Do You Need a Mortgage Broker?
The services of a mortgage broker, or mortgage adviser, can be highly beneficial to those looking to secure a mortgage. Although it is not essential to use a broker, their advice and knowledge can be invaluable during the mortgage application process.
Mortgage brokers are often able to access better or exclusive deals and will be able to assist you in making a strong mortgage application. They will also be able to find a lender and mortgage product that is right for you. Note that this service comes with a fee and you should be aware of the role of a mortgage broker before proceeding.
Compare My Move work with property and financial experts to bring you everything you need to know when it comes to using a mortgage broker. From what they can offer to how they can help you with your mortgage application.
What is a Mortgage Broker?
Mortgage brokers are licensed and regulated financial professionals who work as an intermediary between individuals and mortgage lenders. Using a mortgage broker can potentially result in getting a better mortgage deal than if you'd gone directly to a lender yourself.
They are regulated by the Financial Conduct Authority (FCA) and need to hold specific qualifications to legally work in the profession. A mortgage broker will assess your financial situation then recommend a suitable mortgage to suit you and your circumstances.
They will do this by using software which can search through mortgage deals much more quickly than you’d be able to yourself. But it’s not just about technology – a broker will know which lenders are likely to accept your application and which lenders will look most favourably on the type of property you’re buying.
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When Do I Need to Use a Mortgage Broker?
A mortgage broker is an ideal option for potential homebuyers who need or want assistance in choosing a mortgage lender and finding the best mortgage deal on the market. Their advice will also be invaluable to those who have already had their mortgage application rejected. These services could be more beneficial than ever as Britain enters the first recession in 11 years.
The impact of COVID-19 on the housing market resulted in many lenders changing their mortgage products. Initially, lenders were more reluctant than ever to offer 95% mortgages, with some requesting a minimum 15% deposit. This put many potential homebuyers, especially first-time buyers, in a position where the number of mortgage products available to them was far smaller.
However, it was announced in the Budget on March 3rd, 2021 that the government will be offering a guarantee for lenders to encourage them to offer 95% mortgages.
With many of the UK’s workforce on furlough and those with businesses impacted by COVID-19, a mortgage broker will be able to find a mortgage to suit your circumstances in these unprecedented times.
If you are concerned about your mortgage application, be aware that by not using a mortgage broker, you might find yourself in a situation where you are applying for a mortgage you’re unlikely to get. This can not only cause delays but could impact future applications. If you are rejected for a mortgage, it will have a negative effect on your credit report.
Who Can Use a Mortgage Broker?
Anyone looking to buy a property can use a mortgage broker, whether you’re a first-time buyer or buying your forever home. However, some people may benefit from the service more than others. Those with unique or potentially tricky circumstances may wish to enlist the help of a mortgage broker to ensure not only that they get the best deal, but that their application is successful.
For example, mortgage brokers can advise you if you are looking to get a mortgage whilst working a zero-hour contract or if you are trying to buy a house with bad credit. They will be able to advise you on what you can do to strengthen your application and recommend lenders who are more likely to approve you. Essentially their role is to ensure you get the best deal for your circumstances.
You may also want to look at hiring a mortgage broker if you are considering remortgaging your home. They can give you access to a wider range of alternative mortgage options and advise you on whether you should stay with your current lender or look for a better deal elsewhere. You'll also need the help of a solicitor. To learn more, read Do You Need a Solicitor to Remortgage.
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How to Choose a Mortgage Broker
When choosing a mortgage broker, the best option is to look for one who is a “whole-of-market broker”. This means they will review the whole market for the best offer for you, rather from a select amount of lenders. They will be able to assess every mortgage product available to your circumstances and find the best offer.
Most mortgage brokers work in person or over the phone, which in light of COVID-19 regulations is currently the most likely scenario. However, there are a growing number of mortgage brokers who are web-based. Although this may be convenient, it will not give you the personal experience of speaking on the phone.
Asking recommendations from neighbours, friends and family or even colleagues is a good way of finding a mortgage broker as they will have first-hand experience of using someone. Always ensure that the broker you opt for is fully regulated with the FCA.
Should I Hire a Mortgage Broker Via the Estate Agent?
During your property search, estate agents may suggest you use their in-house broker. These mortgage brokers often work with the estate agents, earning the agent a fee for the sale.
This is rarely a good idea as this type of broker is likely to only work from a limited panel of lenders, not look at the whole mortgage market. It is illegal for an estate agent to refuse to pass your offer to a vendor if you don’t use their mortgage broker. You are not tied to using the broker recommended by the estate agent, even if you are buying the home with them.
How Do I Prepare for a Meeting with a Mortgage Broker?
The more prepared you are for meeting with your mortgage broker, the quicker the process will be. It will also enable the broker to better tailor their search for both the best lender and mortgage product for you.
When it comes to your initial meeting with a mortgage broker, you will need to take evidence of your income and outgoings. This includes:
- Payslips
- Your most recent P60
- Self-assessment documents if you’re self-employed
- Recent bank statements
- Proof of address
- Proof of identity - driver license or passport
- Details of any debts you have
To find out more about the documents you'll need, read what are proof of funds when buying a house.
Questions to Ask Your Mortgage Broker
As part of being prepared for your initial meeting with a mortgage broker, having a set of questions on hand is essential. This way you can gain a better understanding of their services and what they can offer you, in addition to checking their credentials.
Below we’ve set out a list of questions to ask your mortgage broker prior to using their services.
- Are they approved by the Financial Conduct Authority?
- What level of qualifications do they hold?
- What experience do they have?
- Are they whole-of-market or are they tied to a specific lender?
- What do they charge and how is their fee paid?
- What is included in their service? Will they handle all the admin and chase lenders?
Advantages and Disadvantages
There are many advantages to hiring a mortgage broker including their expertise and market knowledge. They also have better access to various deals and can save you the time and legwork when it comes to researching and will be able to manage your fees.
That said, you must also consider the disadvantages of using a mortgage broker. Bear in mind that using a broker might not be the best solution for everyone. Below we’ve listed both the advantages and disadvantages of using a mortgage broker.
| Advantages | Disadvantages |
|---|---|
Market knowledge | There may be a fee for the service |
Advice tailored to your circumstances | Not all brokers search the whole market |
Using a broker could potentially save you money | You could miss out on direct-only deals with lenders |
A mortgage broker could save you time, legwork and added stress | Some lenders do not work with mortgage brokers |
Advantages of Using a Mortgage Broker
Market Knowledge
A good mortgage broker will be up to date on available mortgage products, including new deals, and relevant lending criteria. It is also possible that they will have access to deals that might not be available to you if you went straight to a lender.
Advice Tailored to Your Circumstances
A broker will be able to discuss the different types of mortgages available and review your financial situation to see how much mortgage you can afford. They will also know which lenders will suit which customer. For example, those which will lend to individuals who are self-employed. Also, not all lenders lend on all types of property – some won’t lend on new builds or flats in tower blocks above a certain height.
Saving You Money and Managing Fees
By finding the best mortgage deal for your needs, a mortgage broker could potentially save you thousands of pounds over the term of your mortgage. A broker can calculate when it’s worth paying a high arrangement fee for a particular mortgage, or when a fee-free deal is better value.
Save Time and Reduce Stress
With their market knowledge and experience in the field, having a mortgage broker on board can save you far more time on your research and application than if you were to search the market yourself. They can also help you complete the paperwork for your mortgage application. Once the application is submitted, they will be able to keep track of its progress via their contacts at the lender.
Hiring a mortgage broker can also make the mortgage application a lot less stressful and the time you will save and the reassurance of the broker’s expertise will make the whole process feel a lot smoother.
Disadvantages of Using a Mortgage Broker
It Comes at a Cost
You may be charged a fee by the mortgage broker. They should tell you what this is, and how it is calculated before you hire them. You will need to factor in the cost of hiring a mortgage broker on top of all other costs associated with buying a house, such as a mortgage deposit, legal fees and surveys.
Not All Brokers Search The Whole Market
With regards to the commission earned by mortgage brokers, this may mean that they are tied to a particular mortgage lender. In-house mortgage brokers at banks and building societies will only advise on mortgages from that particular lender. Brokers who work in conjunction with estate agents and housebuilders are likely to work from a limited panel of lenders.
According to FCA research, the commission remains the dominant source of revenue for mortgage broking, accounting for 79% of revenue. Note that brokers are obliged to tell you exactly what they’ll be paid before you apply.
You Could Miss Out on Direct-Only Deals
By using a mortgage broker you could miss out on direct-only mortgage deals offered by certain lenders. Also, a mortgage broker might not be able to advise on “product transfers” with your existing lender when you remortgage.
Not All Lenders Accept Mortgage Brokers
Some lenders will not work with mortgage brokers and will only offer mortgages directly. This means that if you do opt to use a mortgage broker, you may be missing out on deals and mortgage products from the lenders who don’t work with brokers.
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Costs and Fees
There are a number of ways mortgage brokers make their money and charge their fees. In some cases, their services won’t cost you as they will receive a commission from the lender. In other cases, you will need to be prepared to pay a fee for their services.
Ensure you are clear on any fees and how they are collected prior to proceeding with a mortgage broker. These can be charged in any of the ways described below:
- An hourly rate - this is a variable charge meaning the more hours that they work, the more it will cost you. If this is the case, ensure you are aware of what exactly their hourly rate is before you continue.
- A flat fee - This is a single fixed fee for a mortgage broker's service, regardless of the hours worked.
- A commission-based fee paid by the lender - this is where the mortgage broker receives a percentage of the total mortgage loan from the lender as commission
- A combination of the three - in some cases, a mortgage broker will receive payment from both the individual and the lender.
What Are My Rights If I’ve Been Given Poor Advice?
Mortgage brokers must be regulated by the Financial Conduct Authority. You will be able to check this on the FCA register. Following the Mortgage Market Review in 2014, rules on the qualifications of all mortgage brokers and the information they must provide about their services and fees are now much stricter.
If the advice they have given to you is poor, you should complain to the firm in the first instance. If they don’t resolve your complaint satisfactorily, you can take your case to the Financial Ombudsman Service.
