Using a mortgage broker to source and arrange your mortgage is a sensible idea as their knowledge and expertise can secure the best mortgage for your circumstances. Everybody's circumstances are different, from how you earn your income to your credit history, and an experienced mortgage adviser can match your information to the most appropriate lender to obtain the best available mortgage.
When you are looking to purchase a property it is easy to get excited about your new purchase and not obtain the relevant information you need to ensure you have the best mortgage for your needs. This article provides the questions you should ask a mortgage adviser to fully understand the mortgage details before doing business with them.
1) Are you a regulated broker?
It is important that you check your mortgage adviser's qualifications before allowing them to source a mortgage for you. In the UK all mortgage brokers providing mortgage advice are required to be regulated by the Financial Conduct Authority (FCA) or be an agent of a regulated firm. You can check whether a mortgage adviser is regulated by searching the FCA register.
A mortgage adviser should inform you at the first meeting if they will charge for their services and what range of mortgage products they will offer. Commonly, mortgage brokers are referred to as:
- Whole of market brokers - mortgage brokers who can access all lenders and products in the mortgage market
- Multi-tie brokers - in this circumstance your mortgage adviser will have access to a panel of lenders and products to choose from but will not be able to access all the deals in the mortgage market
- Single-tied brokers - these mortgage brokers will usually have access to only one lender and will be limited in sourcing the best mortgage solution for you
This information will tell you if they will offer a mortgage from the whole market or from a limited group of lenders. Ideally, you should deal with a mortgage adviser that can search the whole market to obtain the best mortgage for your circumstances. In real terms, this usually means that the broker will be able to access the largest number of lenders in the market - few mortgage brokers claim to have access to every single mortgage deal in the UK but a broker that has access to 90+ lenders is as close to whole-of-market as you are likely to find.
Online mortgage specialist Habito* is a good example of an independent mortgage broker that accesses the whole market and uses innovative technology to streamline the process; we look at its service in more detail in our independent Habito review. Going with a broker that has access to a limited group of lenders, however, may result in them not being able to arrange a mortgage for you, especially if you have additional factors such as a complicated income profile or a less-than-perfect credit history.
You can also search for a mortgage broker local to you by using the professional directory services VouchedFor* or Unbiased*. You will be able to search for finance professionals based on the service they provide, how much they charge and customers' reviews.
If a mortgage adviser does not consider the whole market they should provide a list of lenders and products they do consider. If the mortgage adviser actually works for a lender or on behalf of one, then they may only be able to offer mortgage products from that particular lender. Working with a mortgage broker who has access to a wide range of lenders and products will affect how much you can afford to borrow as well as how much the borrowing will cost.
With regards to the mortgage adviser's charges, these may be a flat fee or a percentage of the loan. These charges are in addition to any charges levied by the lender.
2) How much do you charge?
Some mortgage brokers will charge a set fee, which is usually between £500 and £1,000. However, there are many that do not charge a fee and are remunerated instead by the lender, receiving what is known as a procuration fee. We explain broker fees in more detail in our video below.
3) How much can I borrow?
Obviously, this is a key question and will determine the price you will be able to pay for your next home. The amount you can borrow on a mortgage will depend on a number of factors, not just your income. The mortgage adviser will run through an affordability questionnaire that asks questions about your employment, income, amount of credit you currently have, your credit score and your credit history. How much you will be able to borrow will depend on the information you provide. Lenders use varying income multiples to work out how much you can borrow based on what you earn so brokers with access to a wide range of lenders are more likely to get you the maximum amount that you can borrow on your mortgage.
4) How much deposit will I need?
The amount of deposit you will require depends on the value of the property you want to purchase and the percentage of that value the lender will be prepared to lend. This percentage is known as the "loan-to-value ratio" or LTV and is typically up to 90% of the property value. The larger the deposit you have, the wider the range of mortgage deals available to you. First-time buyers are sometimes offered up to 95% loan to value and may find offers that are specifically targeted towards those purchasing their first property. Skipton's track record mortgage deal could offer a mortgage without a deposit if you are a renter and meet the qualifying criteria.
5) What type of mortgage would be best for me?
The best type of mortgage for you will depend on your personal preference and your plans for the future.
Below we list the main mortgage and interest-rate options available.
List of mortgage types available in the UK
|Repayment mortgage||Monthly repayments consist of part repayment of the capital amount borrowed, plus a payment towards the accrued interest. The outstanding balance will reduce over the mortgage term.|
|Interest-only mortgage||Interest-only mortgages were readily available prior to the financial crisis in 2008 where customers were only required to pay the interest on the loan on a monthly basis. The capital would be repaid in full at the end of the term. As the credit crunch unfolded it emerged that hundreds of thousands of interest-only customers would struggle to pay off their home loan later on. For this reason, it’s now very difficult to borrow on an interest-only basis. Not all lenders offer interest-only mortgages and those that do will have a strict criteria. One area where interest-only mortgages are available is for the buy-to-let market where a property can be easily sold or remortgaged at the end of a term.|
|Variable rate||This is also known as a Standard Variable Rate (SVR) where the monthly payments will increase or decrease as the lender adjusts their variable rate in line with market conditions.|
|Fixed-rate||With this type of mortgage, the interest rate is fixed for a specific period of time and will remain at this rate regardless of changes to the interest rate in the market place. When the fixed-rate period expires then the rate will normally convert to a Standard Variable Rate, or another fixed rate if available. A fee (early redemption charge) will normally be charged if a borrower wishes to terminate or switch to another interest rate within the fixed term.|
|Capped rate||In this type of mortgage, the interest rate is variable, but although the rate can fall below the published capped rate, it will not rise above it. As with the fixed-rate mortgage there will normally be an early redemption charge if a borrower wishes to terminate or switch to another interest rate within the fixed term.|
|Discounted rate||With this type of mortgage, the lender offers a discount on their Standard Variable Rate for a period of time. The interest rate may rise and fall but will always be discounted and at the end of the agreed period will revert to the Standard Variable Rate. Borrowers need to be aware that if a large discount is offered, the monthly payments may jump significantly at the end of the discount period.|
|Tracker mortgage||This is similar to a variable-rate mortgage but here the rate is linked to a prevailing rate such as the Bank of England base rate. The rate will be set at a percentage amount above the relevant base rate for a specific period and will 'track' the chosen rate over this period.|
|Flexible/Lifestyle mortgage||This feature will allow over and underpayments on your mortgage.|
|Offset mortgage||This is similar to a flexible mortgage but is linked to a current/savings account with the lender. The amount held in the current account will be used to 'offset' the mortgage debt when calculating the interest charged and could help you pay back your mortgage quicker.|
|Cashback||As an incentive the lender will offer a lump sum of cash to the borrower once the mortgage has been arranged, this will typically be 3%-5% of the loan amount. There will be a 'lock in' period where the borrower may be required to repay all or part of the cashback amount if the mortgage is terminated in this period.|
6) What fees will be payable to the lender?
Apart from paying for a property survey, the majority of lenders will require you to pay a fee, or fees, to arrange and complete your mortgage, these fees will vary from lender to lender. One of the key questions to ask your mortgage broker is whether any fees you pay will be refunded if the house sale falls through. With one-third of house sales failing to complete it is important to understand what will happen to this fee if your house purchase falls into this category.
7) What documents will you need and how long will it take to process my mortgage application?
It is important to understand what documents you will need to provide for the lender and the estimated time for processing your application. If your application is straightforward then the process should be fairly quick but if your application is more complicated, then you should be prepared for some delay.
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