Buying your first home is a huge moment in anyone’s life, and that initial step onto the property ladder can seem overwhelming. Looking for a house or flat is exciting, but looking for a mortgage less so! Tying yourself into a loan that is going to take 25 or more years to pay back is a daunting task that might cause even the most worldly-wise person anxiety. Where do you begin? Bank? Building Society? Fixed-rate, interest-only, standard variable rate? It feels like you are walking through a minefield, and you certainly don’t want to take a misstep.
You can go it alone, but you really are going to get the best results (not to mention peace of mind!) by working with an expert. In the mortgage world, working with an independent mortgage broker is that expert, and they can help guide you to the mortgage product you need, not to mention help you get the best deal. So, if you’re not sure if you should work with a mortgage broker, or what’s involved, keep reading and we’ll cover some of our most frequently heard questions.
What is an independent mortgage broker?
If you approach a lender directly, you will be dealt with by a mortgage advisor who will try to make certain you get the right mortgage for your circumstances but only from the range of products from their bank or building society. An independent mortgage broker is not employed by just one lender and so can guide you through a wider range of options making the search for the ideal mortgage easier and more straightforward.
Are all mortgage brokers independent?
The short answer is no. Some mortgage brokers are tied to a panel of lenders or even a particular lender. They will only be able to offer mortgages from this group and not the same wide choice as a truly independent broker. This may mean you miss out on the best deals the market has to offer.
You should be aware that even the most independent of mortgage brokers won’t have access to the entire market, but most of it. They also often have access to products you can’t or won’t see when researching mortgages yourself.
How do you select a mortgage broker?
As we have seen, not all mortgage brokers are actually independent. While those tied to an individual lender or panel of lenders might get you a good deal, it is unlikely that they can match the suggestions of a genuinely independent mortgage broker.
You also need to ascertain whether they are regulated by the Financial Conduct Authority. The FCA will make sure that a certain level of service is provided and that you have recourse to the Financial Ombudsman should problems arise. Mortgage brokers will display this regulation on their website and elsewhere in their promotional materials.
What does a mortgage broker bring to the table?
The big plus of using an independent mortgage broker is that he or she knows the market. The world of mortgages is a big one and constantly changing with new offers and products becoming available, with varying interest rates and special offers. As a first-time buyer, it can be bewildering, and this is where the mortgage broker comes in. They will know what is available and be able to match the products with your situation, your budget and your earnings. They will also advise you on what to prepare so they can ensure you get the mortgage you agree upon with them.
They will also know the differences between lenders and be able to suggest which may be most suitable for you and which are most likely to accept your application. Not all lenders have the same criteria, especially when it comes to first-time buyers, so they will be able to tell you about any suitable products that are tailored to your circumstances.
They will also give you an accurate idea of just how much you will be able to borrow, so bringing a mortgage broker on board at an early stage is a good idea. Further down the line, a mortgage broker will also help with advice for things like home insurance and the like that are all part of the home buying process. (This is essential for your mortgage and to protect you, so don’t shy away from additional home insurance products and income protection insurance they may talk to you about.)
A good broker will then lead you through the application process and act as your go-between with the lender, smoothing the path and making sure there are no hic-cups. A mortgage broker should make the whole rigmarole of applying and securing a mortgage quicker and so much less stressful.
What is this advice going to cost?
Your mortgage broker will give you detailed information about how they get paid and how much. Many receive a commission from the lenders while others charge the home buyer a fee. This ‘Key Facts Illustration’ has to be provided and should answer all your questions about the costs involved.
Find out at the start how your mortgage broker is to be paid, whether it will be commission from the lender, a fee or a mixture of the two. Also, make sure that no fee will be charged if a mortgage deal doesn’t go through. Don’t shy away from “free” mortgage brokers – if they have access to a wide range of mortgages and are FCA regulated, they won’t be biased toward any one lender. (It’s always a good idea to look for reviews and recommendations when choosing a broker to work with.)
Commission rates vary, but around 0.35% of the loan is the norm. So on a £200,000 mortgage, the broker would receive £700. You can always ask them what their rate is for each product they suggest, and they should be open with you.
Should I Work with a Mortgage Broker?
Whether you’re a first-time homebuyer or not, working with a mortgage broker is always a good idea. Mortgages aren’t like buying car insurance or even taking out a personal loan. Get it wrong, you may struggle to make your monthly payments if interest rates change, and remember that they can repossess your home if you don’t keep up. A mortgage broker will help you find a suitable mortgage at a low rate and advise you on what insurance to buy to keep you secure in your homeownership for good.
If you’re ready to work with a mortgage broker, we’re here to help. Click here to learn more.