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Guide to the Benefits of Mortgage Broker Advice

When it comes to making life-altering decisions, many of us will seek advice from a trusted family member or friend before making a decision.

But unfortunately for a lot of us, our parents and friends from the pub may not have all the right answers when it comes to things like mortgage advice.  For that, it may be better to go to someone who knows what they’re talking about.

This guide will explain the benefits and some things you should consider before seeking advice from a mortgage broker. 

What does an Independent Mortgage Broker Do?

A mortgage broker’s job is to act as an intermediary between you and the mortgage lender. As well offering you professional advice, they will also carry out a considerable amount of legal leg-work, liaising with mortgage provider and solicitors, until you are secure and satisfied with your mortgage payment plan.

Mortgage brokers regulated by the Financial Conduct Authority (FCA) fall into three different categories;

• Tied Mortgage Brokers- These are ‘tied’ to one provider and will offer advice on their range of products only.
• Multi-Tied Mortgage Brokers-  Offer products from a small range of mortgage lenders.
• Whole of Market Mortgage Brokers- Examine the whole of the mortgage market. Under the terms of the FCA, to be classed as an ‘independent’ mortgage advisor, brokers should be able to arrange a mortgage with any UK provider. In order for these brokers to remain unbiased in their recommendations, you may be charged a fee for using their services.

Let’s Look at an Example

Tom and his twin brother Jack are looking to take out separate mortgages at around the same time. As they are twins, they have a lot in common, including similar credit reports. Tom, however, decides that he wants to use an independent mortgage broker, whereas Jack is happy to approach lenders directly. 

Both Tom and Jack sought a mortgage of £100,000 and both were successful in securing offers. Tom, with the help of a broker, secured a rate of 4.5% whereas Jack pays 6% interest on his mortgage. Tom had to pay a £500 fee for the broker’s services, but look at the difference in money he saved by getting professional advice;

Every year, Jack pays £1,030 a year more than Tom for his mortgage. At the end of a 20-year term, this will total £20,600- a huge difference in cost.

What Are Mortgage Broker Fees?

Mortgage brokers make their money in the following ways;

1. Charging Hourly or Flat-rate fees for their time and effort.
2. Gaining commission from lenders for recommending their loan products.
3. A combination of 1 and 2.

Please note; although tied and multi-tied mortgage brokers may recommend specific products, under FCA regulations, they must offer you genuinely independent advice to suit your needs. There are checks in place to ensure that they are not influenced by potential commission earnings.

What are the Benefits of Approaching Lenders Directly?

No Fees – Dealing with a lender directly will mean that you can save money on mortgage broker fees. However, some providers may still charge a fee for dealing with them directly.  

You get Exclusive Deals – In order to entice would-be customers, lenders will often advertise mortgage deals with an incentive period. These may not be available to independent mortgage brokers.

Existing Customer Benefit – If you have an existing product with a bank or building society, some lenders may offer you a discount period, to secure your loyalty.

What are the Disadvantages of Approaching Lenders Directly?

Less Choice – You will have a limited choice of mortgage products; therefore, you may miss-out on securing the best deal for your needs.

Bias – If you approach a lender directly, be aware that they’re trying to get new customers. They may not have the very best advice for your circumstances. It is possible an independent broker could be more helpful.

What are the Benefits of Using Independent Mortgage Brokers?

Access To Technology – Mortgage Brokers use programs exclusively designed to compare thousands of mortgage products. You can find similar technologies on price comparison sites, but the databases independents can access will be far larger and will cover your personal circumstances.   

Experience – Mortgage brokers have the experience and connections to seek out the very latest mortgage deals on the market. With their wealth of experience, they will also be able to see past introductory ‘gimmicks’ and discern whether a deal is really right for you.

Exclusive Deals – As with approaching lenders directly, going through a broker can also give you access to exclusive deals. This is particularly useful if you are seeking a specialised mortgage product (such as a self-employed mortgage). These kinds of deals will not be as widely advertised, as their targeted customer base will be smaller.

You Save Time and Hassle – When approaching lenders yourself, you may need to conduct a lot of research beforehand. Further, you will need to fill out multiple applications to compare offers. A broker will ask you for your details once, and once they know your circumstances, they can make your applications on your behalf.

Personalised Advice – As well as taking finding personalised deals for your needs, an independent broker can effectively translate all the financial jargon into plain English, so you can ask questions and understand fully what mortgages are suitable and why.

Protect Your Credit Rating- As discussed in our Guide To Applying For Your First Mortgage, making too many applications for mortgages can negatively affect your credit rating. Going through a broker can protect you from inadvertently harming your credit file.

Extra Financial Protection – Going through a qualified financial expert offers your more protection than securing a mortgage single-handedly. Because you went through an expert, you have legal recourse if the advice turns out to be detrimental to your finances. Anyone who has received bad advice from a broker can complain to the Financial Ombudsman Service (FOS), and from there action can be taken.

What are the Disadvantages of Mortgage Brokers?

Missing Out on Exclusive Deals – You may miss out on exclusive deals where lenders offer discounts to customers who approach them directly.

Fees – You can use a fee-free broker; however, some will charge you for their time. Alternatively, you can research mortgage deals yourself, whilst still using the services of a broker.

Tips on Finding the Best Mortgage Broker

Approved – All UK mortgage brokers must be regulated by either the FCA, or be a registered agent working for another regulated firm.

Qualifications – FCA approved brokers will have either a CeMAP (ifs School of Finance Certificate in Mortgage Advice Practice) or Cert MA (Chartered Insurance Institute Certificate in Mortgage Advice) qualification.

Phone or Face-to-Face – Your first contact with a mortgage broker may be by phone, but you should also find out if they offer in-person appointments, if this is something you prefer. A broker should also tell you their customer care policy, should you need to contact them with questions and queries. To aid you in your first conversation with a mortgage broker, you should consider checking your credit rating online. Here is a guide to Improving your Credit Rating, if you need any tips on how to do this.

Professional Indemnity Insurance – Find out if your broker is covered by this insurance, as it will protect you if, in the unlikely event, they offer you ‘bad’ advice.

Other Products – Your broker may be able to recommend other products, such as life insurance. But bear in mind that they may also be tied to one insurer and therefore you may need to compare these products online for yourself.

Start your conversation and get in touch with an independent mortgage advisor now.