Do Mortgage Brokers Get Better Rates?
If you are looking for a mortgage, you might be wondering whether to approach your bank/ building society or use a mortgage broker. There are many reasons why you should use a mortgage broker, one of which is that brokers may be able to access better mortgage rates.
However, this will not apply to all mortgage lenders. For example, in recent years mortgage brokers have been able to access lower interest rates with NatWest than borrowers that went to NatWest directly. Whereas, Santander have never offered preferential rates to brokers.
Let’s explore the role of mortgage brokers in the market and how they can assist you.
What Does a Mortgage Broker Do?
A mortgage broker is a financially qualified professional (with a CeMAP qualification or equivalent) who has access to mortgage products. There are two types of mortgage brokers in the UK:
- Restricted Mortgage Brokers
- Whole of Market Mortgage Brokers
Restricted mortgage brokers have a limited selection of products they can offer and the products they offer will not encompass the entire mortgage market. Some restricted mortgage brokers are so restricted that they only offer products from one bank or building society.
Whole of Market mortgage brokers may also have a limited panel of lenders, however they have products that cover the entire breadth of the mortgage market. For example, a whole of market mortgage broker will be able to offer residential, buy to Let, commercial and specialist mortgage products. Therefore, if you use a mortgage broker, you should always ask how many lenders they have access to.
How Do I Know How Limited My Mortgage Broker is?
As mentioned, even whole of market mortgage brokers can have extremely limited access to lenders. To be classed as having whole of market access, mortgage brokers may only need access to a handful of lenders as long as they cover a broad enough range of mortgage products on the market.
To discover a mortgage broker’s lender access, simply ask them. In order for them to be compliant with the FCA, their product access must also be stated in their Terms of Business Document, which they will give you at the beginning of your dealings with them. Typically, a broker’s market access is also stated on their website – often in the footer.
Why Use a Mortgage Broker Instead of a Bank?
Banks and building societies will only be able to offer their own mortgage products. If you walk into your bank, you might be offered an uncompetitive rate and you may find visiting the bank next door affords you a much better mortgage product.
Of course, sitting down with every bank and building society in the U.K. is going to be time-consuming and you can alleviate this by having one conversation with a reputable Whole of Market mortgage broker, like Boon Brokers.
Truly whole of market mortgage brokers, who have access to over 90 regulated lenders in the market, will be able to input your exact circumstances on their sophisticated sourcing software and review hundreds of mortgage products to discern which one is most suitable for you.
Not only will a mortgage broker assist with your initial mortgage application, but they can also help with subsequent applications too. Brokers that invest in remortgage technology, like Boon Brokers, will know the best time to get back in touch with you to find the most suitable deal after your current mortgage product expires. For example, at Boon Brokers you will receive an automated text, e-mail and letter in the post reminding you that your broker will be in touch to progress your remortgage.
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Are You More Likely to Get a Mortgage with a Broker?
It depends. If you are of good financial standing and have straightforward employment, the likelihood is that you will be able to source a mortgage directly with your bank as easily as using a mortgage broker. However, even in that scenario, it is likely to require more effort from you to go to the bank directly compared to using a broker as you are likely to do more research to determine which lender is most suitable for you.
If you have any of the following, you will find that your chances of obtaining a mortgage greatly increase by using a mortgage broker:
- Director of a Company
- Bad Credit
- Additional Sources of Income
- Unusual Property Types such as Listed Buildings
A mortgage broker’s value is far more noticeable for complex cases than straightforward ones. If your application is complex, you may be disheartened if it is rejected by a mainstream lender. There are likely to be many lenders, especially smaller building societies, that you had not considered or know of. In those scenarios, a mortgage broker can identify those products and find the best deal for you regardless of the prestige of the lender.
Overall, regardless of your personal financial situation, using a mortgage broker is always a good idea as they will be able to source the best mortgage. Approaching your bank directly often results in being placed on an uncompetitive mortgage product.
Cost of Using a Mortgage Broker
Mortgage brokers have two potential sources of income.
- Commissions from lenders for arranging products
- Mortgage broker fees
The commissions paid by lenders for mortgages can be small, especially when you consider the value of the product you are taking out. For example, an Estate Agent typically charges a 1% fee, whereas a mortgage broker’s commission is much less – often 0.35% to 0.4% of the loan sum.
This means most mortgage brokers charge broker fees, often as a necessity to ensure their business remains profitable.
Unfortunately, many fee-charging brokers can be expensive, with fees exceeding £2000 in some cases. For example, in London, it is common to see mortgage broker fees of 1% of the loan sum or more.
There are fee-free mortgage brokers like us at Boon Brokers. A fee-free broker normally has an established business with a high volume of clients – meaning the commissions are more than enough to sustain the business. There is a misconception in the market that if a broker charges a higher fee, they will provide a better service than a fee-free broker. This is incorrect. To assess a broker’s quality, you should review their reviews from other clients. As long as a broker has truly whole of market access, excellent reviews, and is fee-free, you are likely to be highly satisfied with their service.
You should also consider that high-volume mortgage brokers also have plenty of experience and are more likely to have arranged mortgages in the most difficult of situations. In this respect, by using Boon Brokers, you benefit from both the free service and greater experience in dealing with your situation.
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Where Mortgage Brokers Get Better Rates
Mortgage brokers may be able to access ‘exclusive products’ through their mortgage club or network. However, in today’s market, those products are few and far between due to the volatility of rate changes.
If mortgage brokers access better interest rates, it is often through the more mainstream mortgage lenders. For example, for a period over recent years, NatWest has been well known to offer mortgage brokers lower interest rates than consumers who approach them directly.
Even if a mortgage broker cannot access a better interest rate than is available to you directly, they may be able to highlight an exclusive rate available to you due to your circumstances. For example, Barclays offer exclusive mortgage products to clients that have a Premier Account with them.
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Using a Whole of Market mortgage broker with a large panel of lenders has several advantages:
- Tailored mortgage advice
- Perfect for bad credit borrowers
- Mortgages on unusual property types
- Ability to compare rates and mortgage products across the industry
- Ongoing assistance with future remortgage requirements
Boon Brokers is a whole of market mortgage, insurance and equity release brokerage. Boon Brokers provides fee-free mortgage advice.