How and when to use a mortgage broker
Over the past couple of months applying for a mortgage has got a whole lot more complicated. Thanks to change within the industry you will now find yourself faced with a lot more forms when you apply, which can require details about everything from your family planning to how much you spend at the pub.
On top of that, the number of mortgages on the market is mushrooming, leaving you with almost an overwhelming level of choice. Employ a mortgage broker and they will promise to guide you through the application process and find the best mortgage for your individual circumstances. But should you use one?
"When it comes to the value of a good mortgage broker you won't find me sitting on the fence," says property expert Henry Pryor. "Since the introduction of the Mortgage Market Review, only the most financially savvy would be able to plot a path through the mortgage maze with any confidence.
"As if buying a home wasn't intimidating enough, the process is now much more laborious and I've yet to find an online mortgage calculator I would trust to come up with the best deal for an individual's circumstances. They are a helpful guide but this is serious finance – it's called ‘mortgage' from the French word for death."
With a mortgage broker, you get their expert opinion on which is the best mortgage for you in terms of the interest rate and the likelihood of your application being accepted. This is particularly useful for anyone looking to buy a house, as applying to the wrong lender for your circumstances and being rejected could cost you your dream home thanks to the delays of starting another mortgage application.
"Good brokers will be aware of which lenders have bear traps and what they are, thus in most cases avoid wasting time by applying to a lender whose criteria on the face of it the applicant appear to meet, but because of the small print somewhere the application would get rejected," explains Ray Boulger, senior technical manager at mortgage broker John Charcol.
Out of the ordinary
Mortgage brokers really come into their own when your situation is unusual. This could be because you personally are a bit of a turn-off for lenders, either because of your income type or your age. "Self- employed or contract workers might need guidance about the best lenders depending on the proof of income that they have," says David Hollingworth, spokesperson for London & Country Mortgages. "Interest-only and lending into retirement are other areas that are much harder to navigate and a broker will be able to advise on what is and isn't possible."
Alternatively, you might be the ideal mortgage candidate but your home may not be. There are many types of property that banks aren't keen to lend on. This can range from flats over commercial premises and high-rise flats to houseboats and conversions. In these cases, a mortgage broker can assess your situation and will advise which lenders to approach.
If your mortgage application does hit a snag, then a broker can also help by using their personal contacts with lenders to find out what has gone wrong and see if it can be resolved quickly. "That could save lots of time compared with getting a knock-back from one lender, providing all the information to another only to receive the same treatment," says Hollingworth.
The value of mortgage brokers is recognised by lenders, too. Many offer exclusive products via intermediaries and the vast majority are more than happy to handle your application via a broker. "Intermediaries, with their specialist knowledge
of the mortgage market, are key to the success of Santander... We therefore have targeted products, such as Help to Buy: Mortgage Guarantee and buy to let, that are available exclusively via intermediaries," says a spokesperson for Santander.
The Post Office has recently changed its stance on mortgage brokers and now allows applications via a broker. "It is important that our products are accessible to everyone be it in branch, over the phone, online or through brokers," says John Wilcock, head of mortgages. "Customers like choice and by offering our mortgages [via brokers] we are doing just that."
The downside to using a mortgage broker is the cost. Some will charge you hundreds of pounds for their services. You can also get a false sense of security with a broker and just assume that by talking to them you will inevitably get the best possible deal. But some brokers don't cover the whole market; some banks – notably HSBC – don't work with brokers at all; and some brokers may be incentivised to use " certain lenders.
The reason your broker may favour some lenders over others is down to the way they get paid. Mortgage brokers get paid a commission by many lenders if their customer takes out a deal with them. This can lead to fears they may suggest a mortgage because it will earn them more money but this is highly unlikely.
"Most brokers are ethical, and in any case are required by the Financial Conduct Authority to recommend the most appropriate mortgage and so to be swayed by commission would run the risk of regulatory action," says Boulger. "In any case, the differences in commission payments are pretty small. The risk a broker would take is out of proportion to the benefit."
The upside for you is that because of this commission some brokers don't charge the customer a fee – they make their money from the lender instead. Other brokers will charge you a set fee, typically around £500, and also take commission. Others will charge a fee and rebate the commission to you. Finally, some will try to charge you a percentage of your final mortgage amount. If you only need a small mortgage, this can work out well but in general is best avoided.
Whatever the cost, bear in mind a good broker will save you a lot more money than you pay them. If they help you find a mortgage deal that is only 0.5% cheaper than the 3% deal you found yourself, you'll save £7,678 over the course of a 25-year mortgage of £100,000.
As Katie Myers, branch manager at estate agent Keppie Massie, says: "If a broker can save you money over the term of the mortgage, it is worth paying a little extra upfront."
Before you agree to use a broker, make sure you understand their charging structure and are happy with what you will pay.
When a broker may not be appropriate
If you are simply remortgaging and are prepared to hunt down the best mortgage yourself, you may not need a broker. Equally, if you are a first-time buyer and your application should be straightforward, you may not need a broker. Just watch out for estate agents trying to get you to use their mortgage panel.
"Some estate agents are very pushy (to put it mildly) in trying to persuade a purchaser to see their in-house broker, with one of the more common tactics being to say that the property will be taken off the market if an appointment is made with the broker," says Boulger.
"It contravenes the Estate Agents Act to do this as all buyers should be treated equally, so if it happens report it to the Property Ombudsman."
The best way to choose a broker is through personal recommendation. Otherwise you can find a broker in your area at unbiased.co.uk.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
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