Finding a good mortgage broker could help you find a better deal and save you thousands on your payments mortgage over the years.
Understanding how brokers are paid helps you ask the right questions when choosing a broker.
What Does a Mortgage Broker Do?
A mortgage broker searches for applies for suitable mortgages on your behalf, based on your needs and financial situation.
The broker handles all the mortgage paperwork and should help you find the most competitive deal available for your particular financial circumstances.
A good broker will also guide you towards the mortgages which you’re likely to be accepted for- as being rejected for a mortgage once can make it harder to have your application approved elsewhere.
They may work independently or with a small number of mortgage providers and are paid, normally by fees charged to the buyer, whenever they sell a mortgage.
Is It Work Working With a Mortgage Broker?
A good broker should be an industry expert and use their specialist knowledge to save you time and money.
They can also help you avoid application rejections, which can damage your chances of getting approval elsewhere.
Due to their expert knowledge, brokers should be able to find the best deals on the market for you. The potential savings to be made by getting a good deal could quickly pay back any money you spend on brokers’ fees.
In addition to this, if you decide later on that your mortgage is not suitable or was mis-sold, it is possible to address this with regulatory bodies. If you shop for a mortgage yourself and get it wrong, you’re lumped with your mistake.
How Do Mortgage Brokers Get Paid?
There are different ways brokers are paid, and you should are entitled to ask your broker about them before you enter into business with them.
Brokers can be paid by:
- Flat fee: a fixed fee is charged to the buyer and noted separately from other mortgage fees on your bill
- Hourly rate: The broker could charge an hourly rate, which is billed as a separate expense from other fees on your invoice. It’s a good idea to ask for an estimate before you start if your broker charges an hourly rate
- Fee-free: A fee-free broker may be paid from other administrative fees within the mortgage, or receive a commission directly from the lender.
- Commission: The broker could be paid commission (a percentage) of the mortgages they sell. This could come from their employer or the lender.
Many brokers get paid through a combination of the above (for example, a flat fee and a small commission), so it is a good idea to ask for a full breakdown of fees before you enter into work with the broker.
How Much Do Mortgage Brokers Get Paid?
The average flat-fee for a mortgage broker in the UK is around £500. However, many brokers also receive some kind of commission, which may be from 1-2%. This is charged on the value of the mortgage they broker.
For example, if a broker charges 1% commission, they would earn £2000 on a £200,000 mortgage.
Some brokers may charge a combination of different fees, such a such as an upfront fee before you start working together, plus a commission on completion on signing the mortgage.
If the application is tricky – for example, you have a very poor credit score, or irregular income- you could be charged extra for the additional time and effort the broker will need to put into the application.
For this reason, it is always a good idea to ask for a full breakdown of potential fees before getting started.
How Much Do Fee-Free Mortgage Brokers Get Paid?
Some brokers advertise fee-free services, which means you won’t pay any costs upfront when you work with them.
However, ‘fee-free’ brokers often still earn a commission, but may not signpost it on their bill. It is important to ask whether the broker uses the whole market or just a few select lenders because often fee-free brokers get paid a commission directly from lenders.
This means that instead of searching the whole of the mortgage market for the best deal, they will pick the best deal being offered by one (or a small group) of lenders, who pay them commission, so they don’t need to charge upfront fees.
There is nothing necessarily wrong with this, but it is important to understand the type of service you are getting before committing to any mortgage products.
When Do You Pay Mortgage Brokers?
There are many fees associated with mortgages, and if you apply through a broker, then they will be the one to send you the bill for the lender’s fees.
Common fees charged by lenders which you should expect your broker to pass on to you include:
- Underwriting or arrangement fees: these are the administration costs charged by the lender when setting up a new mortgage
- Application or booking fees: many lenders charge a fee when you apply for a mortgage, which may not be refunded if you are rejected
- Cancellation fees: Once an application has started, you could be charged a cancellation fee by the broker if you decide to back out
- Early repayment fees if you’re remortgaging: When you remortgage, you could be charged early repayment fees on your old mortgage contract
The Financial Conduct Authority regulates mortgage brokers in the UK. You can check whether a lender is regulated by looking on the FCA register.
If a broker is regulated, they must abide by certain minimum standards which are designed to protect buyers, such as:
- Clearly explaining the options available to you
- Thoroughly consult with you to get a good understanding of your circumstances
- Provide you with sensible, convincing reasons why you should opt for their chosen mortgage
If you later feel that you have been mis-sold a mortgage which was arranged by a regulated broker, you can make a complaint to the UK’s Financial Ombudsman Service.
They have the power to investigate your complaint and may force lenders and brokers to take certain actions without either of you having to resort to costly legal proceedings.
Pros and Cons of Using a Mortgage Broker
|Likely to save you money on your mortgage||There are often upfront fees to pay|
|Reduces the paperwork and stress of the application process||Some brokers only work with a few select lenders, so you could miss out on other deals|
|Should be able to find you the best contract for you needs||If you don’t ask questions about how the broker is paid, you could be misled|
|You can appeal if you later feel you have been mis-sold|
How Can The Mortgage Bank Help?
Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.
They have already helped thousands of people get the best mortgage deal even people that have been refused before, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.