Do You Need a Mortgage Broker?

The securing of funding for a major investment such as a house can be quite challenging. As such, you might think that the assistance of someone who presents themselves as an experienced dealer in the highly competitive property market is a godsend for would-be homeowners.

And by design, mortgage brokers should ease up a lot of complications from securing funding for your would-be purchase of a property. However, this does give rise to the question:

Are they Needed?

The answer, surprisingly, is not really. You can technically secure that funding on your own. However, there is without a doubt that the assistance of a broker will make the approval process of your mortgage all the more easier for you.

Addressing the Elephant in the Room

Before anything else, it is important that we tackle the issue. Why are brokers not exactly integral to securing that all-important mortgage?

Those that have secured their mortgages without a broker have their own specific set of reasons why. However, all of these reasons can be grouped into 4 different categories.

The Fixed Rate Period

A lot of brokers claim in their ads that their services can help you save in the long term. This is because they can find the lowest possible fixed rates in the market.

The truth is that most homeowners would be better off securing a variable rate mortgage nearly 90% of the time. The reason is that a lot could happen within a period of a few years. If you choose the broker’s fixed rate promise, you might be shouldering an increasingly unmanageable obligation.

You Already Have an Established Relationship with a Bank

The one factor that makes securing a mortgage hard is that the lender and lendee have no relationship. You don’t know the bank and the bank, in turn, does not know you enough to trust you.

As such, in this instance, a broker can come in handy as their line of work allows them to work closely with lenders on a regular basis. With someone trustworthy to advocate for you, the bank will easily approve of your request for a mortgage.

On the flip side, a broker is no longer necessary if you have an established relationship with the bank. If you can easily stroll in your local bank and ask the clerk (who knows you on a first name basis) of their mortgage offerings, then you can secure that mortgage by your lonesome.

Stigma

More often than not, people avoid brokers because of the negative reputation they have. Most of it can be traced back to how “fraudulent” and pushy these brokers can get.

For example, it was common in the old days to find an amateur broker to claim that they know of interest rates that are 2-3% lower than what the Bank of England offers. Some would even just display the bank’s previous rates, not the best available rate online.

What you have to understand is that brokers, like any mutual fund sales agent, only get paid if someone buys a product that they are hawking. Their services might be advertised as “free” (Hint: it’s not. Especially in the UK.) but you have to know in what other ways they are compensated.

The Push for DIY Investments

The biggest argument against brokers today is the wealth of information readily available to people to make better investment decisions. Mortgage rates are always posted online and there are apps that allow you to compare and contrast current mortgage rates.

Research can really help you make better informed investment decisions nowadays. If you are quite confident in subjecting yourself to the ins and outs of this market, you might even secure a favorable deal with a lender with no additional strings attached.

On the Flip Side….

What can you expect if you do avail of the services of a broker? Their assistance can come in a number of forms designed to help you through every phase of the funding process. These include:

Learning How to Buy

Buying a house can be stressful. There are just too many rates to compare and keep track off and the market itself can change drastically within a short period of time.

A particularly good broker can guide you through the process of securing a mortgage and buying property. In addition, they can answer any questions you have to clear up your confusions and doubts regarding the whole process.

Comparing Lenders and Products

Try this experiment. Go to your local bank manager and ask them which mortgages they have to offer. After that, you must ask an expert broker the same question.

You will find that the bank manager will try to push you into buying “their product”. On the other hand, the mortgage broker helps you find the “best available product”. It’s surprising how two different people operating in the same market can have different perspectives on what you need which leads to different results altogether.

A broker can help you save time, avoid getting confused in the process, and have a better chance of securing a better mortgage rate. Without a broker, the chances of finding a good deal are significantly lower.

Benefiting from Their Experience

Home loans are particularly tricky products. A small difference in the interest rate could yield huge repercussions for you in the years to come. For example, a 0.2% change in the rate could result in you paying a difference by that range from a hundred pounds to thousands every year, depending on the case.

A broker is someone who usually has years’ worth of experience dealing in the financing world. They spent years honing their craft and learning information that would answer every possible question that you might have.

However, the most important thing that they know is how to get your application for a mortgage approved as quickly as possible. Also, they know which loans would work for your budget and goals.

Speeding Up Applications

The most exhausting part about applying for a mortgage is the torturous wait to get it approved. This can be disadvantageous in some cases as prices in the property market can be quite volatile. Some properties even change prices every few days which means that you have to secure the deal ASAP if you want to get it cheaper.

Through the use of their connections and their knowledge of the application process, the broker can speed things up for you while keeping everything perfectly legal (of course). If you avail the services of a particularly well-established broker, you can have the mortgage approved within half a week.

Easing Up the Buying Process

A lot of banks have large credit departments. And because of that, they have a tendency to get disorganized.

A single bank can receive hundreds of mortgage applications a day and, thus, it is not unlikely for an application to get lost from time to time. Some banks would even forget that such clients exist even after making a meaningful first meeting with them.

The broker can act as a liaison between you and the bank. They can update you on what other requirements you have to meet to speed up the application and can set up appointments on your behalf.

Aside from that, they can act as a middleman between the real estate agent, the conveyancer of your choice, and you. With their help, the act of finding a good piece of property to invest in is easier.

Specializations

This might come as a surprise for you but not all brokers share the same skills and expertise even in the field of securing loans. There are some situations that are too complex or difficult to handle where the assistance of a specialised broker will come in handy. Brokers can specialise in a number of fields which include:

Residential Property

This is where most brokers fall under. Their work simply involves helping clients get a competitive interest rate as well as providing guidance on investments and financing, including refinancing.

Investment Property

These brokers typically help sole entrepreneurs increase their property portfolio by acquiring Buy-to-Lets and HMOs.

Development Finance

These brokers specialize in Construction Financing which perhaps one of the more demanding fields of Finance to day. They can simplify the entire process for would be investors for large construction projects while providing advice on where things can go possibly wrong. This may also include brokers able to arrange Bridging Finance, a more short-term but expensive option.

Commercial Properties

Brokers under this specialisation offer services for would be business owners or purchasers of commercial property. It is important to know that commercial properties operate differently than residential ones. Valuations tend to be based more on revenue than say brick and mortar more typically found in residential properties. Requirements for securing mortgage revolving around commercial properties will be stricter and would require a broker who can establish a good relationship between lender and lendee.

Bad Credit

A poor credit rating can be detrimental to you in a number of ways, chief among them being the fact that it could get your mortgage/loan applications instantly denied. A bad credit broker specialises in helping people with poor credit reports avail of the best loan that matches their needs.

Some brokers of this specialisation can also offer advice on how to meet the obligations incurred by such mortgages and get such actions to reflect positively on their client’s next credit report.

Non-Resident

As the name would imply, these brokers specialise in helping non-resident buyers in securing funding for property investments. They can orient foreigners on the standards and processed being observed in the UK market while also helping them meet requirements in order to legally invest in the country.

Employment

If you are out of a job and in desperate need of cash, these type of brokers are your go-to people. An employment broker can help you get in touch with a lender and build up a strong case that will help you secure a sizeable loan for your new employment or a new business venture.

Non-Traditional Properties

A broker of this caliber specialises in dealing with properties that could not be easily categorised as either commercial, residential, agricultural, industrial, or land parcels. Areas like studio apartments, hobby farms, and high-density apartments are where these brokers specialised at and can help sellers and buyers of such lots get the best possible deals.

How do Brokers earn Money?

What you have to understand is that brokers are essentially middlemen between borrowers like you and lenders like the different banks in your area. However, this does give rise to another question: how much should you expect to pay for their services?

The service fee you will have to pay up at the closing of a deal is a mere percentage of 1% to 2% of the total amount being loaned. For instance, if the mortgage you secured is priced at £200,000 then your broker will expect payment in between £2,000 to £5,000 depending on your agreement.

Are there any other fees that you have to be aware of if you seek the help of a broker? The answer is yes. There are other charges that you have to be aware of if you do seek the services of a broker. These include:

Fixed Fees

A broker is within their rights to ask for payment for their non-transactional services which include advising their clients and preparing documents. Fixed fees range in between £400 to £750 depending on the specialization and depth of experience of the broker.

Hourly Rates

If a broker has to spend valuable time in advising their clients, they may charge their clients for it by the hour. Again, this does not have a fixed rate but you can expect to pay more of a broker the more time in a day they have to devote to your case.

Combination

Some mortgage brokers use a combination of these payment methods to profit from their work. For instance, a broker might charge an hourly fee but they can also earn by commission.

“Free”

Notice the quotation marks. If a broker says that their advice is “free of charge”, that is another way of saying that they are getting their money from somewhere else for this transaction. More often than not, they are paid in commission by the lender directly.

As for other hidden fees, you need not worry. Under UK law, brokers are required to disclose all the fees that they charge to their clients and in what amount or rate. Each of their fees should be itemized and should contain a detailed explanation as to what the fee is for.

Also, laws further regulate how brokers can profit from their services rendered. For instance, they cannot charge any hidden fee or tie their pay to your loan’s interest rate. Also, they cannot be paid both by you and the lender or get paid for steering you into securing a mortgage agreement with an affiliated lender.

What to Look for in a Mortgage Broker?

As your go-to person in securing the funding for a property, you have to make sure that your broker is one of the best in the field. After all, if they are incompetent at their job, what are your chances of getting the best possible deal out of your would-be investment?

When looking for a mortgage broker, there are several things that you have to be aware of aside from the usual formal stuff like experience and a duly renewed license. They are, but not limited to, the following:

Your Interests at Heart

It goes without saying but the broker of your choice must be there to make the process easier for you. With their knowledge and skills, they should be able to remove any confusion from the process of getting a mortgage.

As such, you have to pay attention as to what they want to be done in the soonest possible time. If a broker insist that you get a mortgage ASAP, there is a chance that they are in the business to earn a quick profit.

Meticulousness

Always remember that the Devil is in the details whenever money is involved. Unfortunately, it is all too common in securing funding for important details to get lost in the communication. This could result in your application being delayed as the lender has to make extensive background checks (they may even pull off a hard request from your credit report) or have it denied outright.

You will need a broker who is on top of things in making sure that you meet every requirement and every information you give out is 100% factual and accurate. You should also look at the speed of their work. You don’t want a broker that rushes things through as this increases the chances of your application being delayed.

Work Ethics

Obviously, you would rather work with a broker who maintains a professional image. Have someone that is punctual enough to meet you on appointed dates and keeps things short and direct to the point.

Also, you want to work with someone who is friendly and polite enough in your engagements with them. If you can, seek referrals from past clients and even from lenders as they can provide you an insight as to who is the best in the market currently.

Street Smarts

Securing the best mortgage deal takes both diplomacy and wily. You will need a broker that keeps up with current trends and has mastered the art of negotiation. With their help, deals won’t fall through or get canceled at the very last minute.

A broker is good if they can keep the terms favourable to you. An even better broker knows how to make every party of the deal win. And that includes the lender.

Honesty

One telltale sign of a desperate broker is their tendency to over promise and under deliver. Offering deals that are too good to be true are a frequent occurrence in this industry. This is why consumers need to be able to identify when a broker is working against their best interests.

A good broker can lay out to you every possible consequence if you choose this plan over the other. No sugarcoating. No marketing buzzwords. Just the plain, hard facts.

Once they have laid out every possible outcome, they will then point to you which of these options would work the best given your current situation.

Also, it would be better if a broker can be frank with you regarding some defects in your financial information. If they think that your credit score needs work, they must tell you so and help you improve on it to get better deals.

Lastly, they have to be upfront with their fees. Not only is this required by the law as was previously mentioned but being honest with how much their work is going to cost you tends to help the broker build rapport with their clients.

Competitive Rates

Interest rates are currently at a low in the UK. When securing a loan with a mortgage broker, do not hesitate to ask the lender to compare them with other professionals who are offering low rates.

At worst, this request will be denied outright. At best, however, this gives your broker of choice the cue to get competitive with their offerings and help you find the deals that you need.

What you will be looking for here is their flexibility. A competitive broker knows when to drop their prepared deals to give you better ones if this means that you are satisfied with the transaction. A broker who does the opposite and insist that you get this mortgage with this rate is a sign that they are only there to make a living out of you.

One key factor to remember here is that you should always protect your interests. There is nothing wrong with being a little bit selfish when securing mortgages. After all, you will be the one shouldering a considerable obligation for years to come.

How Do I Choose a Broker?

There are actually several ways that you can go about looking for the right broker. You can always refer to friends and family as you might know of someone who has worked with a broker before. However, just make sure that that referral is legit and not just because your friend/relative is on good terms with them.

Another good source is your estate agent. Agents and brokers often work in tandem for certain projects and might even be on first-name terms with them. Larger estate agencies tend to have in-house brokers that you can go to although you are not obligated to hire their services.

Lastly, there is the UK’s National Association for Commercial Finance Brokers or the Financial Intermediary and Broker Association. They maintain a database of active brokers who operate in different areas. All you need to do is look for the ones living near you and get in contact with them.

In Conclusion

A broker might not be that essential in securing that important mortgage deal. But, without a doubt, their presence in the equation makes everything easier and less confusing.

What you have to always remember is that mortgages are long-term obligations. You will have to deal with it on a year to year basis. As such, you are better off letting someone who knows what they are doing get the best possible deals for you.

A particularly good broker can make sure that the product you get matches what you can pay for regularly. With this, you won’t get stressed out from paying for your loan in the years to come.