What is an Independent Mortgage Broker?
An independent mortgage broker can best be explained by breaking down the term itself. Independent implies that they are not biased in their suggestions. Independent mortgage brokers generally have a database of a few hundred lenders with whom they work, enabling them to make suggestions that are tailored to their clients’ needs, rather than those that benefit themselves the most.
Mortgage brokers can be defined as financial intermediaries who originate, manage, and execute loan transactions, advising their clients and facilitating their applications. Some borrowers choose to handle their own loan applications, dealing directly with the lender, but it is important to know when the services of a broker would add value.
When to use an Independent Mortgage Broker
Understanding when to use a mortgage broker is important, as some transactions do not require the services of a broker. For example, in the case where the borrower has a direct, pre-existing relationship with a high street bank that is comfortable funding their transactions on their cheapest products, a mortgage broker will likely not be necessary. The reason for this is that it will be unlikely that the broker will be able to improve on the facility offered by the bank, and that there is a lot to be said for an ongoing relationship with a bank. On the other hand, borrowers with a more complex background or difficult transaction will benefit a great deal from the services of a broker.
Borrowers who have a poor credit history, low or no income, or offshore residency will likely fall outside of a traditional high-street lender’s criteria, making it difficult to source a competitively priced loan facility. In this way, a mortgage broker can assist in finding a suitable lender who is willing to offer a cheaper facility. Furthermore, transactions that are complex in nature are also likely to require a mortgage broker. Complex transactions involving higher LTVs, complex ownership structures, or urgent timelines would also benefit from the use of a broker.
Independent mortgage brokers have a firm understanding of the mortgage market, boasting years of experience. The result of this is that they can leverage their years of experience to ensure that the borrower is afforded a smooth and efficient application process, maximising their chance of success.
Important Considerations:
There are a number of important factors to consider when weighing up the option of using a mortgage broker. While cost, time, and effort are perhaps the most important, there are also personal considerations that are not mentioned below:
Cost: Perhaps the biggest concern for borrowers when applying for a new mortgage is the total cost. While the total cost of a mortgage is difficult to understand for some borrowers, it can largely be explained as the sum of the following charges:
Interest Rate: Interest rate charges make up the bulk of the costs of a mortgage, and so they are often the first cost that a borrower will look at. Interest charges are paid monthly by the borrower to the lender in compensation for the money borrowed. While the interest rate can be fixed or variable, it is important to understand how external forces might affect the interest rate charged by your lender.
Arrangement/Application Fees: These fees may have different names, as each lender has their own term, but they are generally paid by the borrower upon drawdown of the facility and are levied by the lender as compensation for the administrative burden of processing a borrower’s application. While some lenders charge arrangement fees as high as 5% or 6%, they will generally be between 1% and 2%.
Early Repayment Charges: Early Repayment Charges, or ERCs, are levied by the lender on the borrower if they repay the mortgage early and can add up to a substantial penalty.
Broker Fees: While broker fees differ from broker to broker, they will generally be 1% of the total loan amount and are payable upon completion of the loan. While 1% may not sound like a lot, it is important to factor broker fees into your overall costing.
Time: Another important consideration for borrowers is the time it takes to complete a successful mortgage application. While some lenders are faster than others, a broker will almost always expedite a loan application. One of the reasons for this is that brokers are likely to have an ongoing relationship with the lender, meaning they know how they work and can push applications through quickly. In this way, borrowers under some time pressure should certainly consider using a mortgage broker for their next application.
Effort: While cost and time are widely understood to be benefits of using an independent mortgage broker, effort is a lesser-known benefit. Loan applications can be complex and time-consuming, especially for those employed on a full-time basis. By enlisting the services of a mortgage broker, borrowers can ensure that their application will be completed with the minimum amount of fuss and effort on their part.
In conclusion, while using an independent mortgage broker can enhance your chances of a successful mortgage application, it is important to understand the advantages of a mortgage broker prior to enlisting their services.