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Get the Right Mortgage
It's our biggest financial commitment, our biggest potential saving, and usually our biggest mistake. Most people go direct to banks and building societies to get a mortgage. Nightmare! They simply flog you their own, usually uncompetitive products. This is my three step strategy to get top one-on-one mortgage advice for free, plus possibly get some of the brokers commission paid to you! The right mortgage broker can quickly source a top product, offer an extra layer of protection if things go wrong and carry extra clout with lenders, easing the acceptance of otherwise unobtainable mortgages.
Inform Yourself - Remember they're mortgage ‘advisors' not ‘instructors', this is one of the biggest financial decisions you'll make, so arm yourself with an understanding of mortgages in order to make an educated decision. Read up on how mortgages work (see the Free MoneySaving Guides to Mortgaging and Remortgaging) and provisionally research before going to a broker. Existing mortgage holders should get a benchmark rate by asking for your current lender's best proposition. The following are the best sources of mortgage information on the internet, great to get an idea about what's out there at the start of the process. However, there's a big warning here. Unless you're very savvy I simply would not transact a mortgage online, far better to speak to a broker. And if you are savvy, see later for how to go online to get your commission rebated.
Picking the Right Broker - This boils down to asking any broker two key questions.
Are you the whole of the Market? - This means ‘will it look at all the UK's mortgage lenders to pick the best for you?'. Some brokers are whole of market, others operate off a small panel of lenders as that way their commission rates tend to be higher. If a broker isn't whole of market, walk away. Unfortunately when the Financial Services Authority started regulating brokers in Oct ‘04, it left a loophole allowing some to claim ‘whole of market' status while offering only a panel of lenders, providing they review the top deals every two months; simply not frequent enough in the fast moving mortgage market. Therefore, to be more advanced ask, “could you, right now, source a mortgage for me from any available UK mortgage lender?” If you're looking for endowment help at the same time you'll need a broker with a qualified Independent Financial Adviser as well (See The Mortgage Broker Comparison Chart To See Who Has IFAs).
How Will you Make your Money - Brokers have two sources of income. Commission. Lenders pay brokers a ‘procuration fee', a whopping 0.25% to 0.5% of the mortgage's value, rising up to 1% for mortgages for those with poor credit. That means on a £150,000 mortgage brokers typically earn £375 to £1,500. Fees. Brokers may also charge you a fee directly. No reputable broker will charge more than 1.5%, even for ‘sub-prime' customers. If any charge more, walk away. Fees can be charged at any point in the process, providing they inform you initially. Yet avoid using any broker which will charge you before completion, it can cause problems if things change later. The answer to hope for… You want a fees-free, whole-of-market broker. This means it only earns commission, however as it's whole-of-market, it must give you best advice anyway. Why 'independent' is irrelevant. This isn't essential information, it's an advanced note. Any non MoneySaving-nerds can happily skip over this and know enough to get the best mortgage advice out there. Yet it is interesting to note how brokers' charges work. Many brokers charge both fees and take commission. However, to call themselves an ‘Independent Mortgage Broker' they must offer an option to pay fees only, with any commission earned available to be rebated. Yet in practice this is bunkum as what tends to happen is this: they offer to allow you to pay either a “1% fee in full and they will rebate their 0.35% commission” or alternatively they'll suggest you can just pay a “0.65% fee and keep all the commission” in other words, no difference. Worse still, it means a truly whole of market broker, only taking commission, can't call itself independent even though it is providing the same advice and is cheaper. So sadly it's best to simply ignore the ‘independent' term, and simply stick with the questions.
Finesse the Deal and Get Cashback - For most people that's it – you're done and you should get a very good mortgage deal. However if you have time, energy and are money savvy, then it's possible to finesse things even further. There are a few lenders all brokers miss A very limited number of lenders don't offer products through mortgage brokers. And if that's the case then even ‘whole of market' brokers won't cover them, as whole of market is defined as the whole of the ‘available' market. Therefore if you're getting a mortgage, for belt and braces you may want to compare the best deal your broker has found you with those from the un-included lenders which are HSBC, Egg, Yorkshire and Britannia Building Societies. For full details of exactly how to do a proper comparison make sure you've a copy of the full Mortgage or Remortgage guides.
Do it online and get cashback too There are two websites which offer to do something a little different. If you process the mortgage through them, they'll pay you a proportion of the commission they earn as cashback. The easiest of these to use is MoneyBackMortages which enables you to do it with over 100 lenders; it pays 50% of the commission it earns as cashback which is usually between £100 and £300 per £100,000 of mortgage (there's a calculator on the site to show you how much you'll get). The alternative is MortgageGenie* which offers a similar but limited route. Yet remember this is only for the very money savvy, who know and can identify exactly the right mortgage for themselves. Otherwise, having the weight of an advisory broker on your side is worth more than a few hundred quid when it's part of a mortgage transaction.
Playing brokers off against each other All the national brokers above only charge upon completion of the mortgage, and as it's always good practice to seek more than one opinion, why not try a few? Though do check that the brokers aren't doing a credit search on your file when this happens, as then shopping around may actually hurt your credit score and mean you get a worse deal (see How Credit Scoring Works article). The other benefit of this is that some of the bigger brokers often have exclusive deals from lenders; and this is worth checking out – though remember to weigh up the benefit of the exclusive deal against any broker fee you may need to pay. It's worth noting that the UK's biggest broker Charcol often has exclusives, and while it charges a fee for advice you can process through its Charcol Online* website fees-free – so you could get the advice and then apply through the website for free. This also opens up an interesting possibility. It is of course possible to take the info from a ‘fees based' broker and ask a ‘fees-free broker' (if you want continued broker help) or cashback website to process it for you. This is a balance of both ethics and practicality, it's likely you'll want to stick with the broker who gave you the best advice, but the option to cut the cost is always there. For those wanting a more informal route In the Chat Forum's Mortgage Board some mortgage brokers voluntarily answer questions - it's an easy non-committal start option. Many are fees free whole of market mortgage brokers, so if they do help you, there is no reason not to process your mortgage via them (always ask them the questions first). However, as always the golden rule is do seek more than one opinion before deciding.
By - www.moneysavingexpert.com 2007
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