The UKs mortgage market is one of the most competitive and ever-changing in the world. At any one time there are around 8,500 mortgage products available and these change daily. So it is no wonder that about half of all borrowers turn to a mortgage broker to get expert advice on the right mortgage for them.
But finding the right broker or intermediary can be as tricky as finding the right home loan. Some advisers will scour the whole of the mortgage market to find the right product for you, while others will only check out a limited number of lenders. Equally some will charge you directly for their services while others rely solely on commission generated by selling products.
If you walk into a high street bank or building society most will boast that they have in-house mortgage advisors. However these are likely to be tied advisors who can only advise on products sold by that financial institution. With so many mortgages available its unlikely this will include the very best product for you.
Other brokers may work from a panel, which can be made up of anything from three to 30 lenders. Most advisers based in estate agents firms work in this way.
Your best bet is to go to an independent or whole of market broker who will look at all the available mortgage products on the market. This way you can be sure that you will end up with the best possible product for your individual circumstances.
Doing the legwork
If you are not an expert, comparing mortgage products can be a minefield. It is not just interest rates you need to compare but arrangement fees, valuations and early redemption penalties too.
Using a broker means that they will do all the legwork for you – finding not just the most suitable type of deal, but also the best combination of interest rate and fees, says James Cotton on London & Country Mortgages, There is a lot of research and maths to be done to make sure you’re getting the best deal and a broker is much better placed to do it all on your behalf.
A mortgage broker will do a fact-finder with a customer before recommending products. During this process they will find out your financial situation, your employment circumstances (if you are self-employed, for example, this will affect the mortgages available to you) and what you want from a mortgage. Some people will want the security of knowing what their payments will be over a certain period of time while others might want the ability to overpay on their loan without penalty. They will then only submit applications for products for which the applicant is likely to be successful.
Trawling the high street for a mortgage deal can be time consuming and confusing, says Cath Hearnden of broker My Mortgage Direct, And if you trawl the internet and apply or mortgages you can end up with a number of credit searches because the consumer lacks knowledge of who can do what.
If your requirements are not for a mainstream mortgage and you need a self-certification, sub-prime or buy-to-let loan then a mortgage broker will be able to recommend lenders and products that deal with people in your circumstances.
Personal contact
When you approach a mortgage broking firm they will normally allocate a named broker to deal with your case.
At My Mortgage Direct we keep the same adviser for a client and the whole transaction is progressed from beginning to end i.e. from first contact to when they have moved in, says Ms Hearnden, Unlike a lender, we liaise with solicitor and agent and we stay with the client after the offer is produced until after completion.
The added advantage of the broker is that they will help you fill in your mortgage application, which is particularly helpful if you are a first-time buyer with no experience of doing this before. Some brokers will also instruct the valuation rather than relying on the lender to do this which saves time.
A broker will also chase the application to ensure the lender, solicitor and estate agent(s) are all doing what they should be doing: this can significantly speed up the process, which is important if you need to move quickly, says Melanie Bien of Savills Private Finance.
Exclusives
Brokers often have access to exclusive deals they have negotiated with lenders that are not available to the general public.
Major brokers including John Charcol, London & Country, Purely Mortgages and Savills Private Finance all offering exclusive mortgage rates not available elsewhere.
An exclusive is simply a best-buy mortgage deal that a bank or building society has decided to offer solely through a select band of brokers rather than through its branches or other sales channels. If your broker recommends an exclusive deal from the Halifax, for example, you won’t be able to get the same terms by going direct to the bank.
Most exclusives focus on low rates, but some emphasise low or no fees compared with similar deals in the High Street. Some give a combination of both.
Exclusive deals are sometimes very limited offers so they may be available for only a matter of days so your broker will know if you need to move quickly to get the best deal.
Fees
Some brokers charge the client a fee while others earn money instead solely from commission, or ‘procuration’, from the lender whose product they recommend and the customer buys.
Many fee-charging brokers also receive commission, though this is often rebated to the customer to reduce the fee.
In both cases, the sum involved is usually 0.3 to 0.4 per cent of the mortgage size, so a broker gets £300 to £400 commission on a £100,000 mortgage.
For specialist deals such as self-certification, buy-to-let or mortgages for people with poor credit records, the commission is usually between 0.5 and 2 per cent as more work is involved.
Fee-free brokers may sound appealing but they have their critics. Varying commission rates from lenders lead some to question whether the customer is recommended the best product for their needs, or one paying the best broker commission. So whether you opt for as fee-free broker or not depends on how much you trust their impartiality.
London & Country mortgages are fee-free while Savills Private Finance charges about 0.4 per cent of the loan amount.
Some companies give you a choice of fee structures. John Charcol offers either a flat £199 fee for telephone advice or you can apply for a loan via its website and there’s no fee to pay
Other things to consider
Whichever route you choose to go down to get mortgage advice, you should make sure your adviser is properly qualified and the firm is regulated by the Financial Services Authority. Since October 2004 all mortgage advisers have to be regulated and give customers certain documentation about their business and the products discussed.
These include the Key Facts Illustration (KFI) which will include the monthly cost, interest rate, annual percentage rate (APR), booking or set-up fees, survey costs, commission paid to the broker, maximum redemption penalties and any additional features of the product. It enables products to be compared easily to one another.
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