Should I Use a Mortgage Broker?
Are you looking to purchase a property or raise finance against your current one? It is worth considering the services of a specialist mortgage broker.
Mortgage brokers are essentially the middle man between mortgage lenders and applicants. They have direct relationships with many mortgage lenders and have access to the latest sourcing software that can search the entire mortgage market to find the best deal.
Without a mortgage broker, you would need to approach mortgage lenders directly. This could take you several weeks, or even months, and would require consulting many lenders yourself. So, in short, a mortgage broker can save you both time and money!
Keep reading to find out more reasons why you should use a mortgage broker.
Mortgage Broker Vs Mortgage Lenders: What Does a Broker Do?
As mentioned above, a mortgage broker is likely to access loans quickly and efficiently in comparison to high-street mortgage lenders. This is because they are aware of the current market, the different types of loans available and have access to lenders willing to work with people who may have unconventional finances.
While mortgage lenders are still a reputable way to access home loans in the UK, mortgage brokers can also search the market for different types of loans. As a result, helping you to find the best type of loan based on your individual needs.
What Type of Loan Do You Need?
Mortgage brokers offer flexibility when it comes to finding the right loan product. Your money raising options through a mortgage broker may be more flexible, depending on your goals and financial profile.
Below, find some of the most common loans people access in the UK (which might be what you’re searching for) and whether or not a mortgage broker should be used to do so.
Unsecured or Personal Loans
An unsecured or personal loan requires no collateral. In other words, borrowers are not required to pledge any assets in order to secure the loan. Generally, lenders offer these types of loans up to £15,000 - £20,000. There are few lenders that offer higher loans. For instance, Sainsbury’s Bank currently considers loans up to £40,000 for its Nectar members.
Although unsecured or personal loans are beneficial in that they require no collateral, the lending period tends to be a maximum of 5-7 years. Because of this, you may be subject to high monthly repayments if you are looking to borrow a larger amount.
Instead, opting for a mortgage broker who can offer other types of loans with greater flexibility may be a more viable option. Below you can find some other popular types of loans that are best through mortgage brokers.
A remortgage is when you apply for a new mortgage through a different lender but stay in your current home. Though this is possible to do alone, a mortgage broker can help speed up the process.
For example, the new total amount raised should be sufficient enough to redeem your existing mortgage and release the extra funds required for your home improvements. For example, if your current mortgage is £200,000 and you require £55,000 to carry out the home improvements, you would look to borrow £255,000 from a new lender who would on completion pay off your £200,000 mortgage and pay you the remaining £55,000.
Nevertheless, you must consider factors like the equity in your home and credit rating. The worse your credit rating, the higher the interest you might pay.
Secured Second Mortgage/Homeowner Loan
A second mortgage, also known as a second charge, homeowner loan or secured loan is another popular type of loan in the UK for property owners. This involves you remaining with your existing mortgage company and taking out a second mortgage with another lender. A mortgage broker could help find the best rates for this.
A second mortgage is a good option if the interest rate on your current mortgage is low and fixed over a term of say five years. You could consider keeping your existing mortgage and borrow the extra funds by way of a second charge.
Another reason to take out a second mortgage would be that if you were to remortgage away from your current lender, you may incur early redemption charges (ERC’s) when settling your current mortgage. In some cases this may be 4%, sometimes higher, of the outstanding mortgage balance.
Second mortgages are secured. Therefore, collateral is required. In the event of someone defaulting and not being able to make the monthly repayments, the second mortgage lender as a last resort can apply for possession of a property. Consequently, second mortgages must be carefully considered before borrowing.
Do Mortgage Brokers Charge a Fee?
Another factor you might consider before using a mortgage broker is how much they cost. While you can do the process alone, a mortgage broker is experienced and highly knowledgeable in the field of mortgages, in particular second mortgages and other types of homeowner loans. Therefore, they are cost-effective.
But, how much do they actually cost? The cost of using a mortgage broker or adviser for advice on a first mortgage varies from firm to firm. Some advisers charge a set fee (typically £995) while others might charge a percentage of the loan size, for example, 0.5%.
However, don’t fear. A mortgage broker or advisor must always let you know of any fees being charged at the earliest opportunity of making contact with you.
In addition to charging you a fee, the mortgage broker would normally receive a procuration fee from the lender that they are introducing you to. This is typically between 0.1% - 1% of your borrowing amount. Again, any reputable mortgage broker would make this known.
If you were looking to borrow on a second mortgage basis, then the fees charged by a broker are normally higher. These vary significantly from firm to firm. The fees are often higher because there are added costs for the broker when arranging a second mortgage.
A second charge mortgage broker would be expected to carry out some of the work a solicitor would do when arranging a first mortgage. These include approaching the land registry to see if there are any special conditions relating to the property or current mortgage, including whether the existing first mortgagee requires to give their consent to any lender looking to register a second charge.
In addition, the broker often has to arrange a valuation of the client's property to demonstrate that there is sufficient equity in your property for the lender to advance the amount required. The valuation fee is sometimes included in the broker's fee.
Again, all fees should be disclosed to you before you start the mortgage application process.
Understanding Mortgage Broker’s Qualifications
If you are using the services of a mortgage broker it would be sensible to see that they are suitably qualified to give mortgage advice. The recognised qualification for UK mortgage brokers to hold is CeMAP - Certificate in Mortgage Advice and Practice.
If you were looking for a later life or equity release mortgage, you should ensure that the adviser holds the CeRER qualification - Certificate in Regulated Equity Release.
Certain products such as buy-to-let mortgages and commercial mortgages are not regulated by the Financial Conduct Authority (FCA) and as a result, advisers operating in this sector do not have to be qualified. To be safe it would make sense to ensure that any firm you take advice from should be regulated by the FCA.
Any reputable mortgage broker will be able to show you their list of qualifications.
Final Verdict: Is a Mortgage Broker Right for Me?
If you are still unsure whether to use a mortgage broker, it could be best to ask yourself these questions:
- What type of loan do I need?
- Do I have the expertise to navigate the field of mortgage loans alone?
- How much can I pay for fees?
Taking everything into consideration, a mortgage broker is best if you are looking for a second mortgage. This is because mortgage brokers have the facilities to find the most competitive rates. Likewise, doing the process alone can be timely and costly - so, using a mortgage broker may be more cost-effective long-term.
If you are looking for a reputable mortgage broker or need further advice, contact The Second Mortgage Company today.
Alternatively, read our blog ‘Why Use Mortgage Brokers?’ to find out more about the benefits of using a mortgage broker in the UK today.