Gone are the days when borrowers would simply take the mortgage offered by their bank. Consumers like to know they are getting a good deal and this means shopping around. This is simple when it comes to credit cards, but with thousands of mortgages to choose from, it makes sense to get some help. And this is where the mortgage intermediary comes in.
The latest figures from the Association of Mortgage Intermediaries (AMI) indicate that around 55-65 per cent of all mortgage business now comes through mortgage intermediaries – brokers, advisers and independent financial advisers (IFAs).
Rob Griffiths, associate director of AMI, explains the reasons for the increase in borrowers who take advice.
Increased competition and a greater number of products to choose from mean consumers are going to professional, qualified, regulated mortgage brokers to ensure they are getting the best deal for their needs and circumstances from someone who can source a wider range of products than they can access themselves.
Griffiths also believes that the regulation of the mortgage market has helped to improve the image of intermediaries. The fact that intermediaries now have to be authorised by the FSA has given consumers greater confidence in the advice and service they can get from brokers. Not only will intermediaries be able to help with the mortgage but they can also cover other needs, such as protection.
But it’s important to make sure you find a good adviser. A good starting place is to ask friends and family for recommendations. If you’re looking for an IFA, visit IFA Promotions’ website, or the What Mortgage website to find details of where to find an adviser. Phone or visit a few firms to get an idea of what’s available. You can ask for a quote from several firms to give you something to compare. Don’t use an intermediary if you’re not happy with the service provided or you feel you are being ‘pushed’ into agreeing to products you don’t want.
Here are ten vital questions you need to ask:
1) Are you regulated by the Financial Services Authority (FSA)?
Mortgage intermediaries must either be authorised by the FSA to give mortgage advice, or be appointed representatives (ARs) of an authorised firm. This means that if the recommendation you get is unsuitable, based on the information you provide, you can complain to the firm and expect compensation for any loss.
2) Which lenders’ products can you offer me?
Some intermediaries that describe themselves as independent will actually work from a panel of lenders that are representative of the market (see ‘Where to Get Advice’). Intermediaries that are independent will often describe themselves as ‘whole of market’. If a panel is being used, find out how many lenders are on it – the intermediary must tell you. If it’s less than ten, you need to find another intermediary.
3) What level of service do you provide?
Some intermediaries will simply give you advice, others will give you a mortgage recommendation based on the information you provide. Yet others will offer a more comprehensive service and will help you through the application process from start to finish.
4) How will you charge me for advice?
Intermediaries get paid in one of two ways. Either they will charge you a fee or they will be paid a procuration fee by the lender. The adviser must tell you which of these apply to him or her. Charges will be shown on the Key Fact Illustration. See ‘Paying for Advice’ for more details.
5) What interest rate will I pay on the mortgage and how much will my monthly payments be?
Once the intermediary has recommended a product, make sure you know what the interest rate will be and what rate you will have to pay once the special deal period has ended. The intermediary should also tell you how much your monthly repayments will be and, if you’re opting for a variable rate, how much they will be if interest rates rise.
6) How much is the total amount I will have to pay?
This will tell you how much you’ll have to pay over the total term of the mortgage, assuming current levels of interest rates. This figure will include the total fees you have to pay and is useful in helping you make comparisons with other mortgages.
7) Are there any early repayment charges on this mortgage?
Most lenders charge a redemption penalty if you redeem your mortgage within the special-deal period. Find out what the redemption penalties will be – and for how many years they will apply – and ask your intermediary to work out how much you would pay if you did need to redeem your mortgage. If you don’t want to be tied into a mortgage for many years, make sure the redemption penalty ends when your deal ends, even if it means paying a higher rate of interest.
8) Can I make overpayments or underpayments?
Many mortgages offer flexible features including daily-interest calculations and the option to make underpayments, overpayments and take payment holidays. A payment holiday can be useful if you think you might want to take a career break. Find out the terms and conditions for this. You also need to know if there are any restrictions on by how much you can overpay your mortgage.
9) How much will it cost me to take out this product?
Mortgages come with fees attached. First of all, you may have to pay the intermediary for advice. There may be a mortgage-booking fee to pay, an administration fee, or completion fee. Fees have been creeping up over the last year or so and you can expect to pay around £800 in total. Some of these fees can be added to the mortgage to keep initial costs down, but this will mean paying interest on the fee for the term of the mortgage. Also be aware of exit fees. If you switch your mortgage, you may have to pay an exit fee. It’s worth knowing what this is at the outset so it won’t come as a nasty shock when it’s time for you to remortgage.
10) What other services will you offer me?
Most lenders make it a condition of the mortgage that you take out home insurance. Usually you can choose insurance yourself, but sometimes your mortgage deal may specify that you take out mortgage from your lender. Make sure that you are getting a good deal before you agree to take out the mortgage and that you don’t end up with costly insurance for the sake of a cheaper rate on your mortgage. An intermediary will also try and sell life insurance and possibly income protection insurance and mortgage payment protection insurance (MPPI). Even if an intermediary is independent for the purposes of giving mortgage advice, he or she may be tied to a company when selling insurance products. Shop around before agreeing to take out insurance to make sure you get the best deal for you. IFAs have to recommend insurance products from the entire market.
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