A mortgage broker – unlike a mortgage lender – does not actually lend money, but rather acts as an agent, or “intermediary”, offering mortgage advice, and quotations, to borrowers, and bringing borrowers and lenders together. Many mortgage brokers are not “tied” to the products, or services, of any one particular lender, and, as such can provide a wide spectrum of mortgage products, across the whole of the market. Mortgage brokers receive their income, from a mortgage lender, in the form of a fixed rate booking, or arrangement, fee, or commission, based on a percentage of the total mortgage loan.
Mortgage Brokers
The activity of mortgage brokers – along with that of banks, building societies, and specialist mortgage lenders – is, nowadays, regulated by the Financial Services Authority (FSA), and it is a criminal offence for any unauthorised individual, or company, to carry on any regulated activity. In addition, a trade association, “The Council of Mortgage Lenders” (CML), represents, and works on behalf of the mortgage lending industry, promoting, for example, good lending practices. Associate membership is open to any business with an interest in the mortgage market.
There are, of course, often mitigating circumstances surrounding a poor credit rating. Divorce, redundancy and simple over-borrowing are just some of the reasons why borrowers may find themselves in financial difficulty, and, indeed, there are those who may have a poor credit rating
for reasons not directly related to their financial situation, at all. People with unusual employment, and irregular income, may not be rated highly by conventional credit scoring techniques, and a similar comment applies to prospective borrowers who are not on the electoral roll, or who have moved address often, in a short space of time. Another possibility, of course, is that an individual is incorrectly assigned a poor credit rating by mistake, perhaps as the result of the activity of another, or former, occupant at an address.
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When consulting a mortgage broker, you obviously need to make the distinction between a “tied” agent – one who offers a limited range of mortgage products, from a specific lender, or specific lenders – and one who is able to offer products from any mortgage lender in the marketplace. This information should be presented to you in the form of a so-called, “keyfacts”, document. It is becoming increasingly common for some mortgage lenders to also operate as brokers, so it is important to establish, at the outset, precisely what the role of any representative is, in the mortgage process. Be aware, too, that mortgage regulations are still rather vague, as to what constitutes “the whole of the market”, so it is wise to enquire of prospective mortgage lenders just how wide a section of the market they actually look at.
The “keyfacts” document should also contain information pertaining to any fees, or costs, payable, and whether these will be on a fixed rate, or commission, basis. A completely independent mortgage broker, for example, may offer you the option of paying directly for his, or her, services, to prevent any bias towards mortgage products offering relatively high commission rates, rather than those that are the most appropriate to the borrower.
Bear in mind, too, that some mortgage brokers, while authorised to offer advice on mortgage products, may not be authorised to advise on any accompanying investments that may be necessary. An interest only mortgage, often accompanied by a “payment vehicle”, such as an investment, or savings, plan – used, if necessary, to repay any outstanding amount at the end of the mortgage term – is a good example. If a mortgage broker cannot advise you on an appropriate investment, you will need to seek further, expensive, advice elsewhere.
Above all, you should not be afraid to ask questions of mortgage brokers, and, indeed, any mortgage brokers worth their salt should be more than happy to answer questions, and put your mind at ease. You might like to ask, for example, how any mortgage loans recommended are researched, and rated, or for a formal comparison between loans, including the APR, or “Annual Percentage Rate”, and details of any fees, or charges. Any reputable mortgage broker is likely to provide this information, as a matter of course, in any case, but if he, or she, does not, then definitely ask for it.
Similarly, reputable mortgage brokers should have no reason to resort to “scare”, or “hard sell”, tactics, so if you do feel pressurised, in any way, do not commit yourself to anything, in writing, and, perhaps, just walk away completely.
Mortgage Broker Advantages
There are, quite literally, thousands of mortgage products available, from banks, building societies and specialist lenders, on the Internet, so it is helpful to have someone who can narrow down this immense number to something more manageable, based on your own, personal preferences. A professional, and diligent, mortgage broker should, for example, be able to guide you through the mortgage process, in its entirety, and to highlight the pros and cons of any particular mortgage product.
A mortgage broker can also help you to calculate the true, overall cost of a mortgage loan. Many mortgage lenders offer mortgages at apparently very low interest rates, at least, for an initial, “incentive” period, but these may also involve, for example, very high arrangement fees, or “tie in” periods that extend beyond the period of the introductory – and, therefore, low – interest rate. A mortgage broker should be able to inform you of any such pitfalls, and, if you are considering just switching lenders, as opposed to moving home, he or she can likewise calculate the potential savings in doing so.
The other obvious advantage of securing the services of a mortgage broker is the peace of mind that this affords. A mortgage broker conducts all dealings with a mortgage lender, and does all the paperwork, removing much of the anxiety often associated with the process of finding, and securing, a mortgage loan.
Conclusion
A reputable mortgage broker can provide expert advice – tailored to the individual needs and wants of a borrower – convenience, and a huge choice of suitable mortgage products. A mortgage broker will have not only a detailed knowledge, and experience, of the inner workings of the mortgage market, but also access to the latest news, and mortgage deals. In addition, some mortgage brokers also specialise in the selection of bad, or adverse, credit mortgages, for borrowers with poor credit ratings, as the result of defaults, arrears, or County Court Judgements (CCJs).
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