Is it worth paying for a mortgage broker?
There are many reasons why a mortgage broker is worth every penny. One of the reasons is to save a lot of time and energy. Particularly considering a broker has the tools and expertise to do the job for you effectively. This can be compared to using a removals company when moving house. You could do it yourself, but you will spend significant effort and stress doing so. Also, you do not have the equipment to make the move like a professional company could. When finding a lender, there is so much more to it than just getting the best deal. Lenders vary so much with their criteria and requirements. Whether this is length of time in employment, how many years of address history you have, or the maximum Loan to Value they will offer.
Shopping around yourself for the best lender can involve a frustrating process. You may find one with a good deal and then read the small print only to find that some aspect of your specific situation doesn’t meet their lending criteria. In addition to this, applying to different lenders and receiving rejections can negatively affect your chances of securing a loan next time because each refusal will show on your credit record. A broker can greatly increase the chance of your application being successful.
Mortgage brokers have the experience and knowledge of the market. This means they can quickly filter out lenders that would not be relevant for your requirements. This allows them to do a far better job of finding the right lender and in far less time. And most likely delivering a far better deal!
Example of justifying the fee
Our standard fixed fee for mortgage advice is £495. Lets use an example to show how this could easily be repaid through finding even a slightly better deal (ignoring the other significant benefits and value added by using a broker):
- A mortgage of £200,000 on a 25 year term at an interest rate of 4%. The monthly repayments would be approximately £1,056.
- Assume you use a broker and they find you a very similar deal but at 3.9%. The monthly repayments would be £1,045.
If you sign up to a 5 year fixed mortgage at this rate, you would save £660 over the 5 years. This more than makes up for paying our fee.
On top of this, there is the added benefit of receiving expert support throughout what is a very daunting process. Either purchasing a property or remortgaging is never straightforward and there is lots of jargon along the way. Having someone you can call and get a quick, easy answer to any questions you have is invaluable.
Brokers also have access to far more lenders than the general public. There are many lenders that only deal with intermediaries and therefore brokers are even more likely to find you a better deal.
What does a mortgage broker do?
A mortgage broker will support you through the property purchase process from start to finish. The first step you should take is speak to your broker. They will help you get a better understanding of your budget based on your specific situation. Everyone’s situation is different. There are more people being self-employed now than ever so this is especially important when it comes to finding a lender that will be more favourable to your scenario. Your broker will find the lender that appears best and apply for a Decision in Principle. This document is an indication from a lender of how much they would let you borrow. The figure is based on some basic information. Having a DIP allows you to view properties and prove to the estate agents that you are able to proceed.
Once you have then found the property you wish to purchase, your broker will now have all the information needed to prepare your mortgage application. Part of this process is doing one final shop around to ensure you are getting the best deal. Then, a Suitability Report will be prepared. This documents the finer details of your mortgage that you should be aware of. It also justifies why this is the right mortgage for you. As part of this, recommendations will also be made for insurance such as life insurance or income protection. These will also be policies specific to your needs.
Submit your mortgage application
Should you accept the recommendations made in the report, you will sit down with your broker and complete the application. They will explain all aspects to you so that you are clear. The majority of the application will be completed by your broker. This will save you time and energy. After submitting your application, your broker will chase the lender regularly.
Once your mortgage offer comes through, this will be checked by your broker to ensure everything looks correct, and then run through any final points that should be highlighted to you. After accepting the offer, you can then proceed with the remainder of your property purchase, but the broker will still be there to support you should you need any additional help.
To read our detailed process including non-mortgage related steps – please see our mortage advice process page
What is the difference between a mortgage adviser and a mortgage broker?
Both of these terms are used fairly interchangeably. However, there is very little difference between a mortgage broker and a mortgage adviser. The job they do is very much the same, but there is one aspect to look out for. There are Independent Mortgage Advisors (or brokers), and then there are brokers that are tied to particular providers. The independent advisors are free to search the whole market with the aim of finding you the best deal. Other brokers are restricted or tied so they have less lenders to choose from and therefore have a worse chance of getting you the most value for money.
It is worth noting that we are fully independent. This means we have access to the entire market. We are also part of various mortgage clubs, which gives us special rates on some products. There is no financial incentive for us to use these rather than a product from the whole market, only the fact that we could find you a better deal.
How do mortgage brokers make money?
Most mortgage brokers charge a flat fee, very much like our fee of £495. Our fee is more competitive than the average adviser charge. Some other advisers will receive a fee based on a percentage of the loan. This varies from around 0.3% – 1%. For a mortgage of £200,000, this fee would vary from £600 to £2,000.
In addition to this, mortgage brokers receive a small percentage fee from the lender that you eventually choose. This is always detailed on the final paperwork you receive before submitting your application so you are aware. These range from 0.3% to 0.6% of the loan.
Should I speak to multiple mortgage brokers?
Like with anything, it is always beneficial to shop around. Try to see who you trust the most and who is offering the best service. Getting on with your broker is also important. When it comes to choosing brokers based on fees, you need to be careful. As previously mentioned, some brokers are tied to certain lenders so cannot access the entire market to find you the best deal. While these lenders may have cheaper fees, you could lose money in the long-run by paying more interest on your loan, or higher mortgage charges upfront.
One factor to be aware of when speaking to multiple brokers is that if many different brokers apply for a Decision in Principle for you, this could leave a mark on your credit report. Most DIP applications involve a light credit check. This means there is no evidence that it was conducted, however this is not always the case.