Cheap Mortgage Finding ‘Broker plus’ technique cuts costs

Don’t trust bank or building society’s mortgage advice; they’ll just flog you a mortgage from their own limited range. Use this broker plus technique to get free advice on the best deal and possibly grab cashback too.

First use a whole of market broker to find the right mortgage and use its clout to help you get accepted. Plus, as sadly some lenders have stopped brokers accessing their products due to the credit crunch, to ensure you get the very best deal, you now need to check some specific lenders yourself.

Step 1: Arm yourself with the latest info

There’s no such thing as a mortgage ‘instructor’. They’re only advisors; the final decision is always yours. This is one of the biggest financial choices you'll make, so first arm yourself with a good understanding of how mortgages work.

• Free 30 page step-by-step printed guides.

  To help, there are two detailed MoneySaving mortgage guides: one for first-time buyers and the other for those looking for a cheaper deal. Both are available either as a free printed guide sent by post, or as an instant PDF download.
  

  
  
• Benchmark a competitive rate.

  Before starting, you need a quick idea of what’s available. Existing mortgage holders should see what their current lenders best deal is. After that, and for new borrowers, the web’s a powerhouse to benchmark a good deal. The key is to find the right combination of rate and fees (as explained in the guides).

  However, while it’s good for research, I’m not a fan of transacting mortgages online; speaking to a broker is usually a better option, possibly giving you a bigger punch to help you get accepted.

Step 2: Use a mortgage broker

Put simply a mortgage broker’s job is to find you a good deal. Plus it has the added benefit of added bonus of clout with lenders to ease your acceptance and an extra layer of protection if things go wrong. Thus as you can get this, often for free, it makes sense to use one. Yet not all brokers are the same, the aim’s to find you the best for the lowest possible price.

The three key questions to ask a broker

When choosing a broker, there are a number of things to consider. This includes whether you like and trust them; your adviser will guide you through the entire process, so their ‘bedside manner’ counts. Yet equally important are the answers to these three crucial questions:

If a broker is ‘whole of market’, this means that when picking out suitable mortgages for you, it will compare every mortgage available to brokers to find the best deals. In contrast to this, some brokers operate off a small panel of lenders (therefore searching fewer deals), as that makes it simpler and cheaper for them to operate.

Clearly, your preference should be to have a whole of market search, as this is a regulated technical term. Ask a mortgage broker the question specifically phrased this way.

For advanced MoneySavers, there are some further classifications within ‘whole of market’ brokers (see when whole of market isn’t whole note).

If you took out your first mortgage in the 80s or 90s, it’s possible you were sold an ‘endowment mortgage’. In effect this is an ‘interest-only’ deal (a mortgage which, over the term, only repays the interest), where at the same time you pay into a type of investment called an endowment, designed to eventually repay the capital.

Sadly, a huge number of endowments performed poorly, leaving people with big shortfalls – meaning the investment won’t pay off the mortgage as planned. Anyone who’s been impacted by this should first check whether they missold the endowment.

Yet if you want help dealing with an underperforming endowment, you’ll need to find a mortgage broker who is also a qualified Independent Financial Adviser.

Brokers have two possible sources of income.

• Commission.
  
  Lenders pay brokers a ‘procuration fee' of 0.25% to 0.5% of the mortgage's value, rising up to 1% for mortgages for those with poor credit. That means on a £150,000 mortgage, brokers typically earn £375 to £1,500.

• Fees.
  
  Brokers may also charge you a fee directly. No reputable broker should charge more than around 1%, even for ‘sub-prime' customers. If yours charges more, walk away.

  Fees can be charged at any point in the process, providing they inform you initially. Yet avoid using any broker that charges you before completion; it can cause problems if the details change later.

The answer to hope for…

Of course, this is a MoneySaving site, so my preference is don’t pay a fee if you don’t have to, thus you want to find a ‘whole of market’ fees-free broker. This means it makes its cash from commission but is regulated to search out a good deal from a wide range of lenders.

However if the only broker you feel comfortable with charges a fee, while it's not my prime focus, it's not a MoneySaving sin. If the fee isn’t prohibitive, then it’s more important to get a decent mortgage than to scrape a few hundred pounds off the fee.

There's also a third, slightly more complex to understand option, which can sometimes actually beat fees-free. These are brokers which charge fees, but then rebate all the commission received. Thus if it's a relatively low fee (a few hundred) and the commission it gets is higher, you'd actually be quids in. If your broker offers this, it's worth considering; ask for info on the size of the fee and a rough guess to what the commission will be.

You'll note at no point have I used the word 'independent', that's because with mortgage brokers that term's got some slightly strange regulation behind it, read more about Independent Mortgage Brokers

If you're worried you may struggle to make payments during the recession,
find out what Govt help's available. Read Mortgage Arrears Help.

The UK’s Top Brokers

There are many great local, fees-free, whole-of-market brokers in the UK. Find one in the phone book or listen to a friend’s suggestion. Give them a call, and ask the three questions in the picking a broker section to ensure they fit your bill.

UPDATE 12.11.2010: We are currently working on an update to our mortgage finding system, as lots of 'direct-only' deals have sprung up, which some brokers can't source for you. We're hoping to publish this soon - and will include it in the free weekly email.

The Big Fees Free Brokers

Obviously, it's impossible to review every local broker, so I've concentrated on some of the big ones that have UK-wide scope and you'll commonly read in the press e.g. Charcol, London & Country and Savills.

All are true ‘whole of market' operators, the difference is in their charges.

• Fees-free on the phone.
  
  Specialist phone broker London & Country is fees free for all its operations.
  
  

  Another player of scale includes Mortgage Monitor, but it's a new addition to this article, so there's no established feedback as there is for London & Country. If you try them do please leave Feedback.

• Fees-free face to face advice.
  
  If you prefer face to face, try and find a local broker which offers it; there should be quite a few. Websites like Findapro or Unbiased list brokers, but these aren't all necessarily whole-of-market. .

For those wanting a more informal route, this website’s Forum includes a large Mortgage Board where some helpful mortgage brokers voluntarily answer questions - it's an easy non-committal start option. Many are fees-free, whole of market mortgage brokers, so if they do help you, there is no reason not to ask them to sort your mortgage for you (always ask them the questions first). However, as always the golden rule is seek more than one opinion before deciding.

The Best Brokers for those with Credit Problems.

If you’ve had credit problems, whether mild or severe (see the Credit Ratings guide), and are trying to sort a mortgage, be very wary of going to the ‘specialist poor credit’ brokers who advertise everywhere.

These are often charge very high fees as customers tend to think that’s all they can get. There’s absolutely no need to go to a specialist though; most normal brokers also deal with what’s called the ‘sub-prime’ market too, and at the same fee rates that they normally charge. So simply follow the guidance above to pick a broker.

Grab the special exclusives…

All the national brokers above only charge upon completion of the mortgage, and as it's always good practice to seek more than one opinion, why not try a few? Though do check that the brokers aren't doing a credit search on your file, as then shopping around may actually hurt your credit score, meaning you get a worse deal (see Credit Scoring guide).

The other benefit of this is that different brokers often have exclusive deals from lenders (though there may be a small fee for ‘booking’ these). The big national brokers have their own deals and local brokers may offer exclusives via wider ‘broker networks’ which negotiate deals for them. Always weigh up the benefit of the exclusive deal against any broker fee you may need to pay.

Do it yourself and get cashback

If you really know your mortgage onions, then it is possible to forgo using a broker for advice. Instead, if its a deal that pays brokers commission, you can get the money it earns put into your own pocket.

A few websites allow you to do this, and there's not much between them.

• Moneyback Mortgages

  The easiest of these to use is MoneyBackMortages, which has whole of market coverage, and pays 50% of the commission it earns as cashback. This usually comes to between £100 and £300 per £100,000 of mortgage, and there's a calculator on the site to show how much you'll get.

The best practice if you want to try this is have a look on all three sites, and go with the one paying the most. Yet remember this is ONLY for the very money savvy, who know and can identify exactly the right mortgage for themselves. Do remember...

...for most people, a broker’s weight on your side for £100,000s worth of mortgage transaction’s worth more than a few hundred quid cashback.

The more loophole savvy of you may have worked out that you could of course go to a fees-free broker (or even a fee broker as long as the fee isn’t paid until transaction), then process its recommendation via a cashback site.

This is a balance of ethics and practicality. By doing this you have taken the broker's time but not allowed it to be recompensed for the advice by gaining a fee. Overall, it's likely you'll want to stick with the broker who gave you the best advice, but the option to cut the cost is always there.

Don’t assume brokers are cheapest for associated products

While brokers are often the mortgage good guys, and obliged to scan the market to find you the best deals, the same rules don’t apply when they are selling associated products.

While some brokers will get you good deals, this isn’t guaranteed. The difference can be big money: £1,000s a year. Never simply go for a broker's deal without comparing it to the cheapest result from the following guides: Cheap Home Insurance, Mortgage Life Assurance, Mortgage Payment Protection

Step 3. Now check the ones brokers miss

In the current financial climate, top deals can be harder to come by. Sadly, some lenders have retreated from the broker market to cut costs and avoid paying commission. They fall into two camps: some simply don’t allow brokers to access any of their deals, while others reserve a portion of their deals for direct sales only.

Yet, even whole-of-market brokers only have to look at the mortgages available to them, so a broker advertising it "compares all deals" may not be including these. While some whole of market brokers will mention these deals to you, there is no regulation enforcing this.

Sadly this makes the process of finding the most competitive mortgage more difficult than it used to be. The start point is always to use a broker, as that covers a massive market range for you very quickly.

But after that, for belt and braces compare its best result (for how to compare see the Mortgage or Remortgage Guides) to the three types of mortgages it may not have included:

• Lenders that don’t operate through brokers.

  The main ones are ING Direct, HSBC and First Direct. Yet the Yorkshire Building Society and Britannia don't pay brokers a fee, and while true whole of market brokers should include them in a comparison, they don't have to offer to transact them for you.

  Update 4 Jan 2010 - new fees-free lifetime tracker from HSBC:
  
  In its highly publicised 'January sale', HSBC's waived application fees on its trackers. Some mortgages charge over £1,000, so that's a strong offer, though you'll still have to pay the legal fees.
  
  What's the rate? The cheapest is base rate + 1.79% (so currently 2.29%) but you'll need a 60% LTV for that - according to broker L&C; this is a best buy lifetime tracker. Above that the bigger LTV you have the higher the rate, though the maximum allowed is 90%.
  
  Any good? If you are happy with a mortgage where rates will rise with interest rates, it can be competitive, though if you can't afford a rate rise, consider the surety of a fixed rate.

• Lenders that don’t offer all their deals through brokers

  This is where it gets tricky, and you’ll really need to do some legwork. A few lenders e.g. Nationwide, Halifax, now put some deals through brokers and some only direct, just to show there’s nothing like keeping things simple!

  This in itself isn’t that new, but a recent trend is that the direct deals can be much more competitive (though not always!). Usefully, Moneyfacts and the Money Advice Service mortgage searches, include most branch-only direct deals from lenders in their tables, so are great starting points to see if you can beat the broker deals.

• Exclusive deals from other brokers.

  The final category are the deals which are available exclusively through other brokers. Hopefully by trying a few brokers in the first place you’ll have already been through these.

If you do end up going to a lender directly for a deal, then be extremely careful about getting ANY add-on products from it. Many lenders charge exorbitant rates for these, and you can often save many £100s a year by sorting it yourself. See the Cheap Home Insurance, Mortgage Life Assurance and Mortgage Payment Protection guides for more info.