What is a mortgage broker? A first time buyer’s guide to broker fees
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Buying a house can be a confusing process. It’s hard to know where your money is going, or how to plan for unexpected costs. That is made a bit easier with the help of a mortgage broker.
While they won’t be able to manage all your fees, a mortgage adviser is able to make this difficult process slightly simpler. But what exactly does a mortgage broker do? Let’s take a closer look at everything you can expect from a broker, and how much it might cost to hire one.
A mortgage broker’s main role is to find you a lending rate which matches your budget. They serve as financial advisors, pointing you in the right direction when it comes to how much you can and can’t afford to borrow.
The FCA make it a legal requirement for brokers to provide you with advice which is in your best interest. It’s for this reason many people turn to them to find a rate which best suits their financial situation.
A broker will use a variety of methods to work out what rate your mortgage repayment plan should be. Some of the most important factors they consider are:
- How much the property you want to buy is worth
- Whether you’ve already made an offer (and if it’s been accepted)
- How much money you earn (as a collective household)
- What your average monthly spend is
- How much money you have saved as a deposit
- Whether you’re using any government schemes
As such, it’s a lot easier for a broker if you have all of your financial information ready to go before you meet with them. Once they have a clear picture, they’ll start looking for the perfect lending rate for you.
Not all mortgage brokers are the same. While they all have the ultimate goal of working out exactly how much you need to borrow, there are different ways of supplying you with a lender.
There are three types of broker:
1) Tied mortgage brokers
Brokers who fall into this bracket are closely tied (potentially even employed) by one or a group of lenders. There are positives and negatives to this.
While it means your pool of lenders is somewhat limited, there’s also a good chance you’ll be offered exclusive deals and discounts. In a lot of cases, owing to their relationship to the lender, these types of brokers take commission from the mortgage itself, rather than an upfront fee from you.
2) Multi-tied mortgage brokers
These brokers will work in a similar way to tied lenders, except they can sometimes advertise themselves as offering the entire market. In reality, they’ll probably only be offering a limited selection of lenders (a panel). They’re able to claim to be “whole market” if this panel is representative of all lenders. Be sure to ask.
3) “Whole of market” (independent) mortgage brokers
These kinds of brokers operate completely free of restraints. They’ll find you a lender without any kinds of restrictions to a certain group. A downside to their use is that they’ll miss out on the aforementioned discounts which tied-in brokers can sometimes offer. They’ll also almost always ask for a flat fee, rather than commission on mortgage repayments.
Choosing which type you’d like will depend on what you prioritise. Would you prefer access to special deals, or a wider variety of lenders to choose from?
Different brokers will charge different prices, depending on how highly they value their services.
As we previously discussed, there’ll also be some discrepancy when it comes to how a broker might want to be paid. There are a variety of ways in which fees can be collected. These include:
- A fixed fee. When a broker offers this, it means you’ll be paying a one-off flat fee for your whole service. While it’s impossible to put a flat price on mortgage broker fees (different brokers will have different rates), Money Advice Service suggest the average cost sits at around £500.
- Hourly rate. If you need sporadic appointments with a broker, it might make more sense to get charged by an hourly rate. This is at the discretion of the broker, so if you think it makes more sense for you, find someone who offers this.
- Percentage. This is the term given to the commission which might be taken from the total price of the mortgage. For example, if a broker takes a 1% cut of a £200,000 mortgage, they’d receive a fee of £2,000.
- Fee-free. If you go with a broker who’s tied in with a bank, you’ll be able to receive mortgage advice totally free of charge. This does mean you’ll have a very limited choice of options when it comes to who you’re able to borrow from. In fact, you may not have a choice at all.
- A combination. It’s not totally uncommon for a mixture of the above payment methods to be used. A set fee with commission isn’t unheard of.
It’s also important to remember mortgage broker fees are just some of the costs you have to pay when buying a home. Other payments you’ll need to make will include things like:
- Stamp duty
- Solicitor, mortgage and survey fees
- Moving costs
- Refurbishing your new home
All of these need to be factored in when saving for a house. These areas are usually where costs can soar.
While it’s useful to have a mortgage broker overseeing your buying process, it isn’t a requirement. It’s totally up to you whether you want to use one or not.
When thinking about whether or not you need one, be sure to weigh up the positives and negatives. When making your decision, keep the following in mind.
Advantages
Some of the pros for using a mortgage broker include:
- Saves you time and effort. Unsurprisingly, hiring the services of a professional will take a lot of stress out of your hands. Being provided with a series of options will undoubtedly make things much simpler.
- Wider access to certain lenders. Somewhat paradoxically, the exclusiveness of some brokers might mean you get greater access to deals and offers with specific lenders. While your options are narrower, you’ll be able to get more out of the lender you’re provided with.
- You could save money. Organisation, application and appraisal fees are all common aspects of a partnership with a lender. However, it’s possible for all of these fees to be waived if you partner up with a specific broker. This isn’t a guarantee, but it’s definitely something worth asking.
Are these factors enough to convince you to go with one? Make sure you also know some of the potential drawbacks.
Disadvantages
Here are some of the negatives to keep in mind when you use a broker.
- You will owe a broker fee. The fees are obviously something you’ll need to factor into your financial plans. Make sure you ask a broker upfront how the charge, and, if it’s a flat fee, how much that’ll be.
- Some lenders do not work with brokers. Not all lenders have a partnership with brokers. While it’s not guaranteed, it may be possible you’re missing out on a lender who could be perfect for you.
- You don’t always get guaranteed estimates. A lot of times, a broker will offer what’s known as a “good faith estimate.” This means they’re offering you an image of what your final deal could look like, but with no guarantees. While this will often be accurate, there is a chance it could change drastically when the lender gets involved.
Ultimately, the choice is up to you.
Finding a mortgage adviser who’s right for you will depend on what you need. As we’ve discussed, you can choose between an independent broker or one who’s tied in with a specific lender.
Whichever method you choose, there are a few ways of reaching out.
- Contacting trusted solicitors. You can reach out to solicitors with a proven reputation to see if they have a broker who can help you. Some organisations will have a dedicated department who’re able to offer expert advice on a number of mortgage-related topics.
- Talking to a bank. Banks are a common lender. If you use a building society which you trust, it would make sense to contact them and enquire about a broker. They could have one in-house, or may even work with a network of advisers.
- Asking friends and family. Do you know anyone who’s taken out a mortgage in the past? It would be smart to ask them what brokers they spoke to, and who they ended up going with. While their experiences and your own may differ, having a third-party vote of confidence in a broker is something which could help sway you.
It’s important to remember you should speak to more than one advisor. Even if you feel comfortable with the first person you chat with, it’s better to hear a few offers before making a decision. But what questions should you ask a mortgage broker?
Some things to keep in mind include:
- Are you qualified? It might sound like an odd – or even rude – question to ask, but it’s important to know the broker you’re working with has an FCA-recognised qualification. Something like a CeMAP (ifs School of Finance Certificate in Mortgage Advice and Practice) or Cert MA (Chartered Insurance Institute Certificate in Mortgage Advice) shows you’re dealing with a professional.
- Do you understand what I need? Once you’ve explained what you’re looking for from a loan, have the broker explain it back to you. This is very important, as it’ll highlight if there has been any miscommunication regarding what you need from a mortgage.
- What kind of broker are you? You may already know this before meeting with them. If not, make sure to find out if they’re tied, multi-tied or whole of market.
- How do you want to be paid? The previous question will give you a clear idea of this, but it’s still good to know with certainty how a broker expects payment. Not all tied-in brokers take a percentage cut, and not all whole of market advisers take an hourly rate. Find out before you proceed any further.
- Are you insured? Make sure anyone you’re talking to has professional indemnity insurance in place. This is a protective measure which allows you to potentially claim money back if it’s been proven you’ve been given bad advice.
These are just some of the most top level questions to ask. If anything else springs to mind during your meeting, be sure to run through them with the advisor you’re speaking to. It’s crucial you have complete peace of mind.
Do you feel you need a broker to help find you the best possible mortgage rate? Hopefully you now have a better understanding of how a mortgage broker operates, and how much it might cost you. Whatever the answer, be sure to sit down with a few brokers first to find out if partnering with one is going to be of use to you.
Additional reading:
Check out some of the sources we’ve used to compile this information:
Investopedia provide information regarding the positives and negatives of using a mortgage broker:
Love Money analyse how brokers choose the right deals to show you:
https://www.lovemoney.com/news/80384/mortgage-brokers-choose-which-deals-to-show-you-best-deals
My Big Move take a look at the precise costs of using a broker:
https://mybigmove.co.uk/mortgage-broker-fees
Mortgage Sorters look at the different types of brokers you can apply with:
https://www.mortgagesorter.co.uk/uk_mortgage_quotes.html