SAVING YOU TIME, EFFORT, AND MONEY
Whether you’re upscaling or downsizing your property, remortgaging your home, or starting your homeownership journey, working with a mortgage broker can save you time, effort, and money. But what is a mortgage broker, exactly? What services do mortgage brokers provide, and are they worth the investment?
What does a mortgage broker do?
Mortgage brokers—or ‘mortgage advisers’ as they’re sometimes called—act as intermediaries between you, the borrower, and mortgage lenders. (Mortgage lenders are usually banks, but can also be building societies and other financial institutions.) Mortgage brokers are able to assess your financial situation, guide you on the kind of mortgage you need, and find the best rates and terms based on what you can afford.
Mortgage brokers are even more important if you need a specialist mortgage, such as an international or self-build mortgage. Or if you’re buying farms or estates, or negotiating short-term finance. In these complex situations, having an expert on your side can ensure the transaction goes through without a hitch.
(For example, one of SPF’s specialist advisers concluded a deal under an extremely tight completion deadline in order to redeem an expensive development finance loan. Read more: £1.3M semi-commercial term loan.)
Mortgage brokers are usually divided into two categories:
- Tied or multi-tied brokers: These brokers only work with one lender, or a small number of lenders. They usually hold firm relationships with these lenders, which means that they’re sometimes able to offer preferential deals and incentives to borrowers. But it’s important to remember that these deals are likely to be limited, and might not include the best offers available.
- Whole-of-market brokers: These brokers, like SPF, are independent and impartial. They work with a wide number of lenders and have insight into a large number of exclusive deals and offers. Since they’re able to offer borrowers a broader variety of options, they’re likely to find the lowest interest rates available. And their experience with different lenders means they’re often also able to negotiate better terms.
What’s the difference between a lender and a mortgage broker?
While a mortgage broker is the person or firm that helps you to secure the best mortgage, the lender is the bank or financial institution that offers you the loan for the property. Lenders set the terms, interest rate, and repayment schedule for your mortgage. One mortgage lender’s offering might be different from another’s.
While it can be tempting to think that your current bank will offer you the best deal, this isn’t always the case—even if you’re a long-term customer. Your bank will still be limited by their own range of mortgages, and there might be others better suited to your needs.
It’s a mortgage broker’s responsibility to take your financial situation into account as they search for the mortgage lender who will offer you the lowest interest rate and the most favourable repayment terms. If your financial situation is unusual or complicated—for example, if you’re self-employed, a day-rate contractor, or an older borrower—a mortgage broker will know which lenders are more likely to be amenable to your circumstances.
Looking for more insight? Read our Guide to Mortgages.
Do you have to use a mortgage broker?
No, you don’t have to use a mortgage broker.
It isn’t mandatory to work with a mortgage broker, either when you remortgage your property or you buy a new property. You can go to lenders directly.
So why use a mortgage broker, then?
A mortgage broker is useful because securing the right mortgage can be complicated, time consuming, and stressful. Unless you have in-depth knowledge of the mortgage market and your personal finances, you may make the wrong decision and end up paying more. There are some cons to using a mortgage broker (we’ll outline them in a minute), but they’re vastly outweighed by the pros.
For instance, a complicated transaction completed by one of our brokers involved a day one remortgage for a client with no income, who was based overseas and moving back to the UK. This sort of deal is extremely difficult to manage without niche knowledge. Read more: £2.28M residential mortgage.
It’s also important to remember that you don’t have to go with the mortgage broker your estate agent recommends. In fact, it’s always worth looking for alternatives. If your agent is working with a particular broker, it’s likely that they’re getting paid a referral fee in return. This means you might not get the best deal.
Don’t be intimidated into using any associated services your estate agent offers. While it’s legal for them to suggest a mortgage broker to you, it’s illegal for them to insist you use that broker.
The advantages of using
a mortgage broker
1. They could save you money
2. They have the required expertise
3. It’s convenient
The disadvantages of using
a mortgage broker
1. There are costs involved
2. Some brokers offer a limited number of deals
3. Quality varies
What do mortgage brokers charge?
How much you’re charged will depend on the mortgage broker you work with. You could encounter one of the following scenarios:
- A fixed fee: Some brokers will charge a fixed fee to negotiate a mortgage for you. This is usually in the region of £300 to £500, but could be more or less depending on the cost of the house and the complexity of the sale.
- A percentage: Here, the broker’s fee will be set as a percentage of your total mortgage, usually between 0.3 and 1%. For example, if your mortgage broker sets it at 0.5% on a £1 million home, the fee will amount to £5,000.
- Commission: Mortgage brokers may earn commission from certain lenders. This can be problematic if they’re working as tied brokers, since they’re likely to push the offers from the mortgage lenders that are paying them. Whole-of-market brokers, on the other hand, are given the freedom to obtain the best deal from a wide variety of lenders, even if they’re still earning a commission.
- Combination: Brokers may earn their income by charging a fee—either a fixed amount or a percentage—and by earning commission at the same time.
- An hourly rate: This is less common. Brokers who charge by the hour will provide you with a written estimate of how long they think it will take to oversee your mortgage process.
How do you choose the right mortgage broker?
Finding the right mortgage broker can be daunting, but there are some criteria to look out for that will help you refine your search.
- Expertise: As you speak to different brokers, ask them about the services they provide. Do they offer bespoke solutions, for example? Can they adjust their approach to your specific needs? You might also want to check whether they have an excellent rating on online review platforms.
- Experience: How many years have they been operating? Do they have a proven track record of success?
- Independence and impartiality: Are they both independent and impartial? And do they have access to a variety of mortgage lenders, rather than just a small sample?
- Qualifications: Are they sufficiently qualified? Do they hold a Certificate in Mortgage Advice and Practice (CeMAP), or an equivalent qualification? Are they listed on the Financial Services Register?
- Fee structure: How does their fee structure work? Do they charge a fixed fee, a percentage, or earn commission? Or do they charge a combination of these options?
SPF has been providing whole-of-market mortgage brokerage services since 1997. In this time, we have tailored our advice to our client’s unique borrowing requirements, helping them to turn their property dreams into reality. Our bespoke services, strong industry relationships, specialist knowledge, and ethos of transparency on trust guide us in everything we do.
Is it worth going through a mortgage broker?
Whether to hire a mortgage broker is a personal decision, and will likely depend on your understanding of and confidence in navigating the mortgage market. However, even if you’re familiar with this space, having an expert on hand to guide and support you can be the very thing that helps you secure a strong and successful deal.
Perhaps the question should rather be: is it worth not going through a mortgage broker?
To find out more about how SPF can help you remortgage your home or buy a new one, contact us today.