The UKs mortgage market is one of the most competitive and complex in the world. With hundreds of lenders offering literally thousands of deals, it can be difficult for borrowers to make an informed decision about the right product for their circumstances. So to help people make the right choice there are a number of ways to get advice about your mortgage.
But while some advisers will scour the whole of the mortgage market to find the right product for you, 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. Choosing the right mortgage adviser can be almost as important as selecting the right loan.
Bank or building society adviser
Mortgage lenders such as banks, building societies and specialist lenders sell mortgages directly to borrowers. If you go to them for advice they can recommend and sell a mortgage from their own range only. So, for example, if you pop into your local branch of NatWest and ask for mortgage advice, the adviser will only be able to discuss NatWests products with you.
James Cotton of broker London & Country warns: When getting a mortgage directly from a bank or building society branch, you will not be getting advice, but rather information on a selection of their products. You will then need to make your own choice about how to proceed.
So only go down this route if you are confident about making your own mortgage choice; if not, get help from an intermediary such as a mortgage broker or independent financial adviser.
Mortgage brokers
Around half of all mortgages in the UK are arranged by a broker or adviser. Most charge a fee in the form of a flat rate or commission on the deal; in return they offer expertise, do the shopping around and legwork for you, and act as a point of contact throughout the process.
The key difference between advisers is their status. Truly independent or whole of market firms can, in theory, advise on all products in the market. But many brokers now work from a panel, which can be made up from anything between three and thirty lenders. Most advisers based in estate agents firms work in this way. Both types of adviser work in broadly similar ways. By assessing your circumstances they can recommend and arrange a mortgage for you, which in theory should be the best deal for your individual circumstances. Usually they will also recommend a number of protection products to run alongside the mortgage.
As well as offering expert advice, there are other advantages in going to a broker. Stuart Cocks of whole-of-market broker Purely Mortgages explains: Having a wide selection of products is not the only benefit for choosing a whole of market broker. Its likely they will have a good relationship with the lenders they use; this can go a long way when unforeseen situations arise during the mortgage process. For example, if the borrowers home is undervalued or the lender is initially unwilling to lend the full amount required, then this can be dealt with more efficiently and quickly by the mortgage adviser rather than the borrower.
Also, brokers often have access to exclusive products not available directly from lenders. These can often be more competitive than deals available elsewhere and can only be bought through brokers.
Fees
Some brokers charge customers a fee while others such as London & Country are fee-free. They earn their money through a commission payment or procuration fee from the lender whose product they recommend and the customer buys. This is normally 0.3 to 0.4 per cent of mortgage amount, so the broker earns £300 to £400 on a £100k mortgage. For specialist products such as self-cert, adverse credit or buy-to-let loans the commission is normally higher, between 0.5 and 2 per cent, as more work is involved. Fee-free brokers earn their money by receiving this payment alone.
Other brokers charge a fee to the customer. Some charge a flat fee, such as Purely Mortgages, which charges £195. Others, such as Savills Private Finance and Hamptons International Mortgages charge a percentage of the mortgage amount, usually between 0.3 and 1.5 per cent. Your adviser should tell you at the outset how he or she will be paid.
If you have had past credit problems such as a CCJ and need a sub-prime mortgage, beware of ‘cowboys’ who charge a big fee such as 3 to 5 per cent of the loan amount – cheaper advice can be found by going to a reputable broker.
Paperwork
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.
One of the first pieces of information borrowers will receive from their adviser will be an Initial Disclosure Document (IDD). This sets out the advisers regulatory status and will declare their terms of business, says Stuart Cocks. The proposed mortgage details will be displayed in a Key Facts Illustration (KFI). This uniform document gives the borrower all the major points about their prospective mortgage in a logical format that’s understandable to all borrowers.
The KFI 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.
