6 Reasons to use a Mortgage Broker
by Daniel Pitman
In reality, when it comes to the UK mortgage market, a good broker can be worth their weight in gold.
6 Reasons to use a Mortgage Broker
A mortgage is usually the biggest and longest debt that any of us will take in our lifetime which means that picking the wrong one could realistically wind up costing tens of thousands more than it should.
Once you’ve started to dip your toe in and begin researching mortgages, one of the biggest questions is “should I use a Mortgage Broker or shop around myself?” In reality, when it comes to the UK mortgage market, a good broker can be worth their weight in gold, so to speak. Using experience, knowledge and specialist tools, they act as an 'middle-man', finding you the right mortgage and overseeing the mortgage application until it’s fully agreed.
Without further a do, here are our top 6 reasons to use a Mortgage Broker.
- A Broker will check your eligibility at the outset, so you don’t waste time with a lender who’s criteria you won’t meet
- A Broker will help you find the right mortgage scheme from thousands of options
- If things go wrong with your mortgage application, a broker has plan B, C and D
- A broker Agreement in Principle is based on deeper criteria checks giving a stronger indication of mortgage approval
- Brokers often have good relationships with lenders and can sometimes resolve issues that crop up during the application process
- Some are completely fee free
1. A Broker will check your eligibility at the outset, so you don’t waste time with a lender who’s criteria you won’t meet.
The UK Mortgage market is more complicated than people realise and many of us won’t meet every lender’s criteria. Since the 2007 financial crisis, and following several market reviews, the mortgage world is now more heavily regulated than ever before, with lenders having to show that they’re lending responsibly and within the FCA’s (Financial Conduct Authority) guidelines. Every lender follows their own interpretation of these guidelines and adopts different criteria based on the type of client profile they’re comfortable lending to. This results in each lender having considerably different criteria to the next - which means that for the average person, some lenders will give you a mortgage and some may not. Many people believe that they’re a shoe-in to get a mortgage when in reality there could be major challenges. Alternatively, some believe that they’ll never be given a mortgage however there may be more lenient lenders available that are happy with their circumstances. A Mortgage Broker will research which lenders are most likely to accept your application, saving you the time and hassle of completing online assessments or attending meetings at multiple banks.
2. A Broker will help you find the right mortgage scheme from thousands of options.
There are over a 100 UK-based mortgage lenders, each offering anywhere from 20 to 50+ mortgage schemes. Within this huge array of options, sits the best mortgage scheme for you. This isn’t always just the cheapest option; there are other factors at play, such as your eligibility if you don’t meet some lender’s criteria, or the lender’s service levels if you’re in a hurry and need a faster transaction. Remember, finding the lowest interest rate means nothing if the mortgage is declined or your house purchase falls through. Even with what the internet has to offer these days, finding the very best mortgage scheme for you would require a tremendous amount of research and some luck….but not if you use a Mortgage Broker. A good broker will have the experience, knowledge and tools to find the best scheme that you’re eligible for.
We should highlight that a broker won’t have access to every scheme on the market. A small handful of Banks will only deal with customers directly and don’t use brokers so naturally you won’t access their schemes through a broker. That being said, a broker with a comprehensive panel of lenders will have access to the majority of competitive schemes on the market. Even if you find a cheap mortgage through your own Bank, a broker can usually organise the application to take care of the legwork for you.
3. If things go wrong with your mortgage application, a Broker has plan B, C and D.
When you’re ready to proceed with a mortgage application, you’ll be required to provide all of your personal details plus your documents which the lender will need to assess before they can agree your mortgage. These include proof of income, proof of deposit, bank statements, ID documents - but more can be requested depending on your circumstances; this is all very normal and will be required even if you apply to your own Bank. In an ideal world, your mortgage will be fully accepted and the lender will provide you with a Mortgage Offer - but, as with many other areas in life, things don’t always run that smoothly and the reality is that some applications will be declined. This doesn’t mean you’ve done anything wrong, you may have unexpectedly fallen just outside of the lender’s criteria or they could be temporarily stricter than normal due to market conditions. At this point, if you applied directly to a lender yourself, you’re now on your own to start the whole process again and find a different bank/building society. The benefit of using a broker is that if the first lender declines your application, or you decide to withdraw for another reason, the broker already has all of your information and documents on file and can start researching the market to find you the next best option. You may have heard the myth that if your mortgage is declined it means you won’t be allowed to proceed with another application, but often there’s another lender out there that’s more lenient and would be happy to take you on as a mortgage customer.
4. A Broker 'Agreement in Principle' is based on deeper criteria checks giving a stronger indication of mortgage approval.
For anyone looking to purchase a property, the first thing you should do is speak to a mortgage professional to understand if you’re likely to be eligible, how much you can borrow and to get an idea of what your mortgage payment might be so you can start to budget. At the end of this initial conversation, you should be provided with a document called an AIP (Agreement in Principle). This is also known as a DIP (Decision in Principle) or MIP (Mortgage in Principle). You can either do this directly through a Bank or through a Mortgage Broker. The AIP is essentially a certificate that confirms (in principle) that you can get a mortgage and how much you can borrow. This gives you the confidence to start looking for a property and will usually be requested by an Estate Agent before they let you view or make an offer on a property.
A Bank AIP is usually system generated based on an electronic affordability and credit check. Passing this check is positive but it’s just the first of many checks and is no guarantee that the case will pass the subsequent assessments following the application being submitted. A broker will approach an AIP differently, letting you know the potential hurdles/limitations and making sure that not only will you pass the initial system checks, but that the case should also hold up against the scrutiny of the underwriter when fully assessed. The underwriter is the human at the Bank who looks at everything on your application and ultimately decides if they’ll give you a mortgage.
Kye Collier, one of our Directors at Crescent Mortgages says “There’s a common misconception, perpetuated by some Estate Agents, that an AIP is better obtained from a bank than a broker, but this isn’t true. A broker will check criteria in far more depth than an initial consultation with a bank. We often assist clients who come to us in a pickle because they were given an AIP from their bank, only to be declined the following month after the application was fully assessed by the underwriter. We then step in to find them another lender and get things back on track”
Brokers also have access to all of their lender’s affordability calculators, so will check these before sending you an AIP. This affordability check isn’t the same as a credit check and will never have a negative impact on your credit score.
Kye Collier also went on to state “a broker can run a credit check for a client at AIP stage if they feel it’s necessary, but we don’t usually advise this unless there are serious concerns about a client’s credit. When a client runs a credit check with their bank, it can leave a hard footprint on their credit file which may have a detrimental impact on their credit. Too many of these can cause problems so we try to run just 1 credit check if we can, which will happen when our client’s found a property & we’ve found them the best scheme - and they’re happy to proceed to a full application”
5. Brokers often have good relationships with lenders and can resolve issues that crop up during the application process.
For lots of people, a mortgage application can fly through smoothly with very few problems. For others, the lender can ask lots of questions and you feel like you're jumping through hoop after hoop to make any progress. If things do start to become less than straight forward, a Mortgage Broker can add a huge amount of value in resolving issues and ensuring that the application continues to move forwards. Where a client applying directly to a Bank is left on their own to resolve any issues, brokers have intermediary contact info and a BDM for each lender. A BDM’s (Business Development Manager) job is to maintain the relationship between the broker and Bank and they can often try to assist with any problems.
Kye Collier also mentioned “I think some of our clients would be shocked to learn how many issues we had to resolve in the background to get their mortgage fully agreed. Sometimes cases are declined and we can clearly see the lender has made a mistake. It can take a lot of work and back and forth but we often manage to reverse the decision and get the application back on track. I’m confident that if that same client had gone direct to a bank there’s no way they could have changed the decision and they’d have to start the process again with another lender. Don’t get me wrong, some cases are declined where the lender has made the right decision or there’s just no chance of saving it, but a broker will give an application every chance of being successful”
6. Some Brokers are completely fee free
First and foremost - every broker is paid a small percentage by the Bank at the end of the transaction after the mortgage starts. Don’t worry - this isn’t made up through hidden costs incurred to the customer. It’s known as a procuration fee and comes from the Bank in exchange for the broker bringing the business to them, vetting the client and overseeing the application.
Aside from this, some brokers will charge the client a broker fee on top. Some charge a set fee to all of their clients, whilst others just charge a fee for the more complex, time-consuming cases. Broker fees can vary, but are commonly £300-£600 for a standard mortgage. This fee must be made clear to the client and can be rolled into the mortgage. That being said - there are some brokers who are completely fee free. Fee free brokers can offer the same service as fee-charging brokers but survive purely on the procuration fee from the Bank and choose not to charge an additional fee to their clients. You'll get all the other benefits of using a broker without paying a penny. There really is no catch.
.....so if you find yourself a fee-free Mortgage Broker, with great service and lots of schemes to choose from, hold onto them and never let them go!