How do mortgage brokers work and do I need one?
- By: Ashley Saunders
- June 2019
There are hundreds of lenders waiting to finance your next home. Most of which you’ll never know about as they’re only available through a mortgage broker. This might cause you to wonder: How do mortgage brokers work and do I need one?
In the past, your bank or building society was the only place to obtain a mortgage. Thankfully, that’s not the case any more and the market full of options.
Today’s mortgage market provides many options including private lenders, sovereign wealth funds and international banks. Most of these are only available using a broker.
So, how do mortgage brokers work and do I need one?
What is a mortgage broker?
A mortgage broker or advisor is a company who work independently of any lenders to provide their client with the most suitable mortgage for their situation. Anyone can use a mortgage broker, but they are particularly helpful for:
- First-time buyers who need more support
- Self-employed/freelancers who have irregular earnings
- Raising a mortgage on a second property using the equity on the first
- Bridging loans
We’ve seen mortgage brokers who have a single employee and others who have hundreds. Some specialise solely in investment or commercial properties. However, most are able to advise on residential purchases.
Because mortgage brokers give financial advice by recommending a product, they are required to hold certain qualifications. These ensure they deliver the best possible advice and care to their clients
How do mortgage brokers work?
When you meet with a mortgage broker, they’ll assess your current finances and deposit. With this information, they’ll advise you on your options and potential budget.
At your first meeting, they will provide you with a document called a European Standard Information Sheet (ESIS). This supplies you with more details over the previous yet similar Key Facts Illustration (KFI).
This pack is a legal requirement and outlines their services, the cost and how they will be paid. Always check it and ensure you’re happy with the contents before signing it.
Should you have already agreed to purchase a property, then they will help you get all the information together and apply on your behalf for a mortgage.
If you haven’t started looking then they will help you to apply for a mortgage in principle. This means you’re pre-qualified and now know your maximum budget.
In either case, once they have submitted a loan application, they’ll keep on top of the lender to ensure that it’s processed quickly.
Many property purchases fall through due to financing taking too long to arrange. A good mortgage adviser will keep pushing until your successful.
Are they all equal?
No, each broker varies and so it’s worth asking before you engage one. Some have access to the ‘whole of market’. Others are tied to a particular lender or group of lenders (usually called a panel).
It’s likely that your best option is a ‘whole of market’ broker as they will have access to a wide range of lenders and products as well as exclusive deals.
Being tied to one or two lenders is no more different than visiting a mortgage adviser at your bank. So it’s worth in this situation asking how they add value over your bank.
A broker with access to a panel may be fantastic for certain types of people but unhelpful for others.
Again the more questions you can ask, the better you’ll be. Don’t be afraid to talk to a few different brokers before you settle on one.
How do mortgage brokers get paid?
Unlike a bank who will roll their fees into the cost of the loan, most mortgage brokers charge a fee. They will also get paid commission on your loan.
For example, Larger players like London and Country don’t charge you a fee, but still, take a commission from the lender.
Typically smaller companies charge anything from a couple of hundred pounds to over a thousand. Fees can depend on the type mortgage or level of advice.
It’s also not uncommon for a firm to offer “no mortgage, no fee”, where if they can’t help you, you pay nothing.
With fees of any kind, there no reason why you can’t negotiate them or failing that ask the company to justify them over their competitor’s fees.
Do I need to use a mortgage broker?
You can, of course, apply directly with a bank or speak to their mortgage advisor. This is your best option if your convinced that the bank offers the best offer for you and your situation. They might even be able to offer you an exclusive deal or rate.
What makes mortgage brokers invaluable in our opinion is their ability to act quickly and independently. They often have strong relationships with a range of lenders and know the hoops to jump through for each one.
Also, as we typically moves every 8 years, applying for financing is something the average person rarely does. The figures speak for themselves. Over 60% of all mortgages are arranged using a mortgage broker.
If you do decide to go alone or “execution-only”, then you have no recourse. While you can sue a broker or bank for giving you the wrong advice, you can’t take yourself to court. Also, you have no one to blame if your application gets rejected because it was filled out incorrectly.
How do I choose the right mortgage broker?
Friends and family
Start by asking friends and family for recommendations. They might know of a good local broker or have used one that was excellent in the last few years.
There’s no harm in talking with your bank. They might not have the best option for your situation but can provide you with a benchmark to improve on.
Ask your estate agent and conveyancing lawyers. Property professionals can be a great source to find good local mortgage brokers. However, be wary of estate agents who insist you use their broker. Also, watch out for cross-selling, you can usually buy such things as insurance cheaper through a comparison website.
Next, hit the internet! You don’t need to use a local broker, in fact, you’re free to use any operating in the UK. Websites such as Unbiased enable you to research and find your ideal mortgage broker.
There are a number of national no-free mortgage brokers such as London and Country, Habito, Trussle and others. None have a high street presence and could work out cheaper.
Compare your options
You should check that any potential broker is fully qualified and FCA authorised. It’s worth talking to a few firms and discussing your options before you agree to work with one.
This way you can compare different firms and make a final decision based on who you feel will provide the best advice for your situation.
Understanding how to work with a mortgage broker
Buying a house isn’t something you do every day and likely the most expensive purchase you’ll make. So, it’s worth taking your time when considering mortgage brokers.
Plus as you have a better understand of how do mortgage brokers work, you can feel empowered to make a better decision when deciding on a mortgage.
Take the time to do your own research and talk with a number of options. Once you feel well informed, then you can act quickly, safe in the knowledge you’re making the right choice.