When you first start the process of buying a home, you might be surprised to learn that not many people are on your side. Estate agents are working for the seller, so they will tell you anything you want to hear to get you to make an offer.
Banks and other lenders aren’t really the best source of help either, as they want you to take out a mortgage with them instead of their competitors. But when it comes to brokers, you can guarantee you’ll get some practical advice.
Before you start working with a broker, make sure you ask the following questions and that you are satisfied with the answers. Remember, brokers work on commission, so they only get paid when they secure an introduction. This means you can pretty much guarantee they want to get you the best possible deal. After all, their reputation and livelihood depends on it.
If you’re getting ready to start working with a mortgage broker, make sure you ask the following questions.
All brokers are required to be registered with and regulated by the Financial Conduct Authority. Before you start working with a broker, make sure that you check that they are on the FCA register. This will help to protect you in the event something goes wrong with your mortgage application.
Some brokers will work with one lender, some will work with a select group of lenders and some will work with all lenders. A specialist broker with limited reach might sound tempting. After all, they will have in-depth knowledge of those particular lenders. But if you are looking for the best possible deal, a whole market broker will be able to give you the best options.
All brokers will charge a fee for their services. Some will charge you a fee, while others will take a cut from your chosen lender. The lender often passes this cost on to the borrower as part of their rates, so it is more of an invisible cost.
When working with a broker, you may be able to negotiate a deal whereby the first mortgage incurs a fee but remortgaging or securing a second mortgage in future is free of charge. If you are thinking long term, it’s worth asking for this option.
Buying a house can be an expensive process, but the broker’s fee will be paltry compared to the amount of money they will save you.
Make sure you are completely clear on how and when the broker will expect to be paid. In general, you shouldn’t be asked to pay anything up front. All fees should either be collected from the lender, or charged once your mortgage application has been accepted.
If you are in a niche group of applicants, now is the time to get specific. For example, if you are self employed or run your own business, it’s worth asking if the broker has experience working with people in your situation. Likewise if you already own a property, if you have a poor credit history, or if you are a contract worker.
The best part of working with a broker is all of the insider knowledge they can share. You don’t have to navigate the small print in too much detail, because they can help decode it. Ask your mortgage broker what types of mortgage will be available to you based on your current circumstances. They will also be able to advise you on steps you can take to change your situation. For example, if you have very little credit history, they might advise taking out a credit card to build your credit.
Interest rates can be very confusing. Lenders will often try to tempt you with low interest rate offers which will increase after 4 or 5 years. This can make it very difficult to navigate the industry. It’s important to think about the lifetime value of the mortgage, not just the initial payments you will be making. This is where a mortgage broker can be invaluable. They will be able to help you determine what is affordable and what isn’t. They can also help you find a way to lock in a lower initial interest rate for longer.
Affordability is key. A good broker will sit down and go through your finances to determine what you can comfortably afford to borrow. If you are applying with two applicants and two incomes, what would happen if one of you lost your job? These are the difficult questions that a mortgage broker will help you to answer so that you don’t become trapped in an expensive mortgage.
It all starts with being honest about your income and expenses on a monthly basis. Don’t be embarrassed to say how much you spend on certain items as this is key to determining what you can afford to borrow.
If you are self employed, a mortgage broker can help you to make your income look as regular and reliable as possible. And if you don’t have 3 years of accounts, they can help you find a lender willing to look at your application.
A mortgage broker can also give you advice on how to improve your credit score ahead of your application. These are all things that will make your application look more favourable in the eyes of a lender.
As we’ve mentioned before, buying a house is an expensive business. There are surveys to think about, conveyancing, other solicitor’s fees and your broker fees. You may also need to budget for stamp duty and other move-in costs. Your broker can help you to break this down and make sure that you are prepared for the financial implications of taking on a mortgage.
Remember that not all fees will be due at the same time, so you can budget over a few months and ease the impact on your wallet.
All lenders will require a deposit, but how much is a hotly debated topic. You might think it wise to try to get away with saving as little deposit as possible, but this can lead to higher rates on your mortgage.
The lender asks for a deposit to limit their risk. The more deposit you can provide, the less risk there is that they will be left out of pocket if you default on your mortgage payments. Some help to buy schemes will allow you to buy a house with as little as 5% deposit, but this is rare. Instead, you will more likely be aiming for a deposit of around 15-20% of the property value. This will mean you are only borrowing 80-85% of the property value.
A broker can help you to look for ways to maximise your deposit, either through help to buy schemes, or by setting your sights on a lower value property. Brokers are great at seeing the big picture and long-term thinking.
This is where their expertise can be valuable. Buying a less expensive starter home and getting a better deal on your mortgage can be a good strategy. It's far better than getting locked into a mortgage with poor rates. This type of mortgage will take you a lot longer to pay off.
If you are thinking long term, you might already be planning another move. The idea of a forever home is slipping to the side. More people now accept that their needs will change over time. If you were to want to move house after a few years, check with your broker that your mortgage will transfer to your new property. This can reduce a lot of the fees associated with remortgaging.
If the mortgage will not transfer, then it’s worth negotiating a deal with your broker than any subsequent deals that they arrange will be free of charge. They will still have the opportunity to recoup their percentage from the lender, but you will only have to pay upfront fees once.
Buying a home is a confusing time and it’s worth getting all of the advice you can. If there is anything about the home buying process that you find confusing, ask your mortgage broker if they can help you to decode it.
You might be confused about processing times, conveyancing, or the buyer’s part in the mortgage journey. As we’ve mentioned before, buyers often don’t have many places to turn when it comes to getting impartial mortgage advice. This is why working with an expert broker can be invaluable.
Not only will a broker help you to find the best possible deal, but they will also be on hand to clear up any confusion about the mortgage application process. You can also ask them questions about income, deposits and credit scores.