Procuration Fees: Why Your Broker Recommended That Product

If you're using a mortgage broker, you might wonder how they make their money — and whether the commission they receive influences which mortgage they recommend. This is a fair question. Procuration fees (commonly called "proc fees") are how most mortgage brokers earn their income. Understanding how they work helps you evaluate your broker's advice and ensures you're getting a genuinely suitable recommendation.

What Is a Procuration Fee?

A procuration fee is a commission paid by the mortgage lender to the broker when a mortgage completes. It's the lender's way of rewarding the broker for bringing them business.

The fee is:

• Paid by the lender, not by you
• Calculated as a percentage of the mortgage amount
• Paid on completion, not when the application is submitted
• Part of the lender's cost of doing business, similar to their marketing budget

Think of it like a referral fee. The lender saves money by not maintaining expensive high street branches and marketing campaigns, and passes some of that saving to the broker who brings them customers.

How Much Are Procuration Fees?

Typical proc fees in the UK mortgage market:

In Real Terms

On a £250,000 mortgage:

• 0.30% proc fee = £750 to the broker
• 0.40% proc fee = £1,000 to the broker
• 0.50% proc fee = £1,250 to the broker

On a £400,000 mortgage:

• 0.35% proc fee = £1,400
• 0.50% proc fee = £2,000

Why Specialist Lenders Pay More

Specialist lenders (those dealing with adverse credit, complex income, or unusual properties) typically pay higher proc fees because:

• Their cases require more work from the broker
• They're competing for broker attention against mainstream lenders with bigger brand recognition
• Their cases have higher fall-through rates, so the broker takes more risk of doing unpaid work
• Their rates are already higher, so the margin supports a higher commission

This is an important point: a higher proc fee from a specialist lender doesn't mean the product is worse for you. The specialist lender may genuinely be your best (or only) option.

Does the Proc Fee Affect Your Mortgage Rate?

This is the question everyone asks. The short answer: not directly.

Proc fees are part of the lender's overall cost structure. Every lender factors their distribution costs (branches, marketing, proc fees) into their pricing. Whether you go direct or through a broker, the rate is typically the same — or sometimes better through a broker because:

• Some lenders offer broker-exclusive products not available to direct applicants
• Brokers can sometimes negotiate on fees or rates for larger loans
• Some lenders only operate through brokers and don't accept direct applications

Does the Proc Fee Influence Your Broker's Recommendation?

This is where healthy scepticism is appropriate. The concern is valid: if Lender A pays 0.30% and Lender B pays 0.50%, does the broker have an incentive to recommend Lender B?

What the Rules Say

The FCA requires brokers to:

1. Recommend a suitable product: The product must be appropriate for your needs and circumstances
2. Disclose their fee structure: Brokers must tell you how they're paid, including whether they receive commission from the lender
3. Explain why they've recommended a product: The broker must justify their recommendation based on your circumstances, not their fee
4. Search a fair selection of the market: "Whole of market" brokers must consider the full range of available lenders

What Actually Happens

The reality is nuanced:

Most brokers are honest professionals who recommend the best product for their client. Their reputation and repeat business depend on giving good advice. A broker who consistently pushes high-commission products over cheaper alternatives won't last long in a market where clients can compare deals online.

But conflicts of interest exist. When two products are very similar and one pays a higher commission, the broker may lean towards the higher-paying option. This is human nature, not necessarily bad faith.

The system has safeguards:

• FCA supervision and regular audits
• Professional indemnity insurance requirements
• Complaints processes and the Financial Ombudsman
• Online comparison tools that let you verify recommendations

Red Flags to Watch For

Be wary if your broker:

• Won't explain why they recommended a specific product when you ask
• Dismisses cheaper options without a clear explanation
• Pushes you towards a specialist lender when you might qualify with a mainstream one (mainstream lenders typically pay lower proc fees)
• Won't tell you how they're paid or is evasive about commission
• Recommends products from a very narrow range of lenders

Broker Fee vs Proc Fee: How Brokers Get Paid

Most brokers use one of three payment models:

1. Proc Fee Only (No Broker Fee to You)

The broker earns solely from the lender's commission. You pay nothing directly.

• Advantage for you: No upfront cost
• Potential concern: The broker's income depends entirely on which lender they place you with
• Common with: Fee-free national brokers

2. Broker Fee + Proc Fee

The broker charges you a fee (typically £300-1,000) AND receives the lender's proc fee.

• Advantage for you: The broker has less incentive to choose based on commission, as they're already earning from your fee
• Potential concern: You're paying twice
• Common with: Specialist brokers, adverse credit brokers

3. Broker Fee Only (Proc Fee Refunded)

Rare, but some brokers charge a fee and pass the proc fee back to you or offset it against their fee.

• Advantage for you: Complete alignment of interests
• Potential concern: These brokers may charge higher fees to compensate
• Common with: Fee-only independent advisers

How to Protect Yourself

1. Ask Questions

Don't be afraid to ask your broker:

• "Why have you recommended this lender over others?"
• "What commission do you receive from this lender?"
• "Is there a cheaper option I should consider?"
• "Is this product available directly from the lender?"

2. Do Your Own Research

Before meeting your broker, spend 30 minutes on comparison sites (MoneySupermarket, Compare the Market, L&C) to understand what rates are available. This gives you a benchmark to assess your broker's recommendation against.

3. Check the Key Facts Illustration (KFI)

Your broker must provide a Key Facts Illustration for their recommended product. This shows the total cost of the mortgage including fees, rate, and monthly payments. Compare this against alternatives.

4. Read the Suitability Letter

After your broker recommends a product, they must provide a suitability letter explaining why this product is suitable for you. Read it. If the reasoning seems thin or doesn't match your circumstances, challenge it.

5. Get a Second Opinion

If you're unsure about your broker's recommendation, there's nothing stopping you from speaking to a second broker. Just be aware that each broker may run a credit search.

The Bigger Picture

Procuration fees are not inherently bad. They're how a distribution system works. Without proc fees, brokers would have to charge you higher fees directly, and many people who benefit from broker advice wouldn't seek it due to cost.

The system works well when:

• Brokers are transparent about how they're paid
• Regulation ensures recommendations are suitable
• Consumers ask questions and do basic research
• Competition keeps brokers honest

The system works badly when:

• Brokers prioritise commission over suitability
• Consumers don't understand how brokers are paid
• Brokers aren't transparent about their earnings

Real-World Proc Fee Scenarios

Scenario 1: The Ethical Dilemma That Wasn't

A broker has two suitable products for a client borrowing £200,000:

• Lender A: 4.3% rate, no arrangement fee, proc fee 0.35% (£700 to the broker)
• Lender B: 4.35% rate, no arrangement fee, proc fee 0.50% (£1,000 to the broker)

Over a 2-year fix, Lender A saves the client approximately £200 in interest. The broker earns £300 less. A good broker recommends Lender A and explains why. A less scrupulous broker might recommend Lender B, knowing the client won't notice the 0.05% rate difference.

How to protect yourself: Ask your broker to show you the top 3 options and explain why they recommend one over the others. If the recommendation isn't the cheapest, there should be a clear reason (better overpayment terms, lower ERCs, superior customer service).

Scenario 2: When the Higher Proc Fee IS the Right Choice

A client with adverse credit has two options:

• Mainstream lender: 4.5% rate, proc fee 0.30%, but strict criteria that make approval uncertain
• Specialist lender: 5.2% rate, proc fee 0.55%, but criteria that clearly fit the client's profile

The broker recommends the specialist lender. Yes, it pays a higher commission. But it's also the only realistic option — submitting to the mainstream lender would likely result in a decline, a wasted credit search, and weeks of delay. The higher proc fee reflects the specialist lender's business model, not broker greed.

Lesson: Higher proc fees from specialist lenders don't automatically indicate a conflict of interest. Sometimes the specialist IS the right answer.

Scenario 3: The Volume Broker

A large fee-free brokerage processes 500 mortgages per month. At an average proc fee of £800 per case, that's £400,000/month in proc fee income. They employ 40 advisers and have significant overheads. Each adviser handles 12-15 cases per month, earning the firm roughly £10,000-£12,000 per adviser in proc fees. After salary, office costs, technology, and compliance, the margins are modest.

This demonstrates why fee-free broking works at scale but is challenging for solo brokers with fewer cases — who may genuinely need to charge a client fee to sustain their business.

Common Misconceptions About Proc Fees

"Proc fees make mortgages more expensive"

No. The rate you're offered is the same whether you go through a broker or direct (and sometimes better through a broker due to exclusive products). The proc fee comes from the lender's distribution budget, not from your interest rate.

"Fee-free brokers must be cutting corners"

Large fee-free brokerages like London & Country are among the most respected in the industry. Their model works because of volume — they handle thousands of cases per month and earn sustainable income from proc fees alone.

"Paying a broker fee means I get better advice"

Not necessarily. The quality of advice depends on the broker's knowledge, experience, and integrity — not their fee model. Some of the best brokers are fee-free; some of the best are fee-charging.

"Brokers push products to maximise their commission"

While conflicts of interest exist in theory, the practical difference between proc fees is usually small (£200-£400 on a typical mortgage). Most brokers value their reputation and long-term business more than a few hundred pounds of extra commission on one case.

For more detail on how brokers earn their money, read our full guide on how mortgage brokers get paid.

This is educational content, not financial advice. Your situation is unique — speak to a qualified mortgage broker before making any decisions.