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How Mortgage Brokers Operate

Mortgage brokers - the missing piece of the puzzle?

in Mortgages

When you decide to buy a home, you will probably require a mortgage or home loan in order to make the purchase. This means approaching a bank, building society or other lending institution for the money you need to complete the purchase. You can either do this yourself or use the services of mortgage brokers, who act as an intermediary between you and the lender.

Why use mortgage brokers?

The range of mortgages available nowadays is bewildering. There are many different mortgage products available, some targeting first time buyers, people wanting to remortgage, as well as reverse mortgages. Most lenders have their own portfolio of mortgages and mortgage related products. If you want to make sure you get the best deal with your mortgage, then you will need to invest a fair bit of time investigating the offers from all the various lenders and making the necessary comparisons.

By using a broker you are effectively outsourcing this task. They will normally present you with a couple of best choices based on your personal circumstances, the value of the property you want to buy and your own financial circumstances.

How do mortgage brokers work?

There are basically three types of brokers: independent, tied and multi-tied. An independent broker has no ties with any particular lending institution and is free to advise you on any mortgage product available in the market today. Tied brokers normally work for one particular lending institution and can offer only products from that company. A multi-tied broker may well work for a large nationwide organization such as an estate agent or financial services firm and normally only deal with their preferred range of lenders.

Since 2003, the selling of mortgage products has been regulated by the Financial Services Authority (FSA), so all brokers or advisers operating in the UK, whether they are independent, tied or multi-tied must be CEMAP qualified or in the case of many independent financial advisers, MAQ qualified.

How do they get paid?

Normally a broker receives a payment or commission from the lender when a mortgage application is successful. Some independent brokers charge up front fees for their services and receive no such payment from the lender, while those brokers who are tied or multi-tied may receive a salary from their company as well as a share of any commission based on each particular mortgage application concluded or sold.

It is a legal requirement during your first meeting with a broker for them to disclose to you their policy of charging and this is normally included in the Initial Disclosure Document which they are required to present to you.

Should I use mortgage brokers?

When you buy your home, the agreement is between you and the lender. If you choose to use a mortgage broker, it is only a part of the process. Once the mortgage is approved, the broker will play no further part in the matter. If you decide to do all the work yourself, you end up at the same point. The mortgage contract is between you and the lender.

Good mortgage brokers can make life easier for you, and an independent one may even be able to access mortgage deals from lenders on the wholesale market, which you wouldn’t be able to do. Even if you decide to use a broker, you are under no obligation to accept the proposed mortgage they offer, you can always decline it if you think you can get a better offer elsewhere. You can also use more than one broker, and compare between them.

Buying a house is the single most expensive financial transaction made by most people, so it’s worth investing some time in learning the common jargon of mortgages so you can understand a mortgage offer and its terms and conditions. If you do end up using a broker, at least you’ll understand what your broker is talking about.