Finding the right mortgage can be a daunting task. There are now almost 4,000 different products on the market, covering fixed-rate deals, tracker deals, offset mortgages and Help to Buy options.
Then pinpointing what type of mortgage is right is only half the battle. You then need to find the best price, which isn’t easy. The mortgages with the lowest rates typically have higher arrangement fees, making them uncompetitive for those with relatively modest loans.
For most people the easiest way through this maze is to use a mortgage broker.
A mortgage broker is different from the mortgage advisers that work in many high street banks. Bank employees will be able to give you information only about their own product range. In contrast a mortgage broker should be able to recommend mortgage deals from across the market.
But this is where consumers need to tread carefully. Mortgage brokers themselves come in different shapes and sizes. While the best will cover the whole of the mortgage market, others may be “multi-tied”, meaning they work with a limited panel of lenders. Many say they cover “all the major lenders”, but the smaller building societies and specialist lenders that are excluded can offer competitive niche deals.
One word of warning. There are some lenders that don’t deal with brokers. A broker might be able to give you details of their published rates, but you will need to contact the bank directly to apply for their products.
Adrian Anderson, a director of mortgage brokers Anderson Harris says: “A good broker will spend a lot of time listening.”
This means making sure you are looking at the right type of mortgage product before you start discussing rates.
Punching numbers into a calculator won’t tell you whether you should be on a fixed-rate or variable deal. A mortgage broker can talk through these options and explain the relevant risks involved so you have a better idea of what type of deal suits you. There may also be options you haven’t considered, such as offset mortgages. Then they can calculate what combination of rate and fee will work out cheapest, which will depend on how much you are borrowing, and for how long.
Mortgage brokers are particularly useful for those who don’t tick the standard boxes. Banks are far stricter about whom they lend to - but brokers should know which lenders are more likely to rubber-stamp applications in certain circumstances. For example, some banks may be more willing to grant larger, £500,000-plus, mortgages, others to those with little equity in their home.
David Hollingworth, of London & Country mortgage broker says: “Lenders ask a lot more questions these days about affordability. A broker will make sure that you meet that bank’s lending criteria so you won’t have an application turned down - which can adversely affect your credit score.”
People might seek out a broker for advice, but many go back because of the service offered. Mr Anderson says: “Buying a home can be daunting, stressful and time-consuming. But a broker can absorb some of this.”
He adds: “Brokers should have a direct contact into the bank. This can help speed up the application process and also means that there is a point of contact if there are any hiccups along the way.”
But what does this service cost? Some brokers don’t charge a fee at all, instead they will take a ‘procurement fee’ - basically a commission - from the mortgage provider. This is typically 0.35% of the loan arranged. This fee does not affect the rate you pay as a borrower.
Some brokers will charge a fee - usually 1% of the amount you are borrowing. They may also collect the procurement fee on top, although some will refund this additional payment.
One word of warning: using an estate agent’s mortgage adviser won’t increase the chance of your house purchase going through.
Mr Hollingworth says: “We see a lot of cases where the buyer has the impression that their offer will not be accepted unless they use the in-house financial services, despite the fact this is contrary to OFT rules.”
Many estate agents use a very limited panel of mortgage providers so this isn’t the best way to get mortgage advice.
Five questions to ask a mortgage broker
1: How do you charge for your services? Fee, commission or a combination of both?
2: Do you cover the whole mortgage market?
Can you give advice about other financial products I might need - such as life insurance?
How long should it take to arrange my mortgage? Can you fast-track this if needed?
5. What qualifications do you have? Are you fully-authorised by the FCA?
The content published on this website is intended to provide information only. The reader should seek advice from experts on the subject matter and independently verify the accuracy and relevance of any information provided here before relying upon it or using it for any reason. You can view our terms and conditions here.