How To Choose a Mortgage Broker: The Essential 2020 Guide

There are many different reasons that mortgage applicants can benefit from using a mortgage broker, from saving money to helping them find the right mortgage deal to suit their specific circumstances. In this guide, we take a comprehensive look into the services that mortgage brokers provide, as well as the numerous benefits of choosing to work with a broker.


In this article

What is a mortgage broker?
Why use a mortgage broker?
Why is it a good idea to get advice from a mortgage broker?
Risks of getting no advice
When to see a mortgage broker
What types of mortgage brokers are there
Mortgage broker fees and commissions
Key questions to ask a mortgage broker
How to choose a mortgage broker?
Your rights when using a mortgage broker
What to look for in a mortgage deal
Conclusion
Jargon Buster


What is a mortgage broker?

A mortgage broker is an intermediary that helps to match mortgage applicants to the right type of mortgage lender and deal for their circumstances. The broker will often charge a fee to the applicant, or to the lender, or both to pay for their role in the mortgage arrangement process.

In return for that fee, the broker will provide the mortgage applicant with expert advice, which can be particularly useful if the applicant has special circumstances that require specialist advice that a standard lender would be unable to provide.

A mortgage broker will usually be able to access a larger selection of different mortgage deals than a mortgage borrower would be able to find without their help. The mortgage broker will also have a really in-depth knowledge of the mortgage market, meaning that they can quickly identify suitable deals, saving the applicant a great deal of time trying to research the deals and speak to different lenders.


Mortgage brokers

Why use a mortgage broker?

One of the key reasons for using a mortgage broker is utilising their expert knowledge to find you the most suitable mortgage deal. The difference between taking out one mortgage deal compared to another can be enormous in terms of the overall costs. A mortgage broker will be able to find a mortgage deal that offers the best financial solution for their client, using their knowledge of the market.

Mortgage borrowers who have special circumstances, for example, adverse credit often choose to use a mortgage broker so that they can find a lender that will be suitable for their situation. Instead of approaching standard lenders and having an application declined, the specialist broker will know exactly which lenders will be able to provide them with a mortgage. Because brokers regularly work with a range of lenders, they get to understand the preferences and criteria of each one, which helps in finding the right one for a client’s situation.

Other special circumstances where an applicant might choose a specialist mortgage broker is when they are self-employed and providing payslips to prove income is not an option. There are numerous lenders that specialise in providing mortgage loans to self-employed workers and brokers can link their clients up with them.

handshake mortgage broker

Dealing through a mortgage broker also speeds the process up. Buying a property and all of the work involved in getting a mortgage, working with solicitors etc. can take a long time and if a mortgage takes too long to go through, you could potentially lose out on buying your property. Brokers have software that enables them to quickly find deals that match the borrower’s criteria, this is much quicker than doing other types of searches for mortgage deals. The mortgage broker takes a lot of the hassle out of finding a mortgage, reducing tasks like paperwork and speaking to different lenders, which can be very time-consuming.

Using all of the information that lenders use to determine whether they will lend to a borrower, the mortgage broker will be able to identify the best options and present them to the borrower. A declined mortgage application can affect the applicant’s credit report, so using a broker that will find the right mortgage lender will avoid that possibility. The mortgage broker factors every detail into the search, such as credit report, loan amount, LTV (Loan-to-Value), income, employment, and any other information that lenders use.

The financial aspect of calculating whether one mortgage deal is a better deal than another is not straightforward, so working with a broker to use their expertise can help to ensure that any deal works out financially beneficial compared to others.

calculating mortgage deal

Mortgage brokers should be regulated by the FCA and therefore this protects the borrower by providing an option for them to escalate complaints if something goes wrong. When you are looking for a broker, you can check whether they are authorised by the FCA to ensure you are protected.

Why is it a good idea to get advice from a mortgage broker?

The advice that brokers are able to provide is really valuable in choosing the best mortgage. Most mortgage brokers will have been working in the industry for a long time and will have a team of experienced mortgage advisors that know everything there is to know about the mortgage market.

Every mortgage borrower has a unique set of circumstances which suits a certain type of lender, the job of the broker is to match those unique circumstances to the most appropriate lender. The brokers can explain in detail how a specific lender is the best option, based on the borrower’s finances and situation.

Giving advice mortgage broker

Due to working in the mortgage industry for years, mortgage brokers will have access to a huge selection of lenders and some mortgage brokers offer whole-of-market services, or in other words, access to every single mortgage lender available.

Since the Mortgage Market Review in 2014, the mortgage industry has become more tightly regulated. The affordability checks are now tighter, which means that some borrowers find it harder to get a mortgage deal, or cannot lend as much as they would like to. This is to protect both the borrower and the lender and the broker will be able to conduct a full assessment of your affordability to find out which deals you will be eligible for.

Risks of getting no advice

Mortgages are complex and there are many different factors that influence the type of deal that is best for the borrower. Without the advice of knowledgeable mortgage broker, the borrower is at risk of paying more for a mortgage than they need to. Non-mortgage experts are unable to analyse the options in the detail that a broker is able to, so the borrower could end up paying a higher interest rate, or getting tied into a deal with a high early repayment charge or other disadvantages that could have been avoided.

A mortgage is usually the biggest financial purchase that a person will ever make, so seeking professional advice makes good sense to make sure that your decision on your mortgage deal is an informed one and all of the options have been carefully considered.

Risk of no advice

Another big risk that a borrower will face if they do not work with a broker is not being able to complain that they have been provided with an unsuitable mortgage, as they have selected the mortgage lender themselves without taking any advice.

When to see a mortgage broker?

If you are thinking about taking out a mortgage or looking to remortgage, then a mortgage broker can help you to assess the best options that are available to you. A broker can provide you with expert advice to help you make one of the biggest financial decisions in your life. Instead of doing all of the research yourself, if you talk to a mortgage broker about your requirements and finances, they will be able to advise you on the mortgage or remortgage process and find the best deals.

What types of mortgage brokers are there?

There are three main types of broker, some only offer a limited set of deals, some are tied to specific lenders and others are whole-of-market brokers. There are some brokers that say they are whole-of-market, but they won’t check the deals that are direct only, so it is important to find out which lenders the mortgage brokers will check on your behalf. You may also want to check direct mortgage deals that are missed by brokers.

what types of mortgage brokers

Mortgage broker fees and commissions

The broker may charge you a fee for their services, or they may just apply a fee to the lender.
The average mortgage broker fee will be around £500 but different brokers work in different ways, some will apply a fixed fee, others charge for their time at an hourly rate, there are also brokers that charge based on a percentage of your mortgage.

Brokers such as Boon Brokers do not charge the mortgage borrower and they receive commission from the lender instead. Then you also have brokers that will charge both the lender and the borrower a fee. It is important to find out what charges the broker will apply, if any. The mortgage broker must be clear about their fees to their clients under the requirements of the FCA and borrowers must be aware of unethical mortgage brokers that are not clear about their fees.

Key questions to ask a mortgage broker

When you are choosing a mortgage broker, there are some key questions that will help you to ascertain whether they are the best one to suit your needs. These questions include:

Are you whole-of-market?

If your mortgage broker is whole-of-market they will have access to all of the available mortgage deals on the market, so they are more likely to find you the best deal.

Will you tell me about mortgages that are only available directly from lenders?

If you don’t ask them this question, then they probably won’t tell you whether or not they check the deals that are directly from lenders. So, make sure you ask this question, as you could be missing out on deals that are only offered direct from the lender.

lenders fees

What are your fees and charges?

As explained in the earlier section, mortgage brokers operate differently in regard to their fees. They should tell you exactly what they will charge, whether that is a flat fee, a percentage of your mortgage or whether they charge a commission to the lender. You should be able to find a good, reputable mortgage broker that will not charge you any fees for their service, as they will get paid by the lender instead.

What is included in the service you offer? Will you handle all admin and chase lenders?

One of the main advantages of using a broker is that they will take on the legwork like the admin elements and also do the chasing of lenders on your behalf. When you are deciding which broker to work with, clarify what services they offer and see how much of this work they will be prepared to do for you. Some mortgage brokers only offer the very minimal, whilst others will do as much as they possibly can for you.

When will you be available?

This is another critical question, especially if you want to get your mortgage in place relatively soon. Don’t assume that the broker will be able to start working on your mortgage search straight away, as they could have a lot of other clients that they are working for and therefore you could be waiting some time to get started with finding a mortgage deal.

mortgage broker availability

How to choose a mortgage broker?

The main factors that you should consider are whether they are a whole-of-market broker like Boon Brokers, and also look at details such as whether they charge any fees and what sort of reputation and experience they have. If you ask all of the questions listed above, then this should give you a better idea of the service they will provide.
Some mortgage brokers operate with a web-based service only, so you should also decide whether you are happy to work on that basis, or if you prefer being able to talk to someone face-to-face about your mortgage details.

A good way to see whether a broker provides good service is to check any customer reviews that have been provided. Brokers will probably have testimonials on their websites from happy customers, but this does not give the full picture, as they will cherry-pick the best testimonials to upload onto their website.
reviews
Finding independent reviews on sites like Google will give you a more accurate and unbiased set of reviews that will hopefully reveal what the brokers are like to work with, or what to look out for if someone was disappointed with the service they received from a particular broker.

You should also check what qualifications a mortgage advisor has. In the UK the qualification that is approved by the FCA is the Certificate in Mortgage Advice and Practice (CeMAP). The brokers should also be authorised by the FCA, so you can check that they are by searching on the Financial Services Register.

Your rights when using a mortgage broker

When you work with a mortgage broker, they should complete a detailed review of your circumstances in order to establish the best deals to suit your specific situation. They should also be able to explain in detail the key information such as the different types of mortgages that there are.

Your broker should be able to advise you on the pros and cons of taking on different types of mortgage and advise which one you are better suited to. Their recommendations should be fully justified with a breakdown of the finances of the deal and they should explain why the deal is a better option for your circumstances.

There is a lot of jargon in the financial industry, so if you are not sure what LTV ratio is or why it matters, your mortgage broker should be able to help you to understand it and see the importance of it on getting a good mortgage deal. We have also included a jargon buster section at the end of this guide to help understand some of the terminology.

man and woman advice

What to look for in a mortgage deal

  • APRC

The Annual Percentage Rate of Charge shows you the total cost of a mortgage based over the full term, including all associated fees. By providing you with the APRC for different mortgages, you can see the financial difference from one lender to another over the period of time you choose to take the mortgage over.

  • Deposit size

The higher the amount of deposit that you are able to put down, the better mortgage deals will be available to you. The Loan to Value ratio (how much your mortgage loan is compared to the value of the property) is really significant in accessing different types of deals, as some deals are available for 80% LTV, others are for 70% LTV, etc.

  • The standard rate

If you are choosing a fixed rate for a number of years, it is also important to look at what the standard rate of the deal is when the fixed term comes to an end. Whilst you will usually be in the position to switch mortgage deals at the end of your fixed-rate, you don’t know what will happen to the mortgage market, so it is best to choose a deal with a competitive standard rate if available to you.

  • How often is interest charged

Most lenders charge interest on a monthly basis, calculating the average monthly payment over the term so that all monthly payments are the same. Other mortgages might charge a daily interest, meaning that the monthly payments vary depending on the number of days in the month.
explaining interest rates

  • Flexibility 

If your circumstances change, having flexibility around your mortgage payments can be really important. You may want to take a break from making payments if you need to at some point, or you may want to overpay so that you can pay your mortgage off quicker and reduce the overall interest. Check for any penalties or limits that the lender applies if you want to overpay on your mortgage. You should also check any early repayment charges that apply, to make sure that you don’t end up staying locked into a mortgage deal for longer than you need to be.

  • Length of fixed or variable rate deal 

Deciding on the length of the fixed rate can be a difficult decision, as it is difficult to predict how the interest rates will be affected over a three or five-year period. Some people prefer to lock themselves into a fixed rate for a long period so that they know exactly what their payments will be for that term. However, if circumstances changed, for example the borrower needed to move house, they might be subject to an early repayment charge to get out of the fixed term they agreed.

Your mortgage broker will be able to talk through your possible scenarios to identify more flexible deals if it is likely that you will need flexibility or the peace of mind that you can get out of your mortgage without a high penalty.

Conclusion

There are so many reasons for using a mortgage broker when buying a home but the key argument is that your mortgage is a huge purchase and one mortgage deal varies significantly to the next. Without taking expert advice from a broker, you risk paying thousands of pounds more than you would have if you had been shown a better deal from a broker.

As brokers have access to many more lenders than you would be able to access yourself, it makes sense to use them to access these other lenders that could save you a lot of money. With the majority of brokers not charging mortgage applicants for their services and instead working on commission from the lender, there is usually no additional cost for the applicant. So, you can access better deals, get free professional advice and have a lot of the hard work, such as admin, taken care of by the mortgage broker.

Jargon Buster

Understanding mortgage terminology is not always easy, so here is some of the terminology and jargon that brokers may use in more simple terms:

  • Affordability check

Where the lender checks how much you can afford to borrow based on income and expenditure. The calculations for this can vary from one lender to another.

  • AIP (Agreement in Principle)

A document that confirms the mortgage lender will allow you to borrow a specified amount. An AIP document is often used as evidence to the seller that the potential buyer will be able to afford their property.

  • APRC (Annual Percentage Rate of Charge)

The APRC shows the entire cost of the mortgage and includes all interest and any fees from the lender. The cost is based on paying the mortgage over the term agreed, so can be used to compare deals over the same length of term.

  • Arrangement fee

The fee that the lender charges you for setting up your mortgage. You will usually have the option to pay it upfront or for it to be added onto the loan and paid as part of your monthly payments. When it is added onto your loan, you will be paying the interest on it.

  • Arrears

If you miss any mortgage payments, these are classed as arrears. Your lender will have a set process of actions they take depending on how many payments are missed, which can result in your home being repossessed if payments are not made.

  • Base rate

This is the interest rate that is set by the Bank of England and affects tracker rates and standard variable rates. The base rate sometimes changes, it was as low as 0.25% in 2016 and was as high as 15% in 1989. In recent years it has not been higher than 0.75% but factors such as the inflation rate influence the decision made by the Bank of England’s Monetary Policy Committee on whether to change the base rate.

  • Buildings insurance

The insurance policy that pays for any damage to your property’s structure. A mortgage lender will require you to have taken out buildings insurance to protect their loan.

  • Buy-to-Let

A type of mortgage that is taken out when the property owner is buying the property but letting it out rather than living in it themselves.

  • Capital

This is the overall amount of money you borrow from a lender to buy a property.

  • CCJ (County Court Judgement)

If you have failed to pay an outstanding loan, the lender will usually register a CCJ court order against you. Having CCJs affects your credit profile and can mean that some lenders will not be prepared to provide you with a mortgage.

  • Conveyancing

When you buy a property the legal process involved is called conveyancing.
Deposit
The deposit is the amount of money that you are putting towards the cost of the property. Most lenders will ask for a minimum of 5% deposit before they will provide you with a mortgage loan. To access the more competitive loans with lower interest rates, a larger deposit is required.

  • ERCs (Early Repayment Charges)

If you want to pay off your mortgage early (i.e. when you sell your house or change mortgage deal) then you may need to pay an ERC. Usually ERCs only apply for the fixed rate part of the deal.

  • Equity

The equity is the amount of the property that you actually own. This is calculated by subtracting the amount you have paid (in deposit and repayments) from the mortgage loan.

  • Fixed rate mortgage

This type of mortgage has a fixed interest rate for the amount of time agreed, which will typically be two, three or five years.

  • Freehold

A freehold property is where you own the land rather than a third party that you lease the land from.

  • Gazumping

Where another buyer puts a higher offer in on the property that you have put an offer in for and the buyer accepts their offer.

  • Guarantor

A guarantor can act as a guarantee to the lender that the monthly payments will be made. A parent or guardian is able to act as a guarantor on some types of mortgage.

  • Help to Buy

A government scheme that aims to help more people to afford homes. There are different types of Help to Buy schemes and a Help to Buy Isa.

  • Homebuyer’s Report

This is the survey that is completed before buying a property that will check for any issues such as damp, subsidence, out of date electrics etc.

  • Interest-only mortgage

A mortgage where just the interest is paid and not the capital. This means that at the end of the term of the mortgage, the mortgagee will not own the property and will need to then buy the property.

  • Intermediary

An intermediary is a third party such as a mortgage broker who helps to arrange a mortgage, usually taking commission from the lender for their services.

  • Leasehold

The land that your property is built on is owned by a landlord and you must pay rent for the land, usually once a year.

  • LTV (Loan-to-Value)

The ratio calculated between the property value and the amount of your mortgage. Better deals are available for people with a better LTV ratio (for example, borrowing 60% or less).

  • Mortgage deed

The mortgage deed is the legal document to confirm the mortgage agreement.

  • Mortgage Illustration

The document supplied by the mortgage lender that details the mortgage offer and enables you to compare the product to others.

  • Mortgage term

The length of time that you take the mortgage agreement out over, often 25 or 30 years but this can vary.

  • Negative equity

Where you owe more on your mortgage than your property is worth. This can happen where property values drop.

  • Overpayment

Where you pay more of your mortgage than the amount agreed. Some lenders will penalise for doing this but it generally allows a borrower to pay their mortgage off faster and pay less overall interest.

  • Porting

Where you transfer your mortgage from one property to another, without the need to take out another mortgage agreement.

  • Remortgage

Taking out a new mortgage without moving house. There are different reasons for remortgaging, including moving to a better deal and releasing equity in your property.

  • Repayment mortgage

The standard type of mortgage where you pay both the interest and the capital repayments, as opposed to interest-only where you only pay the interest off.

  • Stamp duty

A tax that is paid when buying a property. This is currently applicable to properties with £125,000 or more.

  • SVR (Standard Variable Rate)

The rate that the mortgage reverts to once the fixed or tracker rate period finishes. People usually look for a new mortgage deal once the deal reverts to the SVR, as it will usually be higher than the interest they can get on a new deal.

  • Title deeds

A document that shows the ownership of the property.

  • Tracker mortgage

A mortgage with a variable rate that tracks the base rate, i.e. if the base rate goes up by 0.25%, so does the monthly mortgage payment.