Gone are the days when if you wanted a financial product as daunting – and expensive – as a mortgage you would pop into your local bank branch for a cosy chat with the manager.
As recently as 2012, most mortgages were taken out directly from a bank or building society. Yet fast forward a couple of years and a combination of fewer bank and building society branches, a growing loss of faith in many banks’ ability to give sound advice and, more recently, more complex rules around taking out a mortgage, mean just over 60% home loans are now taken out through a broker. Some industry experts are predicting this will be the preferred route for as many as three-quarters of borrowers in the next five years.
So should you join them and head to a broker for your home loan – or are intermediaries a waste of money?
Why it’s harder to borrow
Part of the recent rise in brokered mortgages comes off the back of new rules introduced in April by City regulator, the FCA, that make it harder to get a home loan. Following the FCA’s mortgage market review (MMR) lenders now have to ask much more detailed questions of borrowers, meaning that a typical interview to secure a home loan now takes two to three hours. This has meant that people who may have previously been granted a loan are being rejected under the new regime, whereas others facer closer scrutiny over things like childcare and travel costs.
“Now picking out the best rate or deals online is meaningless if you don’t qualify for the loan,” says David Hollingworth of mortgage brokers London & Country.
And anyone who has recently tried to get a mortgage directly from their bank or building society branch may have found themselves faced with a wait of weeks for an appointment. This is because the new rules also mean that all mortgage sales now need to be advised, so lenders’ staff will have to be qualified and will not be allowed to sell home loans without assessing customers.
The changing face of mortgage lending is now being acknowledged by lenders who previously had little, or nothing, to do with brokers. Last month HSBC, which has always dealt directly with its customers, went into business with broker network Countrywide. In the next few weeks TSB will start selling through London & Country. Both arrangements will be rolled out more widely to other brokers next year.
“Making the wrong choice about your mortgage can cost you hundreds – even thousands of pounds – more than you need to pay,” says consumer rights campaigner James Daley of website Fairer Finance. “And because mortgages are awash with additional fees and charges, it’s all too easy to get tripped up. That’s why it makes a lot of sense to go with a mortgage broker.”
Homebuyers Matthew Wood and Amy Blowers are one couple who decided to opt for a broker to sort out the mortgage for their house, which they will move into on Friday. The couple, from Carlton Colville in Suffolk, are first-time buyers with a 5% deposit to put towards their home, and initially did their research online. “We did check the bank websites to get mortgage quotes but we wanted to compare the whole of the market, particularly as we were having difficulty with the size of the deposit.” The couple approached London & Country, who secured them a Help to Buy guarantee backed deal with Halifax, fixed at 5.59% for two years.
What to look for in a broker
The three key things to look for are the number of loans they offer, the amount you will be charged for their service and what kind of reputation they have.
Their reputation might be the most difficult to assess, but many borrowers go on a recommendation from a friend or family, which can be invaluable. Otherwise, it’s worth researching online and off to see what people are saying about a particular firm. Also consider what kind of service you want: are you are happy to talk to a broker entirely via the phone, or do you want a face-to-face appointment (which may cost you more)?
In terms of the loans available, a lender that is “whole of market” or “fully independent” will have access to the greatest number of loans, as opposed to brokers who only look at a select panel of lenders.
Independent brokers will assess just about every mortgage out there, except those offered direct only, such as from Tesco. Even then, some brokers will be willing to talk to you about whether a mortgage from that lender looks a good deal on the face of it, even if they can’t help you apply for the loan.
There are other exceptions. Some lenders, such as Yorkshire building society (which also owns Chelsea, Norwich & Peterborough and Barnsley building societies) and the Co-op don’t deal with brokers, though both have separate broker-only mortgage divisions (Accord and Platform).
“If you do go with a broker that doesn’t look at the whole of the market, it’s worth doing your own checks – just to see if there’s anything else better that you’re missing out on,” says Daley. “Google has a good mortgage comparison tool [google.co.uk/compare] that looks at a selection of both broker and direct deals. If you find something that looks better value, you can always go direct to the lender.”
Most brokers also have access to “broker exclusive” deals, which may or may not be better than those offered directly by the lender.
Currently these include a two-year fixed rate from the Post Office at 2.95% up to 90% loan-to-value with a £995 fee, and a five-year fix from the Skipton building society at 2.56%, up to 60% LTV, with a £995 fee.
What will a broker cost you?
Some, and the best-known of these is probably London & Country, don’t charge a borrower anything, but instead take commission from the lenders, typically between 0.35% and 0.4% of the loan.
The majority of brokers, however, charge a fee and that can be either a flat fee or a percentage fee. It’s worth noting that these brokers will also receive a commission from most lenders.
Consumer group Which?, for example, charges an upfront non-refundable fee of £249 and a second fee of £250 once you complete your mortgage (or £150 if you’re a Which? member). Other big names such as John Charcol and the Mortgage Advice Bureau charge a percentage fee, which can vary depending on your circ*mstances. However, this fee must be agreed with you upfront, so there shouldn’t be any hidden surprises.
John Charcol, for example, has a minimum fee of £495 and a maximum of 1.5% of the loan value. However, it’s typical fee is 0.24% of the loan value.
Regardless of fee, a good broker should consider not only the best priced loan for you but which lenders are more likely to underwrite your loan and which ones to avoid –such as those with a backlog of applications.
“We know the little variations in criteria that mean that one lender, for example, will take school fees into their affordability assessment, while another won’t,” says Andrew Montlake of brokers Coreco.
WATCH OUT FOR …
Lenders are now looking harder at the following, any of which could scupper your chances of a home loan.
■ Erratic earnings. Self-employed and contract workers struggled to get a mortgage immediately after the MMR changes came in. However, some lenders have now softened their approach and recently big names such as Halifax and specialist lenders such as Precise have started considering the self-employed with just one year’s worth of accounts.
■ Childcare costs. “How much you pay for childcare is now routinely assessed, and this has had a huge impact on how much people can borrow,” says David Hollingsworth.
■ Commuting costs. A season ticket can count against you. “Some lenders will see this as essential expenditure whereas other won’t, as you may be able to use other forms of transport or opt to work from home,” says Brian Murphy.
■ Pension contributions. Some lenders will deduct your monthly retirement savings from the amount you can borrow. Others, such as NatWest, don’t take these into account. “People need to find the right fit of lender rather than cutting their contributions,” says Hollingworth.
■ Future financial commitments. If you are planning to take maternity leave in the near future, for example, some lenders will consider this.
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