Mortgage broker guide

Most people buying a home need a mortgage but how do you know which mortgage lender to use?

This easiest way is to use a mortgage broker who will be able to advise you on the most suitable home loan for your circumstances. A broker should also explain why he or she is recommending a particular mortgage product. 

Should I use a mortgage broker?

There are many things to consider when you take out a mortgage which is why it is a good idea to use the services of a qualified, expert adviser.

Buying a home is probably the most expensive purchase you will ever make so finding the right mortgage that you can afford is really important.

What is a mortgage broker?

Mortgage brokers can advise on a range of buyer situations: 

There are also specialist brokers who can advise on:

Why use a mortgage broker?

Brokers know the mortgage market and will have a good idea of which lenders will lend to you. 

You can go direct to a bank or building society but they will only be able to recommend their own products. You can find out more when you take a look at the pros and cons of choosing a broker vs going direct to the lender.

Some brokers work with a small select panel of lenders but the majority are ‘whole of market’ which means they can access loans from many different lenders. 

Also bear in mind that some lenders do not use the intermediary market to sell their products and you can only get a mortgage if you go direct to them.

As well as banks and building societies, there are other lenders which do not have a high street presence. These lenders work exclusively with brokers and are known as intermediary lenders. 

Many of them specialise in lending to people who may have bad credit, past credit problems, have a complex income or unusual circumstances.

Sometimes lenders will arrange exclusive mortgage deals for a limited period of time. Some mortgage products are only available through intermediaries.

What does a mortgage broker do?

A broker will be able to explain all the different types of mortgages available and help you decide which one is best for you. He or she can give you an idea of how much you will be able to borrow and which lenders will lend to you.

Brokers have access to ‘sourcing systems’ which can quickly find mortgages that may be suitable for you. 

Lenders have different criteria for who they will lend to, the type of property they will lend on and location. Many brokers now also use ‘criteria souring systems’, which are also useful for finding lenders. For example, not all lenders will lend on a timber frame house or a flat on the 10th floor of a tower block.

A broker can also explain to you how the lender’s arrangement fee will affect the cost of your mortgage. Some ‘headline’ interest rates may seem low but they often come with a hefty arrangement fee. So sometimes a higher rate and a low fee or no fee may be cheaper in the long run.

The mortgage broker will conduct a Fact Find, which is a series of questions to find out about you and your finances. With this information the broker can then recommend the most appropriate mortgage product.

They can also advise you on insurance products like buildings and home contents, and protection products such as life insurance, income protection, mortgage payment protection.

What is a Decision in Principle?

Once you are happy with the mortgage chosen, the broker can make an application to the lender to secure a Decision in Principle (DIP), also known as an Agreement in Principle (AIP). This is where the lender has agreed it can lend to you as long as you pass the underwriting stage when you make a full application.

To get a DIP you will need to supply your broker with your income and expenditure details and UK addresses over the past 3 years.

The lender will assess the information and use a credit reference agency to conduct a ‘soft credit search’. This is an initial look at your credit record to see how financially sound you are and will not impact on your credit score. 

If you do decide to make a full mortgage application the lender will conduct a ‘hard credit search’ which is much more detailed.  Making lots of applications for credit (loans, credit cards, mortgages) will affect your credit score in a negative way so keep applications to a minimum.

A DIP is not a mortgage offer, it merely shows intention that the lender is prepared to lend you money. This is useful as it indicates how much you can borrow. 

However, a DIP is not a guarantee that you will be granted a mortgage. Circumstances could change between receiving the DIP and applying for the mortgage.

It is a good idea to ask for a DIP certificate so you can show it to estate agents and home sellers. This shows you are serious about wanting to buy a property. 

The DIP is usually valid for 3 months.

When you have found your dream home, the broker can then make a full application on your behalf and send all the necessary documentation.

An underwriter at the lending firm will assess your application. More information may be required and the broker will let you know if this is the case. Once the application has been approved the lender will issue a mortgage offer. 

A good broker will keep you updated on the progress of your application. This includes informing you that the valuation has been carried out and the conveyancing searches have been completed.

Online brokers

5 years ago the first online mortgage brokers emerged. Also called robo or digital advisers they use technology to ask customers questions online and come up with mortgage products that may be suitable. 

The customer can, if they feel confident enough, carry out the whole process online without speaking to anyone. But the vast majority of people using a digital broker will speak to a mortgage adviser at some point by phone or webchat.

Online mortgage brokers are usually free to customers and they are paid a commission by the lender.

What questions will a mortgage broker ask?

The broker will ask for details about your income and how much you spend each month. You must provide proof of this so it is best to be as open as you can. 

Other information you will be asked to supply includes:

  • Personal information – name, address, date of birth, marital status, number of children

  • Employment situation – job title, employer’s name, full or part time, self employed, contractor

  • Salary – annual salary, bonuses, other income

  • Expenditure – outgoings such as bills, food, club membership, entertainment, clothes etc.

  • Debt – current debt such as loans and credit cards. Past debt including bankruptcy, Individual Voluntary Arrangements (IVAs), default on loans or credit cards, mortgage/rent arrears, home repossession, County Court Judgements (CCJs)

  • Information on the property you want to buy – for example, three-bedroom mid-terraced house, two-bedroom flat on second floor of six story block

  • Are you a first time buyer, home mover or buying to let the property out?

  • How many people will own the property?

  • Address of the property

  • Price of the property

  • Is the property freehold or leasehold?

  • How much deposit do you have?

  • How long do you want the mortgage to last (also called the mortgage term)?

  • What type of mortgage do you want - a fixed interest rate or a variable rate?

What documents do I need to provide?

  • Proof of identity such as passport or driving licence

  • Proof of address such as utility bills, credit card statement

  • Proof of income - payslips from the past three months or, if you are self employed, a SA302 form (self assessment evidence of earnings) 

  • Proof of outgoings - bank statements for the last three to six months (depending on the lender)

How much does it cost to use a mortgage broker?

Costs vary and there are a number of ways brokers make their money. The broker must tell you how they are paid and how much it will cost you. 

  • Most brokers are paid a commission by the lender

  • Some charge a one-off fee for their services

  • Others will take their fee as a percentage of the total value of the mortgage

  • Some may charge an hourly rate

How to find a mortgage broker

Brokers come in all different shapes and sizes from sole traders who work on their own to big intermediary firms.

Recommendation is always a good way to find a broker so ask friends and family if they know anyone. You can also look at reviews on the internet.

According to the Financial Conduct Authority (FCA) there are more than 14,000 mortgage brokers in the UK so there are plenty to choose from.

What questions should I ask a mortgage broker?

What are your qualifications?

Brokers must be qualified to give mortgage advice. Most mortgage brokers have the CeMap (Certificate in Mortgage Advice and Practice) qualification but there is also the Certificate in Mortgage Advice from the Chartered Insurance Institute.

Are you authorised by the FCA?

The broker firm you use must be authorised by the Financial Conduct Authority (FCA). You can check The Financial Services Register on the FCA’s website.

Are you whole of market?

Some brokers work with a select panel of lenders and others work with lenders across the whole market. 

How many lenders do you work with?

There are more than 100 lenders in the UK so by asking this question you get an idea of the range of mortgage products the broker can access.

Will you look at mortgages that are only offered direct by lenders?

Not all lenders make their mortgages available to the intermediary market and you can only get a mortgage if you go direct to them. Some brokers will look at what is available direct from a lender, others will not. 

What are your fees?

Brokers must tell you how they are paid and how much you will pay for their advice and service.

Apart from recommending a mortgage, what is included in your service?

You will want to know if the broker can keep you informed of progress and chase the lender for updates.

How long will the mortgage process take?

The importance of this question depends on how fast you need your mortgage. If you need it quickly this might have an impact on which lender the broker recommends. 

A good broker will know which lenders are swamped with business and therefore may have slower service levels. On the other hand, a broker should know which lenders can turn cases around quickly.

8th October 2020