I guess the best thing to do is quickly outline the way things have worked since the inception of the broker industry in Ireland.
Brokers start their own companies and place business with larger companies, there are several types of brokers, some are tied (this means they only place business with one company) and independent – which is what Irish Mortgage Brokers are – and we have a panel of 15 banks and 5 insurance companies.
We have traditionally been paid 1% of the loans we send a bank as a ‘commission’ or income, so the client normally doesn’t have to pay a broker fee because the costs are covered by the commission. Brokers are paid because broker business (which counts for almost 60% of all mortgages done in this country) is a clean and profitable source of business for banks, they don’t have to pay for the brokers staff, their light, heat, holiday time etc. They do however have to pay for all of these things when a loan is done at branch level (e.g.: the loan is done via a street branch of Ulster bank). Loans placed at branch level help to cover the costs of branches. Branches are also becoming more costly given the business they can generate – onling banking etc. means that fewer transactions are happening at branches but at the same time their costs don’t decrease.
Brokers offer independent advice, no bank will ever send you down the street to a competitor who has a better product, but a broker doesn’t have this issue. In the past there have been articles about brokers getting different commissions from different lenders but this is mostly with the small operators and not the larger ones as we agree uniform commission rates so that
we never have a conflict of interest in our advice.
Now Ulster bank have come out and said that they are halving commissions. So the same loan is now worth only 50% of what it used to be. Will they make half the money on the loand that they used to? No, they’ll make the same amount as always. And this is ultimately something that needs to be frowned upon. They are not doing this with a view to saving the consumer, they are doing it with a view to keeping more money themselves, and this will also affect consumers.
The broker is now in a predicament, don’t put business with Ulster bank or do so and charge a fee? the fee will be burdened on the consumer. in the past we never did this because the commission levels didn’t require it to cover costs. And we often used the commission to make the deal better for the consumer, something the banks NEVER do.
We (for instance) offer free legal fees for mortgages where the application is made online. we do so by subsidising the legal fees, now we might not be able to do that, the consumer thus loses out. Brokers in general were always fighting for the consumer, when Bank of Scotland came to Ireland several years ago it was brokers that distributed their loans (we accounted for 95% of their business when they came here) and as a group drove down the excessive rates that banks were charging and it spurred competitions amongst lenders. This was great for the consumer, we saved consumers literally billions and billions of euro.
Brokers are also the only ones exercising price matching on insurance policies, this means that consumers can get their insurances at the cheapest prices on the market. True we make a living but we are doing so while helping the consumer, the reason 60% of loans are being done via brokers is because we are fundamentally on the consumers side, saving them money and offering choice. Ulster bank are making moves to undo this so they can keep the margins for themselves.
Brokers are also vital employers, as vital as any bank, enterprise is the largest employer in Ireland, that means companies with less than 50 people (typically this represents the majority of the broker market). We don’t sub-contract jobs to other countries or set up call centres abroad thus sacrificing jobs in Ireland, whereas larger companies have long records of doing this. We also live in our communities and the money spent helps give revenue tax euros, and boosts local trade, while also giving jobs with security and longevity. The profits from Ulster bank are sent around the world to RBS (Their parent company) and their shareholders.
The move by Ulster bank is totally nefarious as far as we are concerned, they can blame problems in the USA all they like but those are problems they walked themselves into, not the brokers over here, although they are obviously looking for us and the consumer to pay for it.
Permanent TSB are also ‘suddenly’ talking about reducing commissions, this kind of move (within 48 hours of each other) after decades of a status quo rings to me of a cartel move. I sincerely doubt that it is happening by miraculous design.
I believe I speak for all brokers when I say that this move is detrimental to the Irish Market and we have written to the Consumer Association to make our voice heard on this issue.