The Sunday Times asks “Do you need a mortgage broker to find a good mortgage?”

We've always said that the days of walking into your bank to get a mortgage are pretty much over. With new lending rules and increased interest rate rises on the way, more and more people are going to brokers for advice.

August 11, 2014

“Brokers are particularly useful if you’re in an unusual position, such as relying on irregular freelance earnings…..Others who may benefit from expert help include workers who receive bonuses, expats and the self-employed, and buyers who want to purchase an unusual property or even a newbuild.” was just one piece of advice from the HomeOwners Alliance Chief Executive Paula Higgins in the Sunday Times Money section this week.

We’ve always said that the days of walking into your bank to get a mortgage are pretty much over. With new lending rules and increased interest rate rises on the way, more and more people are going to brokers for advice.

The Sunday Times reported that “Banks and building societies have responded very differently to the regulations set out in the financial regulator’s mortgage market review (MMR). Some have set strict tests against income and basic costs, such as food and clothes, when calculating how much they will lend. Others are refusing to lend to certain types of people, such as the self- employed.”

A fragmented market

On navigating through the mortgage options out there, the paper went on to quote David Hollingworth of the broker London & Country Mortgages: “Lenders offer myriad rate options, all with different fees and incentives. Where one borrower may benefit from paying a fee, others will be better to cut upfront costs and pay a slightly higher interest rate.”

Robin Chatwin of the estate agent Savills said homebuyers must also be prepared for a lengthy application process. “Just a year ago, buyers could complete within four weeks. Now, it is not uncommon for the process to take as long as 10 weeks.”

Chatwin, who runs Savills’ southwest London office, recently met a couple who had received a verbal agreement on a loan from their bank. But they had to wait six weeks for a meeting at the bank, and were then told the mortgage amount had been cut by 10%. They had to drop their offer by 10% as a result, and the sale fell through.

This explains why many are now going to brokers. Just see what our member Joe had to say about his experience trying to get a mortgage with his bank vs his broker.

When to use a Mortgage broker

The professionals have access to exclusive deals, which can be cheaper than going direct to a lender.

The Sunday Times highlighted that brokers know which banks are more accepting of blips in a borrower’s credit score, and which are more willing to take on older buyers. Hollingworth said: “Some lenders take varying approaches to the typical maximum age of 75 at the end of the mortgage term. Lenders such as National Counties and Bath building society will consider older borrowers.”

He added: “Interest-only, which is popular with older homeowners, is very difficult to secure now. Some lenders, such as Nationwide and Coventry building society, no longer offer these loans.”

Going direct

Brokers can have drawbacks, though. Some are linked to estate agents and earn their money through referrals. In some cases, this has led to complaints of poor practice.

Boulger said: “Homebuyers should not allow themselves to be browbeaten by an estate agent into using their broking services. Many in-house estate agent brokers offer mortgages from only a panel of lenders, sometimes quite a small one.”

Higgins at the Homeowners Alliance said: “Make sure the broker is ‘whole of market’ and ask for confirmation of which lenders are included and excluded in their search.”

While some mortgages are offered exclusively through brokers, other good deals are saved by lenders for borrowers who apply directly through a branch. Some do not offer any of their mortgages through brokers.

Borrowers who have straightforward finances, a permanent job and the time and knowledge to scour the market for the best deal may find that applying direct is the best route for them.

Fees

If a buyer takes out a mortgage directly from a bank, they will usually pay a flat fee. If they go through a broker, they will have to pay the same fee and also, in some cases, additional charges for the broker’s services.

Most tend to offer free consultations, but make sure you ask and understand how the broker will be paid if they proceed with your case.

Some, such as London & Country, do not charge for their services, and make money by taking commission from the lenders.

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