A nose for the best deals

With more than 9,000 mortgages on the market, a broker can save buyers serious money, says Stephen Pritchard
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The Independent Online

Moving house is an expensive process. The estate agent's commission, stamp duty, legal fees and fees to the bank or building society can easily add up to a five-figure sum, especially in the more expensive parts of the country. Understandably, buyers will be wary of anything that adds to this cost.

Moving house is an expensive process. The estate agent's commission, stamp duty, legal fees and fees to the bank or building society can easily add up to a five-figure sum, especially in the more expensive parts of the country. Understandably, buyers will be wary of anything that adds to this cost.

Using the services of a mortgage broker could add as much as 1 per cent of the mortgage amount to the cost of moving. Naturally, brokers argue that this is money well spent.

According to the Association of Mortgage Intermediaries (AMI), the UK mortgage market offers around 9,000 products. But an individual buyer would struggle to find the time to evaluate even 1 per cent of these.

A broker deals day in, day out with mortgage lenders and has access to computer databases that take the effort out of the searching process. More importantly, he or she should have a good knowledge of the market, and will know which deals are likely to suit a buyer's circumstances. For someone who wants a large loan, has complicated financial circumstances, or who is buying an unusual property, going to a broker might be the only practical way to secure a loan.

But according to Chris Cummings, director of the Association of Mortgage Intermediaries, it is no longer the case that brokers deal almost exclusively with the top and bottom of the market. It used to be that brokers either specialised in servicing the well-off or the so-called "sub prime" market, such as people with debt problems that barred them from taking out loans with mainstream lenders.

Today, the AMI estimates that close to 60 per cent of all mortgages are arranged through a broker or an independent financial adviser who also handles mortgages.

Greater financial awareness among buyers certainly plays a part, Cummings says, as does the increasing competition between lenders that has led to such growth in the number of mortgage deals on offer.

And a trend for homeowners to switch mortgages more often has also created new demand for mortgage advice. Cummings says the average time we now stick with the same mortgage is just three years. Not long ago, the average homeowner moved mortgages only once every seven years.

"Very few lenders offer new business rates to their existing customers," he says. "Most have existing customer rates that are not as good, so it is in your interest to shop around."

Brokers do not, however, do this work for free. Most mortgage brokers will charge at least some fees to clients, although a minority, such as London and Country, do not. Fees usually range up to 1 per cent of the mortgage, although they can be higher than this for complex cases, such as multiple buy to let investments.

According to Ricky Oakey, managing director of brokers Charcol, the typical client pays fees of 0.4 per cent of their mortgage. Initial consultations over the phone are free, and clients will have the fees calculated at their initial face-to-face meeting with their broker.

Even so, Oakey argues that most clients will save more than his firm's charges for going through a broker, either directly through a cheaper mortgage or through other incentives, such as free valuations and legal fees. "In the majority of cases, savings would be more than the client fees. Otherwise clients would not be interested in doing business," he says.

Not every buyer will benefit from the service though. Oakey estimates that borrowers looking for a mortgage of £50,000 to £60,000 might not gain enough from using a broker to justify the broker's charges.

And groups such as the Consumers' Association caution that buyers should carry out research before picking a mortgage broker too. Some brokers are not truly independent, but are tied either to one lender or to a restricted panel of mortgage companies.

Buyers should look for a broker who is independent and able to arrange a loan with any lender, says Cummings at the AMI. The broker should also be qualified, either holding a certificate in mortgage advice and practice or a mortgage advice qualification. They might also be a qualified independent financial adviser, although this is not essential. Cummings cautions that increasingly, banks and building societies only offer mortgage "information", not advice; buyers should ensure that any broker they deal with is giving full mortgage advice.

And with the Financial Services Authority due to take over mortgage regulation in October, high street lenders might cut back further on advice to buyers. Buyers who want to make sure they have a mortgage that really fits their needs are likely to need a broker's services, and will have to factor that in to the cost of moving.

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