always turn down any deal that looked like it could be regulated. We’ve got no desire to jeopardise the business we have created by treating customers unfairly.”
Gavin Diamond, finance director at Cheval, said the bridging lender didn’t pay overrides.
He said: “It’s not something we’ve done historically as we never felt we needed to and we didn’t want to be associated with it. It’s arguable whether it’s a shady practice or not.”
Alan Cleary, managing director of residential, buy-to-let and bridging lender Precise Mortgages, said he believed overrides were unacceptable.
He said: “If you are an FSA approved individual you cannot allow the business to pay overrides. They are outlawed by the FSA and they carry clear detriment for the consumer whether the lender discloses them or not.
“You can’t do something like this on one side of the business and not the other and think you’ll get away with it. I would also question whether overrides will get caught up in the Bribery Act.”
And he added: “Personally, I don’t see why lenders need to pay overrides. Just pay the broker the right amount of commission on each deal.”
Rob Jupp, managing director of distributor Brightstar Financial, said he didn’t think overrides were an influencing factor.
“I can categorically say that in the seven months we’ve been in business we’ve not received one override,” he said.
“Though I’m sure there are rogue brokers out there it is not an influencing factor for us as we put business with the lender that provides the best value.”
Andrew Montlake, director at London broker Coreco, added: “Anyone who sells on commission alone shouldn’t be a broker. It’s not fair on the customer. If you’re doing your job properly overrides won’t create a bias for the broker advising.”
The Financial Services Authority said it was “difficult to comment as unregulated bridging is outside our remit”.
But it made clear that for regulated products this type of inducement is not allowed.
The MCOB rules state: “A firm must not operate a system of giving or offering inducements to a mortgage intermediary, reversion intermediary, SRB intermediary or any other third party whereby the value of the inducement increases if the intermediary or third party, such as a packager, exceeds a target set for the amount of business referred (for example, a volume override).
“A firm must not solicit or accept an inducement whereby the value of the inducement increases if the firm exceeds a target set for the amount of business referred.”