Which advisers would you put your house on?
Some charge a fee, others earn commission. Emma Lunn asks who you should turn to for help in finding a home loan
Sunday 24 July 2005
To fee or not to fee? That is the question for the one in every two borrowers who use a mortgage broker to help them pick the right home loan from the thousands on offer.
Unlike a "tied" adviser, who works for just one lender, brokers can offer guidance on products from a range of providers. They'll scour the market for you and do all the administrative legwork in setting up the loan.
But this service - whether face-to-face or on the phone - usually has a price. Some brokers, such as Purely Mortgages, charge a flat £195 fee. Others - including Chase de Vere, Hamptons International Mortgages and Savills Private Finance - charge a percentage of your loan amount, usually between 0.3 and 1.5 per cent.
Say, having saved a £16,000 deposit towards a £160,000 home (the average UK price), you needed to borrow £144,000. With a "percentage" broker, this could mean a charge of between £432 and £2,160.
But not all brokers levy fees. Others earn money instead solely from commission, or "procuration", from the lender whose product they recommend and the customer buys.
Many fee-charging brokers also receive commission, though this is often rebated to the customer to reduce the fee.
In both cases, the sum involved is usually 0.3 to 0.4 per cent of the mortgage size, so a broker gets £300 to £400 commission on a £100,000 mortgage.
For specialist deals such as self-certification, buy-to-let or mortgages for people with poor credit records, the commission is usually between 0.5 and 2 per cent as more work is involved.
Fee-free brokers may sound appealing but they have their critics. Varying commission rates from lenders lead some to question whether the customer is recommended the best product for their needs, or one paying the best broker commission.
Also, some of these brokers work from a panel of lenders rather than the whole of the market, so the deals are limited.
"With a fee, you're not taking the same risk that advice will be influenced by what the broker earns in commission," says Ray Boulger, senior technical manager at John Charcol.
London & Country (L&C), one of the few fee-free brokers, denies the danger of biased service. It also asserts that this approach is good for the customer. "Paying a 1 per cent broker fee is equivalent to adding 0.5 per cent on to the rate of a two-year mortgage deal, so it can certainly have an impact on the overall value," says a spokesman.
Not everybody can make this system work, though. Purely Mortgages launched in summer 2004 as a fee-free broker but last month began charging a fee, blaming high loan- processing costs.
Some companies give you a choice of ways to find a mortgage. John Charcol offers either a flat £199 fee for telephone advice or a percentage for face-to-face guidance. Apply for a loan via its website and there's no fee to pay, but the service is limited to a 36-lender panel and there's no online advice.
In most cases, it is not possible to add the broker fee to the mortgage and it should be factored in when you are working out what you can afford.
Given his self-employed status, Keith Youens picked L&C to help him and partner Faye Hartley find a specialist loan to buy their home in Surrey in May. "We gave them all the information and they came back with a few different options."
The couple chose a tracker mortgage with Intelligent Finance at 0.49 per cent above the base rate until May 2007.
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