A revealing study of the financial pressures facing the mortgage industry has shown that the majority of lifetime mortgage brokers now charge over £1,000 for their services. This shift in fee structures reflects a significant adjustment to market conditions and regulatory requirements.
Data sourced by Mortgage Solutions through a Freedom of Information request to the Financial Conduct Authority (FCA) show an increase in the proportion of brokers charging higher fees. In 2023, about 60% of brokers charged between £1,000 and £2,000-plus, up from 46% in 2022. Specifically, the segment charging £1,500-1,999 saw the most substantial rise, jumping from 15% to 22%. Meanwhile, those charging over £2,000 increased from 13% to 21%. The trend toward higher fees was also evident in the £1,000-1,499 range, which rose slightly from 18% to 21%. Conversely, the percentage of brokers charging £500-999 decreased significantly from 31% to 22%.
Furthermore, fewer brokers are now offering services for free, with those charging no fee dropping from 19% to 15%. Similarly, the bracket for fees up to £499 shrunk from 4% to 3%. The average fee in 2023 stood at £1,258.80, showing a rise from £1,081.20 in 2022.
The Impact of Tough Financial Conditions
Kelly Melville-Kelly of the Equity Release Council (ERC) attributed the rise in fees to the tough financial conditions following the mini Budget in 2022. The new Consumer Duty regime has enforced a fair value criterion, demanding that fees reflect the extensive and specialised nature of equity release advice. This advice typically covers several vital areas such as affordability, inheritance plans, and retirement financing. It also involves significant interaction with clients’ families and extensive support throughout the decision-making process.
Advisers are reportedly facing increased costs in several areas, including salaries, training, IT, and compliance. These expenses, coupled with a cautious consumer base hesitant about current pricing, have contributed to the fee increases. However, there is a sense of optimism that if conditions improve, these savings might be passed back to the customers.
Regulatory Changes and Industry Responses
Paul Glynn, CEO of Air, noted that the introduction of Consumer Duty regulation marked a transitional period for the later life lending industry. Many advisers are adapting to these changes by altering their business models and adjusting services, which has led to a reshuffling of the fee structure—generally pushing the lowest fees higher.
Another trend is the shift from percentage-based fees to fixed fees, a change that has been positively received as it aligns with the obligations of the Consumer Duty. This transition has been supported by industry bodies such as Air, which continues to assist advisers in assessing the fair value of their fees.
Calls for a Fee Cap to Ensure Fairness
In light of these increases, Paul Saroya from Viva Retirement Solutions has called for a cap on advisory fees to prevent overcharging and protect consumers. He highlighted that nearly half of the fees now fall between £1,000 and £2,000, partly due to the rising costs of acquiring leads. Saroya also pointed out the potential for conflict of interest among advisers tied to specific lenders who might receive higher procuration fees, suggesting that these firms should ideally offer some of the market’s lowest fees.
The Burden of Rising Operational Costs
Chris Bibby of Key Advice reported significant increases in the operational costs associated with delivering advice, driven by Consumer Duty requirements and direct regulatory feedback. These factors necessitate investments in technology and training, adding complexity and time to compliance and case checking, thereby inflating the cost of advice. Despite these challenges, he remains committed to ensuring that customers are well-informed about their financing options in later life, advocating for broader promotion of equity release products alongside other financial solutions.