Taking out a mortgage is a huge financial responsibility and therefore it is a process that should never be rushed. There are so many different types of mortgages and also a range of deals available on the market, so it is important to consider a variety of options to ensure that you do not lose out financially.
Choosing the wrong mortgage product could end up costing significantly more than an alternative mortgage deal that you were not aware of, so spending time and effort to do some research and get advice is very worthwhile. Many people choose to use a broker to benefit from their insights and expertise of the mortgage industry to help find the right mortgage deal.
What are the different types of mortgage broker?
When you are considering working with a broker, you should understand the different types of brokers, so that you know what type of service you will get by choosing them. The three main types of broker are:
A tied broker is one that works with just one specific mortgage lender. They will be able to find the most appropriate product available from that lender but will be unable to look at any other deals on the market for you.
With this type of broker, a restricted panel of mortgage lenders will be reviewed to identify the most suitable one for your circumstances.
Independent brokers (or whole-of-market brokers)
Independent brokers are also referred to as whole-of-market brokers and with this type of broker, every mortgage lender on the market may be available. This means that much better deals can be sourced compared to tied and multi-tied which only use one or a limited number of lenders.
However, be aware that some mortgage brokers may market themselves as ‘Whole of Market’ but not have access to all lenders in the U.K. If their lender panel is representative of most lending options in the market, they are permitted to market themselves as Whole of Market. It is advisable to request a list of the mortgage broker’s lending panel before you proceed with their services to see if they are truly whole of market or not.
Before starting to work with a broker, it is a good idea to ask them which type of broker they are, so that you are aware of what they can offer to you.
Should I use a broker?
Some people are put off using a broker because they believe that it will cost them money that they could avoid paying if they go directly with a lender. However, it is not quite that straightforward in terms of comparing the cost of using a broker or not using a broker.
While going direct with a lender will avoid paying any broker fees, there are some brokers that do not charge the mortgage applicant any fees, as they receive commission from the lender on completion of the transaction. Those brokers that do charge client fees will also receive that commission from the lender on completion. The additional consideration regarding cost of using broker vs cost of going direct is that a broker could find a significantly better deal, saving you much more money over the term than any broker fee they might charge.
The mortgage industry has gone through numerous legislation changes which have essentially made it harder for some people to get a mortgage. Lending criteria has been tightened, with stricter requirements such as more thorough analysis of income and outstanding debt, as well as other factors. Working with a broker is a good way to access mortgage deals that might not otherwise be available, as some are exclusively arranged through brokers.
Due to the stricter processes involved in arranging mortgages, brokers complete more thorough checks which means it may be safer to use a broker than to not use one. Brokers that are regulated by the FCA are the safest to use, as you get the additional protection that falls under the regulator.
The other factor to take into consideration when you are deciding whether or not to go with a broker or to go direct with a lender, is that some brokers do not charge a fee at all. So, if the main reason you were hesitant about using a broker was because you do not want to pay the fee, you should reconsider.
Brokers such as Boon Brokers provide outstanding broker services without charging the mortgage applicant a penny, as they receive commission from the mortgage lender on completion. This way, you can access mortgages from the whole of the market, including exclusive deals, without paying any broker fees.
Can I get a mortgage directly from a lender?
If you have seen a deal with a direct lender that you think is the best out there or is the best option for you, then there is no reason you shouldn’t choose that deal. However, you should do enough research to determine whether it definitely is one of the best deals you would be able to obtain. Some people prefer to go direct to a lender because they don’t want to work with the middleman, or they want to go with the bank that they have a long-term relationship with. Although, borrowers are often shocked by how lenders do not factor in their relationship with the borrower in their lending decisions around criteria policy. If the case does not meet lending policy, it is refused regardless of any prior relationship with the lender.
However, some banks may offer certain discounts or incentives to their account holders to encourage them to take out their mortgage with them, which would not be available if you went through a broker.
Pros of going direct with a lender:
- You could access preferential rates as an existing customer.
- Potential to find exclusive direct-only deals.
- You won’t need to pay any broker fees.
- You can choose a lender you already know and trust.
Cons of going direct with a lender:
- Potentially biased advice as they will want you to choose them and won’t tell you about other good deals that are available with other lenders.
- No access to broker-only deals.
- You must process the case with the lender directly and go through the leg work that a broker would normally process on your behalf.
- You will generally be able to find a better deal elsewhere that could save you considerable money.
- The odds of accessing the most suitable mortgage product by randomly selecting a lender are low.
Pros of choosing to use a broker:
- Access every mortgage product on the market to find the best deals (when with whole-of-market brokers like Boon Brokers).
- You can benefit from exclusive broker-only deals.
- You are getting unbiased advice, so the broker will be finding the best deal for your circumstances.
- The process will be easier because your broker will guide you through everything and even do some of the admin type of work for you.
- Will find deals for specific circumstances where it might be more difficult to get a standard mortgage.
- Saves you the time spent looking through the different deals.
Cons of using a broker:
- You won’t be able to get direct-only deals.
- You may need to pay broker fees (unless you use a fee-free broker service such as Boon Brokers).
Other benefits of working with a broker
These pros and cons should give you a good indication of what the right option is for you. Some people make their choice based on financial factors alone, but one point to consider is whether you want to use a broker so that they will make the process a lot more straightforward for you.
A reliable, trustworthy broker will be able to look out for your best interests on your behalf, using their knowledge and experience of the market to get you the best deal for your circumstances. In addition, the mortgage broker can work with you for your entire mortgage term and ensure that you are always on the best possible interest rate. Otherwise, if you go direct to the lender, you would need to research new mortgage products every time that your existing product expires – which may be every 2 or 5 years.
Researching the market and trying to find deals that will suit your exact financial situation will take time and you also have the issue that if you apply with more than one lender, it can harm your credit score. When you work with a broker, they will use the information that you provide them with regarding your finances, such as any outstanding debt, your income, outgoings etc. and they will then crunch the numbers to find you the most suitable deal.
Some people find it easier to use brokers if they have circumstances such as adverse credit, or if they are self-employed and therefore do not have the payslips to provide proof of income. A mortgage broker will already know which lenders are most likely to accept people with these circumstances, therefore you won’t risk negatively impacting your credit score by making further mortgage applications if your first one is declined.
Many standard direct lenders will decline people with these types of circumstances because they consider them to be high risk borrowers. Their lending criteria will be stricter and this can also apply to the amount of money that they are prepared to loan. So, in cases where some mortgage lenders will not lend the full amount required for the property that the applicant wants to buy, a broker may be able to find a lender that is willing to provide the amount required.
Are brokers potentially risky?
Historically, brokers had a bad reputation for not always putting the interests of their customers first, with some arranging deals that pay higher commission, rather than the deal that is necessarily best for the customer. Since those days, the industry is much better regulated and you can also benefit from being able to see online reviews about brokers and other ways of determining how trustworthy and good value they are.
Websites such as TrustPilot are a great place to find unbiased reviews from customers, so that you can check your broker’s reputation before you agree to go ahead with any deal with them. As long as you do your research to check the reputation of the broker, as well as communicate with them to get an idea of what it feels like to work with them, you should be able to use a broker that you can 100% trust to get the best deal out there for you.
Do fee-free brokers offer the same level of service?
The idea of a service that costs nothing usually seems too good to be true but when it comes to brokers, this is not the case. The quality of a broker is not reflected by whether they charge a fee, or even how much they charge. In fact, some brokers that charge a large fee can actually be some of the worst on the market!
Similarly, a fee-free broker simply works on a commission basis, so they are still getting paid for their work, just in a different way. You can ask your broker how much commission they get from the lender if you think there is a possibility that they are recommending a specific lender because they are getting a larger commission. However, as we mentioned earlier, the increased amount of regulation regarding broker commissions means that this is not a common issue, certainly not with the reputable brokers like Boon Brokers.
Which is the faster process – going with a broker or going direct?
If time is critical and you want to get your mortgage arranged ASAP, either way could be as quick. If you have a straightforward application, where the lender is happy to provide the loan that you want, it can get processed as quickly as their team is available to do the processing.
However, if there are any types of complications with your application then a broker will speed up the process by making sure that you are using a lender that suits your requirements. They will also be aware of all of the evidence and documentation that the lender will require, so they will be able to tell you what to have prepared in readiness, so that this side of the application does not slow things down.
There are lots of pros and cons for both going direct with a lender and deciding to use a broker but more and more mortgage applicants are seeing the benefits of using a broker, through the savings that can be made through a better mortgage deal. Even if the broker has a fee of around £500, the savings made through a better mortgage deal could be in the thousands, so it can definitely be the better option from a financial perspective.
Then you also need to take into account whether you want the additional benefits of using a broker, such as letting them do a lot of the legwork for you, saving you the time and often the hassle that is involved in looking for and comparing different mortgage deals, doing the calculations to see which works out better over the long-term.
Mortgage applicants are free to choose whichever option they think is best for them, but it is a good idea to look at what is available when you go direct and also to speak to a broker or two to find out what they can offer. You don’t have to commit to either until you are sure that you have the best deal for your personal requirements.