Should you use a Broker to get a Mortgage?
As recently as 2012, most mortgages were taken out directly from a bank or building society. Yet fast forward to these last couple of years and a combination of fewer banks and building society branches, coupled with more complex rules around taking out a mortgage, mean just over 60% home loans are now taken out through a broker. Industry experts are predicting this will be the preferred route for as many as three-quarters of borrowers in the coming future years.
So should you join them and head to a broker for your home loan – or are intermediaries a waste of money?
Why it’s harder to borrow
Part of the recent rise in brokered mortgages comes off the back of new rules introduced in April 2012 by City regulator, the FCA (Financial Conduct Authority), which makes it more difficult to get a home loan. Following the FCA’s mortgage market review (MMR) lenders now have to ask much more detailed questions of borrowers, meaning that a typical underwriting of a case is open to more scrutiny than previously seen. It has meant that people who may have previously been granted a loan are being rejected under the new rules and guidelines, whereas others face closer test over things like childcare and travel costs.
Many who have recently tried to go direct to their bank or building society branch for an appointment have found themselves faced with a wait of weeks for an appointment. This is mainly due to the new rules set through MMR that means all mortgage sales now need to be advised, so lenders’ staff will have to be qualified and will not be allowed to sell home loans without assessing customer’s needs and affordability.
"Making the wrong choice about your mortgage can cost you hundreds – even thousands of pounds – more than you need to pay," says consumer rights campaigner James Daley of website Fairer Finance. "And because mortgages are awash with additional fees and charges, it’s all too easy to get tripped up. That’s why it makes a lot of sense to go with a mortgage broker."
Reasons to opt for a mortgage broker
They have an overview of the whole market
If you go to your own bank asking for a mortgage, you will be given information about the products of this bank only. You can try and shop around yourself, but it's likely to take an awful lot of your time and effort and you still may find you lack information and insight to choose a loan that is best for you.
They can find a mortgage that is just right for you
Looking for a mortgage the DIY way may make it difficult for you to know which mortgage deal would be best for you both now and in the future. An experienced mortgage adviser will have an overview of the whole market and will be able to find a solution that will work for you long term.
You are less likely to be rejected if you don't go at it alone
Having an expert in your corner will make it easier to choose financial solutions that are not only best suited to your circumstances but ones that you are most likely to be accepted for. Remember; every failed mortgage application leaves a black mark on your credit score and may make things more difficult for you down the line when borrowing is concerned.
Jas Bola of Hillcrest Property Solutions explains: "I have had clients who have approached the lenders directly – obviously some have gone on and purchased – only to find that they don’t meet the affordability criteria or are misguided by the lender’s brokers and then they come back to us. Shared ownership is quite a bespoke thing that not all mortgage brokers even within the lenders’ branches know what they are talking about."
This leads us to the next reason:
You may need a specialist for the type of mortgage you need
If you are interested in Shared Ownership it pays to get advice from somebody who has experience with this type of properties. Otherwise you may be paying for your mortgage adviser's learning process. You also may simply receive the wrong advice. Family Mosaic works with a panel of mortgage advisers, who specialise in helping Shared Owners buying their first property.
Other circumstances where you may need a specialist mortgage adviser include:
- when you are disabled or acting on behalf of a disabled person (Read: Shared Ownership for Disabled Homebuyers),
- when you are a non-EU national (Read: Mortgages for the Foreign Nationals in the UK),
- when you are an older buyer (Read: Can Pensioners Get a Mortgage?)
You may benefit from an ongoing relationship
A good mortgage adviser will always take a long-term view when it comes to your borrowing. This is particularly relevant to Shared Ownership purchases as you will - in all likelihood - wish to staircase up in the future.
"As a mortgage adviser," Jas Bola explains, "what I try to do, is tailor the advice so that when the client comes back again in two years’ time, we may be in an instant position to staircase, or look at our options to pay off the mortgage early – ultimately working with an adviser that takes the long term view can save thousands of pounds for the client."
Another example when a long-term relationship is essential, is when the buyers are disabled or vulnerable - as in the case of My Safe Home mortgage advocacy [LINK TO ARTICLE] for people with long-term disabilities.
What to look for in a broker?
With so many mortgage products available, it is crucial that you find the right adviser to help you navigate what may look like a financial minefield. Key things to look for a broker include:
- Are they independent? Will they look at a large number of loans across the market or are they attached to only one bank?
- Do they have good reputation? Reputation is difficult to assess. Family Mosaic's approved panel of mortgage advisers has been rubber-stamped by us.
- Are they properly qualified? - check if they are registered on the Financial Conduct Authority website.
- Are they knowledgeable about the type of mortgage product you wish to purchase? Family Mosaic's approved mortgage advisers all specialise in Shared Ownership.
- Are their fees reasonable?
- Are they prompt to respond? You don't want to be working with somebody who cannot return an email or a call.
- Are they in it for the long haul? Does their fee structure reflect their commitment to their clients over a longer period of time?
For example: Hillcrest Property Solutions charge £375 to new clients and £99 to existing clients. This means that if an existing client wants to staircase then they'll only pay £99 fee for the whole process.
What will a broker cost you?
Majority of brokers charge a fee and that can be either a flat fee or a percentage fee. It’s worth noting that these brokers will also receive a commission from most lenders.
Consumer group Which?, for example, charges an upfront non-refundable fee of £249 and a second fee of £250 once you complete your mortgage (or £150 if you’re a Which? member).
Other big names such as John Charcol and the Mortgage Advice Bureau charge a percentage fee, which can vary depending on your circumstances. However, this fee must be agreed with you upfront, so there shouldn’t be any hidden surprises.
John Charcol, for example, has a minimum fee of £495 and a maximum of 1.5% of the loan value. However, its typical fee is 0.24% of the loan value.
Regardless of fee, a good broker should consider not only the best priced loan for you but which lenders are more likely to underwrite your loan and which ones to avoid –such as those with a backlog of applications.