What is a mortgage broker?

What do mortgage brokers do? 

Essentially a mortgage broker (like Ocean) helps you find a mortgage that’s suitable and you’re likely to be accepted for. They tend to follow these five steps:

1. review your current financial situation
2. research suitable deals for you
3. explain your options
4. help you to choose a deal
5. complete paperwork and arrange the mortgage for you

Why use a mortgage broker? 

There are several reasons why you might want to use a mortgage broker. Looking for a mortgage can be overwhelming. By dealing on your behalf, brokers can:

• find you deals that you’re eligible for, tailored to your individual circumstances
• speed up the process
• take some of the stress away
• give you tips on how to improve your application
• save you money by finding you a more competitive deal
• potentially give you access to deals that aren’t available on the high street

What are the different types of mortgage brokers? 

As you may know, there are two different types of mortgage brokers – tied (or multi-tied) and whole-of-market. Let’s consider each type in more detail.

Whole-of-market mortgage broker

This type of broker will search the entire market for you. They have access to all of the commercial deals you can access. Plus, their knowledge of the market means that they can research more thoroughly and efficiently than you might be able to.

It’s worth noting that whole of market mortgage brokers don’t look at every single option on the market – just a lot of them. They get their name from not being tied to a single or several providers.

Tied or multi-tied mortgage brokers 

A tied mortgage broker only has one lender they can access, but it’s possible their deals aren’t on the general market.

A multi-tied mortgage broker has a portfolio of several lenders they can research for you. Again, they may have access to some exclusive deals.

Some mortgages are known as ‘direct-only mortgages’, which you can only access through the lender directly. So, you may want to consider doing your own research too.

How much does a mortgage broker cost? 

Mortgage brokers will normally charge a fee for their services. Mortgage broker fees will vary from one broker to another. The way you are billed can also vary. For instance, you may need to pay them a percentage of the loan you take out, an upfront fee, or pay by the hour.

There are also brokers who operate on a commission-only basis, where you only pay when you take out a mortgage. These companies sometimes charge a higher percentage of your loan so aren’t always cheaper.

Make sure you ask a mortgage broker how much their services cost in full before you decide to go with them. This will help you to compare brokers, so you don’t pay more than you need to.

The benefits of using a mortgage broker 

There are several benefits of using a mortgage broker that it’s worth knowing before making a decision. For instance, they:

1. They do the work for you

A mortgage broker does all of the research needed in finding a deal for you, saving you the time and stress of doing it yourself. They also handle all of the paperwork – this can be beneficial for first-time buyers who haven’t been through the process before.

2. They understand your finances

They’ll use information about your finances to advise which type of mortgage will suit you best. If you want something different, they can tell you the reality of how your preferred option will work in your situation.

3. They may have access to exclusive deals

A mortgage broker might have access to deals that aren’t on the market - or they might just be better at researching different deals. Either way, they can help you get access to deals you may not find yourself.

4. They'll talk you through your options

Not only will they use their expertise to advise you on the different options available to you, they’ll also break down the different costs involved. You’ll get a clear understanding of your mortgage and you’ll be able to ask lots of questions.

Factors to consider before using a mortgage broker 

It’s important to consider the certain factors before putting down any money for their services.

1. You usually have to pay a fee

Buying a property is expensive and you’ll have to pay the mortgage broker on top of all the other costs involved. This can add up and be expensive. So, you’d need to weigh up whether the amount they could potentially save you on your mortgage is more than what they’re charging in fees.

2. They don’t always have the cheapest deals

Some deals are available only directly through the lender and others won’t be accessible to your mortgage broker. Your mortgage broker might not be able to find the cheapest deal available to you.

3. You might end up going elsewhere

If you find a better deal than those your mortgage broker has offered, then you may end up going elsewhere. It’s possible you’ll have already paid the mortgage broker a fee and will have lost out on money.

4. You have to spend time researching different mortgage brokers

It’s important not to go with the first mortgage broker who pops up in your search. You’ll need to invest time into researching a good mortgage broker. This is time that could be spent researching mortgage options.

Is it better to get a mortgage from a mortgage broker or bank? 

Whether you should go with a mortgage broker or bank depends on your personal financial circumstances and preferences. You’ll need to weigh up the pros and cons of each thoroughly before making a decision.

Some advantages of using a bank compared to a broker are:

• direct-only deals – some of their deals might not be available through mortgage brokers
• it’s free – whereas you’ll have to pay to use a mortgage broker

Disadvantages of using a bank include:

• you need to take care of the paperwork yourself – instead of getting a mortgage broker to do it for you
• limited mortgages to offer you – whereas brokers can access multiple providers

How to find a mortgage broker 

There are several things you can do to find a mortgage broker:

1. conduct an online search
2. find out whether they’re a tied, multi-tied or open market mortgage broker
3. check if they’re legitimate 
4. look at reviews of the broker online
5. speak to them to see what they can offer you - and how much they charge

Questions to ask a mortgage broker 

There are three questions to ask a mortgage broker in your first conversation with them. This will help you get the most out of their services.

Are you are whole-of-market mortgage broker?

You need to know whether they can access deals across the whole market or whether they use a select panel of lenders. It may also be good to know who those lenders are.

Are you on the financial services register?

Properly qualified mortgage brokers will be registered with the Financial Conduct Authority (FCA). If they don’t show up on the FCA’s website, you should avoid them.

How much do you charge and when?

Ask them to break down the costs and when they take their payments. This will allow you to make an informed decision and avoid any unwanted surprises later on.