Money: How to be at home with thousands of loans

There are around 4,000 mortgages on the market, offering a variety of interest rate options from fixed to capped, variable to discounted. It sounds mind-boggling. Can you still do your own homework or is it time to use a broker? Andrew Geldard weighs up the options.

Making the wrong choice of home loan could cost thousands of pounds over the mortgage's life. For example, does a mortgage which allows a borrower to benefit from a discounted rate of 2.9 per cent over two years offer a better saving than a fixed rate of 6.75 per cent over five years. The answer is, as usual, that it depends on personal circumstances. So how can you ensure you choose the right mortgage?

In the past, the majority of borrowers have approached a lender direct. However, nearly 50 per cent of borrowers nowadays are placing their faith in intermediaries to arrange the best deal, such as an independent financial advisers (IFAs) or mortgage brokers.

Intermediaries pride themselves on being able to offer independent advice on mortgages across the board. Alan Mudd, sales manager at John Charcol, one of Britain's leading mortgage advisers, says: "An intermediary will assess an individual's particular needs and then recommend a suitable mortgage which meets them."

So what advantage can a person derive from arranging a mortgage through an intermediary? Patrick Murphy, an IFA from Tribune Independent Financial Planning, says: "I recently met a couple who had a variable mortgage paying 8.45 per cent on a loan of pounds 95,000. I advised them that they would be better off re-mortgaging their property for a fixed loan below 7 per cent for five years, a significant cost saving, even taking into account the cost of the re-mortgage."

Self-employed people with variable earnings often experience difficulty in finding a high street lender prepared to take the risk and offer a fair and competitive mortgage. An intermediary can often find a competitive deal through knowledge of the market and contacts with less high-profile lenders.

As intermediaries are responsible for introducing a considerable volume of business to a lender, it puts them in an advantageous position with that lender. Theose links can extend to exclusive terms not available on the high street. An intermediary can also speed up a mortgage application.

Typically, intermediaries will charge between pounds 250-pounds 500. All fees should be laid out clearly in a terms of business letter. Normally, the client will pay the fee only on completion of the mortgage.

Additional commission earned from arranging a mortgage should includes add-on policies, such a critical illness cover, endowments or term assurance. If that commission is equivalent to the fee, an intermediary will often waive the fee. You should ask if that is the case.

Most lenders also pay money to intermediaries for introducing the business, which is known at a procuration fee. For example, Staffordshire Building Society pays pounds 200, the Halifax pounds 125, and Alliance and Leicester pounds 100, while Bristol and West pays out pounds 200. At present, Barclays Mortgages and Abbey National do not pay procuration fees.

Banks and building societies justify procuration fees as a necessary means of demonstrating appreciation to intermediaries for introducing business. In fact for many lenders, business through intermediaries is becoming so significant that resources are being diverted into building up stronger relationships, as with Abbey National's network of IFA business centres.

Is there any danger of an intermediary recommending a mortgage based on a procuration fee? According to Sally Laker, general manger of intermediary Mortgage Intelligence, that is not a worry. "Intermediaries are looking to keep your business, and obtain new business from resulting referrals," he says. "This will not happen if they do not give the best possible service and advice."

But people remember the pensions mis-selling scandal and many consider intermediaries expensive. So a familiar high street name is frequently the preferred option for a mortgage. The Halifax says: "We have trained staff who will interview and assess a person's circumstances before recommending the most suitable mortgage. We believe this provides a far-ranging choice."

At present, mortgage advice does not fall under the regulation of the Personal Investment Authority, the financial regulator. However, the Council of Mortgage Lenders, which represents the industry, is setting guidelines for intermediaries. Under its code of practice, brokers will have to explain clearly why they chose a particular mortgage and demonstrate a clear knowledge of the market. Although not statutory yet, lenders are likely to advise intermediaries that it would be in their interest to be signatories.