Caroline Ramsey
Using a mortgage adviser may seem like a good way to cut through the noise and focus on actually buying your property. But is it necessarily the best way to secure a good loan or could going directly to a lender have more benefits?
Should I work with a mortgage adviser?
First things first: don’t feel under pressure to make a quick decision. You don’t have to decide straight away whether you use a mortgage adviser or go direct to a mortgage lender. Start by researching the market long before you’ve found your ‘dream property’ and you will buy yourself enough time to consider each option carefully.
Many people do not have the time to approach different banks and view using an adviser a great way to avoid that hassle.
Remember there is nothing stopping you from approaching both a mortgage adviser and lenders directly when you start your mortgage search. Everyone’s circumstances are different, so keeping an open mind at this stage is important when it comes to finding the best option for you. Have some conversations to get the ball rolling and compare the rates on offer.
Many people do not have the time or inclination to approach different banks, and view using an adviser a great way to avoid that hassle. However, if you discover a better deal yourself, or if you have a strong relationship with your current bank, then receiving a deal directly from a lender might be what you choose to do.
The best thing you can do in the early stages is to gain a clear understanding of the mortgage market and your options, so read on for more information about the differences between working with a mortgage adviser and going direct to a lender.
What is a mortgage adviser?
A mortgage adviser, is someone with specialist knowledge of mortgages and is qualified to advise you on which products are most suitable for your circumstances. They work in 3 ways.
Works for one bank or financial institution and can only discuss the mortgages available for that one provider
Works for a business [e.g. estate agent] but are tied to a panel of specific lenders
Works alone or for a mortgage brokerage and has access to most of the mortgage market – this is known as ‘whole of market’.
Even if an adviser is a whole of market adviser, there will always be other products that are only available by going direct to lenders, but conversely, they will have access to products that you can only get through a mortgage adviser.
A mortgage adviser will carry out a number of services for you. They will check your affordability, complete paperwork and help you take into account all the costs and features of a mortgage. Their recommendation will be explained and documented and take into account your expected future circumstances and highlight other things you should consider from tax to life insurance.
Before using an advisor you should check which mortgages they have access to. Bear this is mind when making your decision and don’t forget that while you can have multiple conversations with advisers and direct lenders, and keep your options open in the early stages, you should be aiming to just apply once for a mortgage as multiple applications can have a detrimental affect on your credit score.
If you’re new to the mortgage game, here’s a quick run through of the various terms used:
Types of mortgage:
- First time buyer (no existing mortgage)
- Re-mortgager
Types of mortgage:
- Repayment mortgage
- Interest only mortgage
- Tracker mortgage
- Offset mortgage
Types of interest charged:
- Fixed
- Variable
Mortgage adviser fees
A mortgage adviser will receive commission from a lender for placing the mortgage with them. Some mortgage advisors will also charge you an additional fee for their service.
Once an advisor makes a recommendation they must provide you with a mortgage illustration document, usually known as a key facts illustration which fully discloses all fee’s and commission.
Advantages of using a mortgage adviser
- Guidance and support through a complicated process
- Access to exclusive deals
- Help with paperwork and documents
- Explanation of all costs and fees involved
- Advice and a final recommendation on a mortgage that’s suitable for you and which ones you are likely to get
- Time efficient at the research stage
Approaching lenders directly
The alternative to working with a mortgage adviser is to choose to approach lenders directly. Among the lenders you might be speaking with could be a range of financial institutions like building societies and banks – both challenger banks and the traditional high street businesses.
For many people, this is the stressful part, since it involves discerning the best rates and terms for your mortgage without necessarily having the experience and insight of the complicated details and how decisions now will impact your long term repayments.
If you are considered a loyal and valuable customer to your bank, you may even be offered favourable rates that could be difficult to find elsewhere, adding in an extra matter to consider when you’re weighing up your options.
Advantages of approaching lenders directly
- Potential to access better direct deals
- Save on mortgage advisor fees
Receiving advice
Both lenders and brokers should offer customer advice on mortgages. This involves the rates and terms of a specific deal and the eligibility of you as a borrower to meet the repayments. In order to offer you this advice they will assess your ability to afford long term repayments based on your income, assets, household debt and general outgoings.
The goal is to find a mortgage at a good rate for the current market that you can afford both now and in the future. Taking advice is an important part of that process and will be a strong foundation to understanding your options as a mortgage borrower.
Important tip: Make sure you receive advice from your mortgage broker or lender. This will allow you to make a complaint if the mortgage deal turns out to be different than you expected. Without this advice you will take full responsibility for the final decision you make.
Risks of not using an adviser
Choosing the wrong mortgage – If you rush into a decision and don’t receive advice from a lender or a mortgage advisor on your deal, you could end up with the wrong mortgage for your situation. This could leave you with unrealistic monthly repayments now or in the future and may be a particular issue if interest rates rise unexpectedly.
Mortgage rejection – A mortgage rejection is bad for your credit record and could affect how willing other lenders are to offer you favourable rates in the future. This could happen if you apply for a mortgage with certain restrictions or criteria that you don’t meet and did not understand before you applied.
- Interest rate: the rate of interest you are charged, expressed as a percentage, on the outstanding loan amount.
- Deposit size: the amount of money you put towards your purchase yourself.
- Standard variable rate: the rate your mortgage will revert to after a fixed rate period.
- Interest repayment schedule: when you will pay your mortgage interest (daily/monthly/annually).
- Early repayment charges: are charges that you are likely to incur if you leave an existing deal before the term of the deal is over
- Fixed rate duration: how long will you be locked in at a specific rate?
Making the right decision
Applying for a mortgage via an advisor could save you a considerable amount of time and research, not to mention the support that comes with working with a specialist in the field. However, the ultimate goal is to find the best mortgage deal and in some cases going directly to a lender may be the best way to do this.
Whether you end up arranging your mortgage directly or through an adviser, make sure you take into account all the important variables that come with any mortgage deal and choose the best option for your circumstances.
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