Why Use an Independent Mortgage Broker?
20/05/2019
101
10 min read
People hire the services of an independent mortgage broker as a way of selecting the right mortgage for their needs to enable them to buy a property.
If you're lucky enough to be able to buy a house with cash, congratulations! The fact is, however, that most people - and particularly first time buyers - require a mortgage to help them.
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It is a lender, normally a bank, which you'll be getting your actual mortgage funds from if your application is successful. So why would you use a mortgage broker, which is essentially an intermediary/'middleman', and in particular an independent mortgage broker, as part of this process?
This article answers this question and provides additional information for all those who want to know more about this early stage of the home buying process in residential conveyancing and looks at the following matters:
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Looking for a mortgage? Our independent mortgage brokers can help you find the best one for your needs
Buying a home is probably the most expensive purchase you'll ever make and if you need a mortgage, you'll want to find one which you can afford and which suits your needs, whether you're first time buyer, self-employed, employed, a contractor or retired. This is also the case if you are buying using a particular scheme, such as Help to Buy, Shared Ownership or Right to Buy .
Our independent mortgage brokers are all regulated by the Financial Conduct Authority and can help you find the right product from among tens of 1,000s.
* Access to whole of the market – Available Outside of Work Hours – No need for face-to-face meeting with mortgage advisor - Terms Apply
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What's a mortgage broker?
A mortgage broker - also referred to as a mortgage advisor, you can broadly regard the terms as interchangeable - is a financial adviser who specialises in offering advice on mortgages. A key thing to remember when using a mortgage broker is that they have a duty of care towards you and are obliged to recommend the mortgages most suitable for you and be able to justify that recommendation.
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How do independent mortgage brokers differ from mortgage brokers?
Independent mortgage brokers are truly independent in that they are not tied to any particular lender's products etc.
They have access to the 'whole of the market' of mortgage products to choose from. This means that they could, in theory, investigate every mortgage product on the market - and bear in mind that there are tens of 1,000s of these currently - to find the right one for your needs (although once they've thoroughly assessed your situation, naturally the suitability of the choices narrows down). This is particularly useful when you're hunting down more specialist mortgages, particularly contractor mortgages (click to find out more).
Independent mortgage brokers differ from tied brokers, who are, as it sounds, tied to selling a particular lender's mortgage products, or a multi-tied mortgage broker who only sells mortgages from a limited list of lenders. Tied brokers often call themselves mortgage advisors.
For completeness, there are also some mortgages which are only available if you go to the lender directly, this is referred to below.
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Why use an independent mortgage broker?
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Protection
The FCA, which regulates all mortgage brokers in the UK, makes it compulsory that they must all act in a client's best interests, particularly in terms of affordability. They have a legal duty of care towards you.
This means that if something goes wrong, not only is the law on your side regarding compensation, but if a broker is found to have mis-sold you a mortgage, they face financial and other sanctions and can be effectively 'struck off'.
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Qualification
Anyone in the UK who calls themselves a mortgage broker must be registered with and regulated by the FCA and will have had to take appropriate exams - not to mention be a 'fit and proper person' - in order to do so.
You cannot assume, when you call your lender and speak to someone at a call centre, that they will have this level of qualification and regulation.
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On Your Side
By this we mean that your independent mortgage broker is acting for and in your best interests first and foremost. In contrast, a tied mortgage broker acting purely for your current lender is acting primarily for the lender such that you end up purchasing a mortgage from the lender in question.
They'll have access to the whole of the market i.e. they can select theoretically from a pool of tens of 1,000s of potential mortgages for you. This is far more products than a tied broker can offer you and they won't just push you towards a mortgage that isn't quite suited to your needs but the nearest that lender can offer you.
Also, some lenders only sell their mortgages via a broker, so you'll additionally have access to mortgages which are sold purely in this way.
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Industry Knowledge
Independent mortgage brokers are in constant communication with many lenders as part of their day-to-day job. They'll know background criteria to their - and your - advantage. Additionally, lenders are likely to treat them well, after all, they may well be providing great business to them.
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You're likely to receive highly worthwhile financial advice have a wider financial discussion
An independent mortgage broker is likely to look through the whole of your finances in order to best help and advise you. They'll do this mainly to assess the level of mortgage repayments you can afford - and they'll stress test these accordingly - but they can also offer further pointers which can help you maximise your financial planning in general.
Additionally, your mortgage broker is likely to open a conversation - with no obligation - about other highly important financial products directly related to your home purchase, such as life insurance, payment protection, and buildings and contents insurance.
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Fees are likely to be reasonable and sometimes zero
Independent mortgage brokers are paid in a number of ways.
Sometimes, they'll charge a one-off fee or a fee that covers further advice you might need during the course of your mortgage.
They might additionally - or even instead - take commission from lenders and/or insurers for putting business their way. Sometimes this can mean that you yourself are not directly charged for their services.
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Less paperwork
As well as carrying out a check on your finances, your advisor will help you manage the paperwork required for your mortgage application.
This is extremely helpful If you have a complex income or are working independently and need a contractor mortgage. These products require additional paperwork to demonstrate your affordability.
An independent financial advisor with experience of gig/self-employed mortgages (click to find out more) and contractor mortgages will guide you through the paperwork process and answer any questions you have. This doesn’t just save you effort, but time as well as it means they can process your application faster.
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Faster mortgage process
Specialist independent mortgage brokers deal with lenders every day, so they know what each lenders’ application process involves and can tell you which lender will process your application with the least delay, something which might be a high priority in terms of your choices.
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How do you find out what fees or commission your mortgage broker is charging you?
You'll find your mortgage broker's commission and/or fees charged or earned in the Key Facts Document (KFD) - also known as a Key Features Document - which they have to provide.
In particular, if they've recommended a particular mortgage, they have to provide a Key Facts Illustration (KFI) about this and you'll find your broker's fees in section 8 of the KFI. Any commission earned for introducing your business to the lender is set down transparently in section 13 of the KFI.
Rules for KFDs and KFIs are set down in the FCA's related handbooks.
NB In 2019 in the European Economic area (EEA), the European Standard Information Sheet (ESIS) is set to replace the current KFI.
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Are there any upsides to applying direct to a lender for your mortgage?
In the interests of balance, some banks offer preferential mortgage rates if you already have a current or savings account with them and some lenders have exclusive ‘direct only’ deals that a broker would not have access to. Regarding the second point however, the same is true in reverse as stated: some lenders offer certain mortgages only through mortgage brokers.
It can also be said that you wouldn't have to pay separate broker fees, however, for reasons stated above, what you might have to pay in broker fees might well work out far better for you and represent far better value, particularly in the medium or longer term.
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What happens if you apply for a mortgage without taking advice from a broker or lender?
If you do this, it is called applying for a mortgage on an 'execution-only' basis, a term also used for a similar situation if you were to buy securities in this way (stocks, shared, debts etc.).
Not taking any advice means you have to take full responsibility for your mortgage decision.
If you don’t take advice, you could end up:
- With the wrong mortgage for your situation, which would be a costly mistake in the long run.
- Being rejected by your chosen lender, because you didn’t understand the restrictions clearly or what circumstances the mortgage was designed for. This has a knock-on negative effect - your credit score will reduce, meaning that you'll find it more difficult to be accepted for a mortgage should you apply again shortly after; normally you are advised to wait for 6 months if this happens to you.
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What should you look for in a mortgage?
It's easy to focus purely on the interest rate you'll be charged when choosing between mortgages, however, even at the start, you'll have to factor in any product and arrangement fees which the lender might charge. Additionally you should consider the following points:
- APRC: (Annual Percentage Rate of Change) takes some mortgage fees into account as well as the interest rate and expresses it as a percentage.
- Deposit size: the higher the deposit you can raise to start with, the more competitive - i.e. lower - the interest rate you can look for among products.
- How much higher is the Standard Variable Rate (SVR), which your lender will switch you onto, when you come to the end of your mortgage term?
- How often is interest charged? Will it be paid daily, monthly or annually? You should bear in mind that charging interest on a daily basis works out cheaper.
- Flexibility - you should find out if you can overpay your mortgage and by how much each year without being charged. You should also find out if you can you take a break from making payments. Both of these strategies might be used at the correct time for financial efficiency.
- What is the length/term of the fixed or variable rate or discount deal? You should decide if you want to be locked in for a long period or have more flexibility. There will generally be charges if you switch out of a deal before it ends.
Looking for a mortgage? Our independent mortgage brokers can help you find the best one for your needs
Buying a home is probably the most expensive purchase you'll ever make and if you need a mortgage, you'll want to find one which you can afford and which suits your needs, whether you're first time buyer, self-employed, employed, a contractor or retired. This is also the case if you are buying using a particular scheme, such as Help to Buy, Shared Ownership or Right to Buy .
Our independent mortgage brokers are all regulated by the Financial Conduct Authority and can help you find the right product from among tens of 1,000s.
* Access to whole of the market – Available Outside of Work Hours – No need for face-to-face meeting with mortgage advisor - Terms Apply
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