Should I use a broker or get a buy-to-let mortgage directly from the lender?
Around three quarters of all mortgages are now arranged through brokers, and it's no surprise given that lending criteria has become more complex in recent years. Read property expert Kate Faulkner's guide to learn more about brokers and the benefits of using their service.
- What does a broker do?
- What are the different types of mortgage broker?
- Why use a mortgage broker?
- How do mortgage brokers get paid?
- Free mortgage advice
- The best mortgage brokers
What does a broker do?
A mortgage broker is an intermediary between you, the borrower and the bank or building society that's lending you the money. They will establish your personal circumstances and make an assessment based primarily on:
- Your income and how it is sourced
- Your residency status and nationality
- The type of property you wish to purchase
- The amount of deposit you have available
- How you prefer to make monthly repayments
- Your credit history and outgoings/expenditure
- Mortgage interest rates.
They'll then do a number of things on your behalf, including:
- Researching lenders and rates
- Narrowing down and advising on the best options for you
- Putting together the complete application package
- Progressing the application with the lender, through to mortgage offer.
As experts, they are able to answer all your questions and explain processes. As they have a duty of care to you, you can be sure they are working in your best interests.
What are the different types of mortgage broker?
Tied mortgage broker
- This type of broker is tied to just one lender or a 'panel' of lenders, meaning they're limited in the number and type of mortgages they can offer you.
- Their close links to the lender means they may be able to offer you an exclusive deal. However, there may be an even better offer elsewhere that they're not able to access.
Independent mortgage broker
- Also known as a 'whole of market' broker.
- They aren't tied to any lender, so are able to offer you a much wider selection of mortgage products and their advice will be completely impartial.
Why use a mortgage broker?
It's a good idea to use a broker because they are professional experts. As such, there are a number of big benefits to using them:
1. They can often get you a better deal.
It might surprise you to learn that around three-quarters of lenders will only offer their buy-to-let mortgages through a broker. That means, if you're looking directly to lenders as a landlord, you're only going to have access to around 25% of the buy-to-let products in the market.
A difference of just 1% in the interest rate could save you thousands of pounds a year.
2. They are duty-bound to help you in your mortgage-buying decision.
As trained and qualified professionals, they should help ensure you end up with a suitable product. If you go direct to a lender, you run the risk of taking out a mortgage that's not the most appropriate for your circumstances, as they can only offer their own range of mortgages.
If the buy-to-let lending is considered to be 'consumer' or 'regulated' (as opposed to a 'business' buy-to-let mortgage), and you feel your broker hasn't carried out their duties properly, you can complain to the FCA.
3. They can explain the whole process.
If you go direct to a lender, they may simply tell you what information they need and give you an idea of how long it might take for your application to be approved.
A broker is more likely to help you understand the different stages of the process and, if there are any issues, they'll be able to explain exactly what's happened and how to best resolve it.
4. The application should be right first time.
One of the biggest reasons for mortgage applications being rejected is that they are outside the lender's policy or they are incomplete (because they've been incorrectly filled in or documentation is missing).
A broker knows exactly what's needed and should ensure everything is correct.
5. They can communicate more effectively with the lender.
As an applicant outside the mortgage business, you're highly unlikely to be able to speak to the right people when you need to. An experienced broker should have contacts in the right places, meaning they can get answers and progress updates more quickly.
Some brokers have spent years forging relationships with underwriters and may be able to reassure a lender about your status as borrowers in a way that you would not be able to do yourself.
6. They save you time.
Chasing up on an application with a lender can be time consuming. A broker will know exactly who to call and when.
7. They can manage your expectations.
When you're dealing with such a big financial transaction, you obviously want to get a firm mortgage offer as quickly as possible. A broker should give you regular updates and be able to explain any delays.
How do mortgage brokers get paid?
If a broker is tied to a lender, they will usually be paid via a procuration fee from the lender, based on a percentage of your mortgage loan. In this case, you may not have to pay the broker anything yourself. If a lender is paying the broker, this is likely to be reflected in any 'arrangement' or 'product' fee the lender charges you.
Many firms do charge an additional fee but they should make this clear to you at the start of the process.
Independent brokers can receive their fee in one of several ways:
- A fixed fee - to be agreed with you, up front and in writing.
- Hourly rate - although this is becoming increasingly rare.
- A percentage charge on the amount of mortgage borrowing - for example, if you agree a 0.5% fee for a mortgage loan of £250,000, you'll pay the broker £1,250. Some brokers may charge up to 1%.
- Commission from the lender - this is generally based on a percentage of your loan amount and typically between 0.35% and 0.45%.
- A combination - in some cases, brokers will take commission from the lender and a fee from you.
- Zero fees - some firms will not charge additional fees and will just be paid the procuration fee from the lender.
Free mortgage advice
Generally speaking, most brokers will be happy to have an initial consultation with you, without charge. This gives them an opportunity to explain their service and give you an idea of what borrowing options might be available to you. Typically you only pay a broker if you decide to follow their advice and they process the application for you.
The best mortgage brokers
The best broker for you is the one that can access and arrange the best deal for your circumstance and give you the service you want, at a fair price.
Three tips for choosing a broker:
1. If you're buying through an estate agent, they're likely to have an in-house or affiliated broker that they will recommend. There's no harm in having a free consultation, but you're under no obligation to use them.
2. Find out how much experience they have and whether they specialise in arranging buy-to-let mortgages.
3. Get recommendations from other buy-to-let landlords in your local area.
Kate Faulkner is one of the UK's leading, independent property experts and regularly features in major newspapers, on the BBC and ITV, as well as regularly co-hosting the Property Show on LBC.
Not sure whether to buy a house with cash or get a mortgage? Read Kate Faulkner's key considerations when investing in a property.
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