When our fixed-rate mortgage period was nearing its end, a combination of poor planning on our part and an apparent reluctance from our broker to respond to emails meant that we ended up paying the much more expensive variable rate on our old mortgage for two months before we could switch to a new fixed-rate deal. This left us wondering why we’d gone through a broker in the first place. So what are the key benefits of doing so?
The most obvious one is that a mortgage broker searches the market to find the best possible deal for your particular situation, saving you the effort. Another positive is that they should do the bulk of the arrangement work for you – although you will still have to fill in a lot of forms. In the ideal situation, the whole thing should be arranged more quickly than doing it yourself, as your mortgage broker should have a good idea of which products you should meet the requirements for.
Broadly, there are two types of mortgage broker. Tied brokers can only offer products from one lender, or from a limited list of lenders if they’re “multi-tied”. They may be able to get you a good deal because of that relationship, but you will be limited in terms of product choice. By contrast, “whole-of-market” mortgage brokers check a wide range of products to find the best one for you. Yet even these brokers may not be able to access every product out there, as there are some mortgages that are only available if you go direct to the lender.
Don’t pay more than 1%
When it comes to fees, mortgage brokers need to tell you at the start of the process how much you should expect to pay. It may be that they charge you nothing, and make their money instead from commission paid to them by the lender.
Almost all lenders pay brokers a “procuration fee” of roughly 0.35% of the money borrowed, says Money Saving Expert (MSE). However, brokers may also charge you a fee directly, on top of, or instead of, the commission (so they may ask you to pay, and then refund you any commission they earn). “No reputable broker should charge more than around 1% of the mortgage value,” says MSE. “If yours charges more, walk away.” Ideally, you don’t want to have to pay a lot before you’ve completed on the property, as you may not be able to get this money back if the purchase falls through.
Finally, remember that you can always just go straight to your bank or building society for your mortgage – they will still give you advice, and this will generally be free. Just keep in mind that they will obviously only tell you about their own products – they’re under no obligation to point out a better deal from the bank next door. So make sure you’ve looked at the rest of the market first to check you’re getting a good deal.
This route is probably best suited to people who are remortgaging, and so know exactly what they’re looking for, rather than those who are entirely new to the market. Note that if you go to the bank rather than using a mortgage broker, this will still count as taking advice on your mortgage. In the event that you have to make a complaint about the product you go with, this adds a layer of protection that you wouldn’t have if you’d chosen to go “execution-only” – this is when you refuse advice and make all decisions yourself.