How do you pick a winning product and lender rather than a deal that could hurt you financially? Andy Stuart, Editor-in-chief of Your Mortgage magazine discusses the army of mortgage advisers at your service
Before you choose a mortgage adviser, it is important to understand what it is that differentiates them. All reputable mortgage advisers have signed the Mortgage Code, which is the criteria for self-regulation set up by lenders and is policed by an independent body, the Mortgage Code Compliance Board (or Mortgage Board). Nearly every lender has undertaken to deal only with advisers who are registered with the Mortgage Board.
Clearly mortgage advisers who work for lenders can only advise on and recommend their employer’s own products. It is worth noting that some lenders don’t provide any advice at all, opting to provide information on a range of products and leaving it up to the borrower to select a deal. However, brokers should have access to a wide range of lenders and offer advice on hundreds or thousands of different mortgage deals.
Under the Mortgage Code advisers must make clear to the borrower what type of advice they offer and who they work for. For example, the adviser has to say whether a particular loan has been chosen from the whole market or from a selected but limited panel of lenders. And the adviser has to state whether he is independent and working for the borrower or if he is the appointed representative or agent of a single lender.
Charcol, one of the largest and best-known firms of mortgage advisers, has been in business for over 25 years. Siobhan Hotten, a spokesperson for Charcol, explains the benefit of a mortgage adviser: ‘Quite simply, it makes sense for most people to use a professional adviser because of the complexity of the market, with the sheer number of providers and products.
‘And the market is constantly changing – for example, a number of major lenders have recently adopted different strategies on pricing of products. It is very difficult for experts to keep up with the market and it is even more confusing for the average borrower. An adviser can help borrowers find the right mortgage product for them and help point out the potential pitfalls.’
For example, two seemingly similar mortgage deals with an attractive two-year discount may have very different redemption penalties. One deal may come redemption-free, so the borrower can walk away from the deal at any time, with a small ‘sealing fee’ of £35. The other deal may have redemption charges running to thousands of pounds that apply during the discount and possibly for years after the initial benefit has ended, effectively locking the borrower into the lender.
Hotten suggests another reason for talking to a mortgage adviser: ‘There are a number of lenders that have attractive deals and have offered consistently good interest rates but they have no high street presence, and borrowers could miss out on them if they don’t talk to an intermediary.’
Borrowers need to be aware that a good mortgage adviser doesn’t work for free. In the past, many mortgage advisers didn’t charge a fee, simply relying on the healthy commission earned from selling an investment product such as an endowment alongside the mortgage. These days few borrowers opt for an endowment mortgage and more advisers are charging a fee.
For example, Charcol charges up to one per cent of the size of the loan. However, Charcol’s parent, Bradford & Bingley, which has recently become a mortgage adviser, charges customers who choose to go to a branch and use its MarketPlace facility up to 0.4 per cent of the loan with a minimum fee of £200.
Why the difference in charges? Different types of client with different needs in different parts of the country, it would seem. But borrowers need to weigh the cost of fees against the possible savings on mortgage payments as well as the value of the ‘hand-holding’ that a good adviser should provide during the process of choosing a loan and moving home.
Under the Mortgage Code, advisers have to flag up any fees that they charge the consumer upfront, plus tell the borrower how much cash they may earn from placing your loan with a lender, if the procuration fee is more than £250.
So you should be aware of how much money the adviser stands to earn and where it comes from before you sign up for advice. And if you choose well you could employ a professional who will help you buy a winning mortgage product.