Why Use an Independent Mortgage Broker?

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.

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:

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.

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.

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'.

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.

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.

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.

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.

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

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Faster mortgage process

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How do you find out what fees or commission your mortgage broker is charging you?

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Are there any upsides to applying direct to a lender for your mortgage?

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What happens if you apply for a mortgage without taking advice from a broker or lender?

• 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?

• 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.