Mortgage brokers' group to shake up status quo

Although unheard of in Ireland until the 1990s, mortgage brokers have gained a firm foothold in the home loans market over the past decade and are now the first port of call for many mortgage seekers.

Their popularity will soon receive a further boost if the plans of the new mortgage network, Piba Mortgage Services Ltd, come to fruition. Established recently by Piba (Professional Insurance Brokers' Association), the company intends to shake up the status quo of the mortgage market in an effort to protect smaller, quality brokers, and enable them to provide greater choice to their customers.

The commission thresholds set by lenders are putting considerable pressure on such brokers, says Jack Fitzpatrick, chairman of Piba Mortgage Services. "Different lenders have set thresholds for brokers, that if they don't produce, for example, €6 million of mortgage business in a year, they reduce the commission that they pay," he says.

"Before that it might have been €2 million a year but gradually they've been increasing it over the last couple of years, and they're going to raise that bar even higher because they want to deal with larger brokers who are not necessarily the brokers offering clients the best quality of service."

According to Fitzpatrick, many lenders refuse to deal with smaller brokers if they fail to produce the required level of business. He believes that this is a restrictive practice and against the interests of the consumer.

"Brokers need to be armed with the facility that they can give advice right across the market," he says. "Their hands are half-tied if they can only deal with one or two lenders through no fault of their own."

Having raised this issue with the Financial Regulator to no avail, Piba decided to take matters into its own hands and came up with a solution in the form of Piba Mortgage Services.

The network, which should be up and running by early autumn, will channel business from its members to lenders. By aggregating their business in this manner, the commission thresholds will no longer pose a problem.

Members will have access to all major lenders in the market at one commission rate, which should remove any incentive to recommend one lender over another on the basis of commission.

"The purpose behind [Piba Mortgage Services] is that the broker would be able to give his client a wider choice with lenders so he can keep his independent status," says Fitzpatrick. "There's a clear conflict there otherwise."

But there are already plenty of mortgage wholesalers in the Irish market, such as IFG, so is Piba just reinventing the wheel? Not according to Fitzpatrick.

"Where we will be different to other wholesale brokers is that we are a non profit-making operation. We're not putting minimum volume thresholds on our individual members."

He stresses that the end customer will feel the benefits. "It's offering the consumer much wider choice because all of our members will be able to access all lenders across the market without another profit layer to be fed... If we make surpluses at the end of the year they will be refunded back to the subscribers in the form of enhanced commission."

Piba Mortgage Services will be basing the commissions that it passes on to its members on the quality of the cases that they introduce, rather than the volume.

"The smaller, quality broker will be rewarded, where in the current system he's not," says Fitzpatrick.

The network has received a positive reaction so far, with 500 Piba brokers already signed up. "This block of members would at the moment be doing approximately €2.4 billion of mortgage lending in the year, which would make us, by a distance, the biggest mortgage wholesaler in the country," says Fitzpatrick. "Our aim would be to get as much of that business filtered through the hub as quickly as possible.

"We would be hoping in the future that as we become a significant mortgage broker provider, we would have the opportunity to put more pressure on lenders to improve their current levels of service, the range of their products and in time bring in new entrants from outside to give the consumer more choice."

While Piba Mortgage Services has yet to prove its potential in the marketplace, it is already looking like a win-win situation for its members and their clients, and expects it to be a positive move for the industry as a whole.