What Is a Mortgage Broker and How Do They Help You Borrow?

A mortgage broker is a professional who helps you find and arrange a mortgage, acting as the go-between for you and the lenders.

Instead of visiting banks and building societies one by one, you explain your circumstances to the broker, who compares products from the lenders they work with and handles much of the application on your behalf.

If you are buying a home, remortgaging or borrowing against a property you let out, a broker can save a good deal of time and guesswork.

This guide explains what brokers actually do, how they are regulated and paid, how they differ from going directly to a lender, and what to ask before you instruct one.

What a mortgage broker does

The role is wider than simply picking a cheap rate. A broker looks at your income, outgoings, deposit or equity, credit history and the type of property you want, then considers which lenders are likely to accept your application. Lenders assess affordability differently.

One may count regular overtime in full, another may count only part of it, and a third may ignore it altogether. A broker who deals with these differences every week will usually know where to look first.

Once you have chosen a product, the broker normally completes the application, collects supporting documents such as payslips and bank statements, and keeps in touch with the lender, your solicitor and sometimes the estate agent until the mortgage offer is issued. Many will also stay involved up to completion.

Typical tasks include:

• Working out roughly how much you may be able to borrow
• Explaining the differences between fixed, tracker and variable rates, and the effect of arrangement fees and early repayment charges
• Preparing an application and checking it for gaps before it goes to the lender
• Providing a mortgage illustration for the product you select, as required by the regulator
• Chasing progress so a purchase does not stall unnoticed

Whole of market, multi-lender and tied brokers

Not every broker searches the same range of products, and the wording matters. A whole-of-market broker can recommend products from across the mainstream market. A multi-lender or restricted broker works with a selected panel of lenders, and a tied adviser sells only the products of one lender or a small group.

Some lenders also offer products only through brokers, so a firm that cannot access them will not be able to show you those deals.

The firm must tell you the scope of its service at the start. If this is unclear, ask. It affects how far you can treat the comparison as a view of the whole market.

Mortgage broker or mortgage adviser: is there a difference?

In everyday use the terms overlap, and many firms use them interchangeably. Local searches often use the phrase mortgage advisor as well, for instance when people look for a mortgage advisor basildon firm that understands the area. What matters is not the job title but whether the person is properly authorised and gives advice that suits your circumstances.

Are mortgage brokers regulated?

In the UK, firms that advise on or arrange residential mortgages must be authorised by the Financial Conduct Authority (FCA), and the individual advisers work under that authorisation. You can check a firm’s status on the FCA Register, which also shows the permissions it holds. If a firm does not appear there and cannot explain why, treat that as a warning sign.

Regulation also gives you access to formal complaint routes. If you are unhappy with the way a firm has dealt with you, you can complain to the firm first and, if the outcome is not satisfactory, take the matter to the Financial Ombudsman Service. The details of what is covered depend on the type of mortgage and the firm’s permissions, so it is worth asking at the outset.

Some types of lending are treated differently. Buy-to-let mortgages for landlords, for example, are regulated differently from residential mortgages in some circumstances, and commercial mortgages usually fall outside the residential regime. A good broker will explain which rules apply to your borrowing.

How mortgage brokers get paid

Brokers are generally paid in one or both of two ways. The first is a procuration fee, which the lender pays the broker when your mortgage completes. The second is a fee you pay directly to the broker. Some firms charge only a fee, some charge no fee and rely on lender commission, and others combine both. The amounts vary from firm to firm.

Before you commit, ask for the charges in writing, and ask when any fee becomes payable, for example at application, at offer or only on completion. Firms are expected to explain their charges clearly, and you should be told whether a fee is refundable if the mortgage does not go ahead.

Receiving commission from a lender does not in itself mean the advice is poor, but it is reasonable to ask how the firm ensures its recommendation is based on your needs rather than on what pays best. A trustworthy adviser will be comfortable answering that.

Using a broker or going straight to a lender

Going directly to your bank or a lender is perfectly possible, and for a straightforward situation it can work well. The limits are that the lender can only offer its own range and, unless it is giving you advice, it may simply present the options and leave the decision to you. Where you apply to a lender without advice, you carry more of the responsibility for choosing a suitable product.

A broker tends to be most useful when your circumstances are less than standard. Examples include self-employment with fewer than two or three years of accounts, a mix of employed and freelance income, a small deposit, past credit problems, a property of non-standard construction, or a purchase where a lender’s valuation could cause problems.

It is not guaranteed that a broker will find you a mortgage in those cases, and approval always rests with the lender, but knowing which lenders are more flexible on a given issue can spare you a string of declined applications.

Each application also leaves a footprint on your credit file in some circumstances, so applying blindly to several lenders is not without cost. A broker can often check a lender’s criteria before a full application is made, although what can be done in advance varies.

When a mortgage broker is worth using

Buying your first home

First-time buyers often have the most questions: how large a deposit they need, what a lender will think of their spending, how schemes and incentives work, and what costs arise besides the deposit, such as legal fees and stamp duty where applicable.

A broker can walk you through these and help you secure an agreement in principle before you make an offer, which many sellers and agents like to see. Local advice can also help, and buyers searching for first-time buyer mortgage advice Rayleigh will often want someone familiar with how properties in the area are valued and sold.

Remortgaging

If your fixed rate is coming to an end, you will usually move onto your lender’s standard variable rate unless you act, and that rate is often higher. Remortgaging lets you move to a new deal with your current lender or a different one. Some borrowers also use it to release equity or change the length of their mortgage.

The decision depends on arrangement fees, early repayment charges, legal costs and how long you intend to stay in the property. Borrowers looking for remortgage advice in brentwood may find it helpful to speak with someone about timing, because many lenders let you secure a new rate several months before the current deal ends.

Buy-to-let, self-employed and other specialist cases

Landlords are assessed on the rent a property is expected to produce as well as on their own income, and the rules differ between lenders. Self-employed applicants may need to show tax returns or accountant-certified accounts, and lenders differ in how they treat dividends, retained profit and recent changes in income. These are areas where a broker with relevant experience can be especially valuable.

What to expect at your first conversation

The first meeting, which may be by phone or online, is usually a fact-finding discussion. The adviser will ask about your income, employment, existing debts, monthly spending, savings, deposit and plans for the property. They will also ask about your credit history, so it helps to be honest about any missed payments or defaults. Lenders will find them regardless, and accurate information at the start prevents problems later.

It helps to have some documents ready, although you may not need all of them at the first stage:

• Recent payslips, or accounts and tax calculations if you are self-employed
• Several months of bank statements
• Proof of identity and address
• Details of your deposit and where it has come from
• Information on any loans, credit cards or other commitments

After this, the adviser should explain their recommendation and the reasons for it, set out the costs, and give you time to consider it. You are not obliged to proceed with the first suggestion.

Questions worth asking before you choose a broker

A short conversation can tell you a lot about a firm. Useful questions include:

1. Are you authorised by the FCA, and what is your firm reference number?
2. Do you search the whole market or a panel of lenders, and are there any lenders you cannot access?
3. How are you paid, and will I owe a fee whatever the outcome?
4. Who will deal with my case, and how will we keep in touch?
5. What happens if my circumstances change before completion?

Online reviews and local reputation are worth considering, though they should be read with a little care. Some brokers also publish guidance on their websites about the mortgage process, and there is a wider discussion about Mortgage Brokers Blogging and how firms use educational content to explain their services. Clear, accurate information of that kind can help you judge whether a firm explains things well, but it should never replace checking its authorisation.

A practical way forward

A mortgage broker will not guarantee you a mortgage, and they cannot change what a lender decides. What a good one can do is help you apply to the right lender, with the right paperwork, for a product that fits your circumstances. Before you speak to anyone, work out roughly what you can afford each month, gather your recent financial documents and check your credit report for errors. Then confirm the firm’s FCA status, ask how it is paid and request its recommendation in writing, so that you can compare it calmly before you decide.

Published by CRECSO UK.