Landlords may have to pay more for taking out a buy to let mortgage as lenders and brokers row over paying commissions.

Most lenders pay mortgage brokers ‘proc fees’ – short for procuration fees – which are generally cash payments for introducing borrowers.

If a lender does not pay a proc fee, some lenders feel brokers will introduce borrowers to another lender who does pay commission, even if the loan is less suitable for their needs.

Mortgage procuration fee payments vary between lenders and brokers, but average around £300.

Brokers may have to charge fees for their advice if lenders scrap proc fees – and the fear is borrowers will then go direct to lenders.

Some buy to let lenders offer special deals to encourage landlords to arrange their loans via approved brokers.

The argument came to a head at the recent Council of Mortgage Lenders (CML) annual conference.

CML chairman Martin Van der Heijden, who is also head of lending at HSBC, slammed proc fees as hidden charges for borrowers, even though they are declared on mortgage illustrations.

“We have to make distribution work for the customer – the quality of advised (sales) is sometimes inconsistent,” said Van der Heijden.

“Hidden procuration fees, the differentials that exist, staff incentives and direct channels can distort choice. Sometimes the product sale fails a key test that I think we should always hold ourselves against – the product that was chosen should be the right one for the customer. That should be true all the time.”

Brokers fear charging a direct fee will mean losing customers – a recent poll by accountancy concultants Deloitte revealed that more than half of consumers will not bother to deal with IFAs if they have to pay a fee for their services and instead, will go directly to providers.

The survey was looking at the effects of scrapping commissions in favour of charging fees on savings, investments and protection for IFAs.

Intermediary Mortgage Lenders Association (IMLA) executive director Peter Williams spoke out against banning proc fees.

“Mortgage advisers have to pass professional qualifications, and there can be few industries that are as transparent when it comes to disclosure of fee income,” he said.

“All mortgage offers come with illustrations which clearly state how and how much intermediaries are remunerated – usually no more than 0.5% and often less. In addition, differentials are not paid by product thus avoiding any specific bias, and there are no volume overrides.”