In this blog, we will cover “what a mortgage broker is” and why mortgage brokers are still very relevant in today’s financial market.
What is a mortgage broker?
A mortgage broker is an intermediary between a mortgage lender and a prospective mortgage borrower. When a prospective borrower seeks a mortgage they can either apply directly to the mortgage lender or they can go to a mortgage broker who may have access to a greater amount of mortgage products for them to choose from.
All mortgage brokers in the UK have to be regulated by the FCA.
What is the role of a mortgage broker?
A mortgage broker will assess your mortgage needs and consider you in the same away a mortgage lender will consider you in order to figure out how much you may be able to borrow. The mortgage broker will then look to get you a mortgage in principle after getting your permission to apply for the mortgage in principle with the mortgage lenders that they have presented to you.
Before this the mortgage brker will request your indetification and other mortgage documents including:
3 months worth of bank statements
3 months worth of payslips
Your P60 Tax return
You SA302 Tax calculation form if you are self employed
Compamy or self-employed accounts if you are self-employed
Once you have gotten a mortgage in principle you can then go on to shop for a proeprty and after you have found one you like the mortgage broker will then make another mortgage application to the mortgage lender. At this point the mortgage broker will fill in the mortgage application questions on your behalf and make the application to the mortgage lender for a mortgage offer.
What is the difference between a bank and a mortgage broker?
The difference between a bank and a mortgage broker is that a mortgage broker will have access to over 11,000 products in the mortgage market and may be able to advise you on them but a bank will only advise you on the mortgage products it provides. This means you potentially limit your mortgagee advice and may miss out on more suitable mortgage products.
Why are mortgage brokers relevant?
Mortgage brokers are very relevant as they offer a higher level of service than most options out there due to their experience in dealing with prospective mortgage borrowers every day.
The other options to a mortgage broker may be:
The issue with comparison websites is that they don’t provide the same level of quality of service as a mortgage broker. Comparison services don’t look into you mortgage affordability, they don’t require your financial data or credit score data when they provide your recommendations but rather they show you recommendations based on the most minimal data. This makes many if the recommendations they make questionable and you certainly shouldn’t base the whole of your mortgage decision on the recommendations from a comparison website.
As we touched on above mortgage lenders can only recommend products from their own range and cannot advise you on products which they do not carry. There are over 11,000 mortgage products out there and hundreds of mortgage lenders.
Taking mortgage advice from a mortgage lender will, therefore, mean you are intentionally limiting the number of products you can be advised on and potentially missing out on mortgage products that may be more suited to your circumstances.
Why do you need a mortgage broker?
Mortgage brokers may have specialist knowledge on particular products or circumstances and may be able to offer you specialist advice. This could be the case with self-employed mortgage brokers, bad credit mortgage brokers etc
Mortgage brokers may be able to offer you special deals given to them by mortgage lenders, mortgage clubs or even mortgage packagers. Mortgage lenders will usually try and get mortgage applications submitted to them through a mortgage packager or mortgage broker as the quality of the application will usually be much better than those done by borrowers themselves.
Mortgage brokers may also have access to the whole of market products which doesn’t mean every mortgage product out there but a high percentile of the mortgage products available on the market.
Some mortgage lenders also don’t accept mortgage applications directly but only deal with mortgage brokers in order to reduce their costs.
Due to the specialist areas of the mortgage market, if you have been declined fro a mortgage you may find that a mortgage broker is able to find a mortgage lender willing to lend to you.
Do mortgage brokers charge?
Some mortgage brokers may charge you a fee for using their services. This will either be a fixed fee or a percentage of the mortgage usually not more than 1% but may be up to 3% on commercial mortgages. A mortgage broker must always tell you about its fees before they do any work for you through its initial disclosure document.
Questions you should ask your mortgage broker:
- Do they charge a broker fee?
- Do they cover the whole of market mortgages?
- Do they offer mortgage protection?
- Do they offer a panel of conveyancers?
- Do you have to take their insurance products?
- How busy are they at the moment?
Should I use a mortgage broker?
Yes! A mortgage broker certainly offers a lot of benefits and using one may be very beneficial to you. The only exception to this rule is when you have no equity in your property. IF you are looking to remortgage and have a 100%+ Loan to value (LTV), then you can be defined as a mortgage prisoner and the only option is to go to your current mortgage lender and see what remortgage options they may have for you.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.