Although on first glance, it may seem easy to seek a mortgage via a high street lenders, their lending criteria can be very restrictive and therefore depending on a mortgage applicant’s personal circumstances, using a mortgage broker to help source a mortgage deal suitable to the applicant’s current situation can save both time and money.
People often turn to mortgage brokers due to specific circumstances such as a less than perfect credit record or being declined a mortgage, or due to unusual circumstances in relation to the property sought. Mortgage brokers have access to the whole of the market to be able to source a wide range of products and also have knowledge of mortgage acceptance trends for specific lenders too.
In this article we will explore what are the typical mortgage broker fees, the common pricing structures and frequently asked questions in relation to brokers.
What are the Typical Pricing Structures and Fees that Brokers Charge?
As with most things, pricing structures will vary between companies however there will be an overriding market competitiveness that will guide the pricing.
When comparing mortgage broker’s, it is important to seek each brokers pricing in writing before committing. Each broker should be upfront and transparent with their pricing structure to potential clients.
There are various typical pricing structures that brokers offer, as follows:
- Fee-Free – Some brokers operate only via commissions from the mortgage lenders and therefore they do not charge the mortgage applicants directly. This is a very attractive pricing structure, especially as mortgage applicants face other large bills such as legal fees, stamp duty and other associated moving costs.
- Hourly Rate – Some brokers charge for their services by the hour. In these circumstances it is worth asking for an estimation of how many hours an applicant’s case will take as costs can soon escalate!
- Fixed Charge – Other brokers offer a fixed charge pricing policy, which is a very transparent approach as long as all services are included within the one-off fee. If a broker is offering a fixed charge, it’s always worth checking the terms and conditions for any exclusions from the fixed price.
An average cost for the services of a UK mortgage broker is around £500, which can be requested upfront or upon completion of the mortgage transaction. Always remember that if the terms state that fees are payable upfront, upon a mortgage application, there could be the scenario where the mortgage application is declined, and the applicant is out of pocket!
- Percentage – Some brokers charge for their services by calculating a percentage of the mortgage application. In which case the fees will vary and an application for higher value mortgages will be charged significantly higher fees. For example, a fee structure of 1% of the mortgage application for £250,000 would work out as a £2,500 broker fee.
- Combination – Some brokers set their pricing policy as a combination of the above-mentioned structures. For example, the broker may be eligible for commission from the mortgage lender as well as charging the applicant per hour for the services provided. It is always worth reading the fine print of any broker terms to ensure a full understanding and agreement before signing.
Which is Better, Paying Mortgage Fees or Commission?
Unfortunately, there is not one pricing structure better than another, it really depends on the quality of advice provided by the mortgage broker. For example, a commission only policy could leave more money in the pocket of the mortgage applicant, but only if the mortgage that was sourced was the best deal available for the applicant’s personal circumstances.
A mortgage brokers pricing structure does not directly correlate to the level of service provided and therefore personal recommendations for a broker are invaluable. Should no personal recommendations be available, sufficient research should be undertaken including seeking reviews from previous clients.
Once you have found a broker, always check that they are authorised and regulated by the FCA (Financial Conduct Authority).
Should I Avoid Fee-Free Mortgage Advice?
It is natural to wonder if a fee-free mortgage broker would provide lower quality advice compared with those with a fixed fee pricing structure, however this is not the case. The old saying “nothing comes for free” is very true, as the broker is paid directly from the commission received from the mortgage lender, and therefore the fee structure has no connection with the level of service provided.
Sometimes upfront fees are charged by the larger broker chains to cover overheads for example, not in relation to the quality of the mortgage advice.
How Much Commission Do Brokers Typically Receive?
The commission from the mortgage lender is calculated on the value of the mortgage loan. A typical commission from a mortgage lender is 0.35% of the mortgage loan.
Is a Mortgage Broker Worth the Fees?
Commonly by approaching a mortgage broker, the potential applicant would have access to a wider range of mortgage products than they could source directly with the lenders and therefore the applicant can often save money by comparing the deals available.
Therefore, any fees paid to a broker are often recouped by the savings received as long as the mortgage advice is of high quality, and the broker fees are competitive.
In addition to potential cost savings, broker advice provided, and the support given throughout the application process can give peace of mind to applicants, especially for those who are new to the mortgage market, which can be priceless!
How Many Mortgage Applicants use a Mortgage Broker?
Up to 60% of mortgage holders have used broker services to help them source the best mortgage deals and provide assistance with seeking a mortgage with unusual circumstances.
Approaching a mortgage broker to help source the best mortgage deal possible is quite a common process. Brokers not only provide expert tailored financial advice but also have access to a wide range of products that would not be accessible directly from lenders.
Broker fees can vary in values, as does the charging process between brokers. Some brokers charge fees directly to potential mortgage holders, whilst others provide their services fee-free and are paid commission from the mortgage lender upon successful loan applications.
Brokers have access to many lenders including specialised lenders and therefore can often assist mortgage applicants with an array of personal circumstances.
Mortgage brokers can also save potential mortgage applicants money by obtaining the most competitive mortgage rates on the market, however, always undertake research of the broker before committing, including ensuring that they are registered with the FCA.