Mortgage brokers, also known as mortgage advisors, are to a mortgage applicant what a lawyer is to a defendant. They can navigate the process easily, help you gather the necessary parts of your application, find mortgage deals through exclusive connections, and compare them to find one that suits you best.
But what are the mortgage advisor fees? In this article, When the Bank Says No will break down the fees mortgage brokers charge, as well as what goes into the calculation, alternate methods of charging and more.
How do Mortgage Brokers charge?
The mortgage application process is a long one, so it’s fair to wonder how exactly brokers charge fees for their service. The answer is that there are three main formats, listed below:
- Flat/fixed fee – According to Money Saving Guru, the broker charges a set amount for their services, ranging between £300 and £600 (average being around £500). This method of payment is usually applied by mortgage brokers dealing with a simple, first-time buyer application – such as one with good credit and stable employment.
- Percentage of the loan amount – For complex or large mortgages, mortgage brokers may opt to charge a percentage of the mortgage amount. Often, this will occur when a mortgage broker anticipates more work to secure an acceptable deal. Typically, they charge fees between 0.3% to 1.0% of the mortgage value.
- Lender commission – Some mortgage brokers are paid through commission from lenders (procuration fee), and they are known as a “fee free mortgage broker”. In this situation, a borrower wouldn’t have to pay anything.
Is a fee free broker worth it?
A fee free mortgage broker is compensated by the lenders themselves, rather than the borrower whose mortgage application they are tending to. Whilst this seems beneficial for a borrower’s wallet, there are definitely some potential downsides to take into consideration.
- Potential bias – Mortgage brokers are a business, and a business’ main goal is to make money. This means that a fee free mortgage broker may prioritise securing a deal for you that pays them a higher commission from the lender, rather than the mortgage deal that is best for you.
- Limited lender options – Some mortgage brokers that are fee-free may only work within a restricted panel of lenders as a result of background deals, such as exclusivity.
Factors influencing mortgage advisor fees
Whilst we’ve given the average mortgage broker fee range, several factors can influence how much a mortgage broker will charge:
- Case complexity – Complex Mortgage applications, such as those involving adverse credit and hard-to-prove finances, will cost more work time for the mortgage brokers. As a result, they will likely charge extra to compensate.
- Broker experience – Experienced/specialist brokers tend to charge high fees, due to their ability to get a better result for their client, as well as possibly having access to better deals.
- Location – Some areas, where regional market conditions swing more expensive, can result in mortgage brokers charging higher fees. An example of this is London, where property values and living costs are much higher than other places in the country. Operational costs are higher in these areas.
When mortgage broker fees are worth paying
As we stated before, mortgage brokers are like lawyers, skilled in both document handling and negotiations with mortgage lenders. Whether or not you feel you need their services depends entirely on your situation. For example, if you’re a first-time buyer with good credit and a strong financial situation, then you are already a dream candidate for a mortgage by mortgage lenders.
That being said, if you are any of the following, your needs may better align with what a mortgage broker can offer:
- Complex finances – For those who are self-employed and cannot easily prove income and those who have adverse credit, a mortgage broker will be able to help not only make your application look as attractive and comprehensive as possible but also put you in contact with specific lenders who specialise in these types of situations.
- Access to exclusive deals – Brokers have access to exclusive deals that are not available to the public, and some of these lenders rely on brokers to find them the perfect candidates instead of making themselves available to the public. They may offer better interest rates or terms, potentially saving you money.
- Saving time and hassle – Whilst it may seem like a first-world problem, the fact is that the mortgage application process is a time investment, not to mention stressful. Mortgage brokers, who make it their job to excel in both mortgage advice and application efficacy, can simplify the process and manage the paperwork. For many, the mortgage broker charge is a small price to pay as a result.
Costs versus savings
Paying the upfront fee may seem costly, but remember that a mortgage in and of itself is a long-term investment. Looking at the bigger picture is necessary to determine just how worthwhile a mortgage broker may be.
Whilst it may involve having to use a calculator to make the necessary calculations, understand that even a small rate difference of 0.1% on a large loan could result in savings in the £1000s in the long run. In this case, we recommend looking at mortgage broker fees as just another upfront fee that you have to pay before starting your monthly payments.
Conclusion
Overall, understand that expert mortgage advice comes at a price. But that is not all that comes when you hire a mortgage broker, as you will also benefit from a simpler, easier time during the mortgage application. When the Bank Says No are expert mortgage brokers with access to the best solutions for your mortgage issues, regardless of whether you have hard-to-prove income or adverse credit.
FAQ: Can a first-time buyer use a mortgage broker?
Yes. Regardless of how acceptable or in-demand a first-time buyer with decent credit and income is or can be, a mortgage broker can still be worthwhile. This is because a mortgage broker is well-practised in dealing with the mortgage market. Whilst a first-time buyer may not need the specific specialists that independent mortgage advisors have access to, they can effectively ensure the process is sped up and all inquiries are easily answered.
Furthermore, first-time buyers may find many mortgage deals made available to them throughout their application process. A mortgage broker would be able to compare and find the best deal and illustrate why.
FAQ: How do I know if my mortgage broker is independent?
There are several ways to determine whether the advisors you’re interested in getting advice from are independent mortgage advisors:
- Whole-of-market access – Independent mortgage advisors will have access to mortgagee products from the entire market, not just a limited panel of specialist lenders. If this is the case, then it’s unlikely that the mortgage broker is compromised by the procuration fee.
- No ties to specific lenders – Independent advisors should give impartial advice. If you detect that they are more partial to one or another lender, inquire as to why.
- FCA regulation – If the broker is authorised and regulated by the Financial Conduct Authority (FCA), which can be checked through the FCA register, then they are held to a higher standard and unlikely to participate in bias.
Written disclosure – If you want 100% assurance every time, then request a written disclosure document. This can be held against them in front of the FCA.