What a middleman does

Mortgage intermediaries come in many guises and under various names, and there is some confusion over exactly what each of the different types of intermediary has to offer. So who are you dealing with? And what does it cost?

 

Before you enter into any arrangement – whether with someone who has been recommended to you or with a professional whose name you found through advertising or literature – you owe it to yourself to ask the right questions about their experience and their ties to the mortgage industry.

 

There are two main types of ‘middleman’ – and although their functions may seem similar, which of these, if any, you should enlist to help you get the right mortgage depends on what type of product you are after – or indeed whether you know which one that is.

 

A mortgage broker is a classic middleman (or woman), who will trawl the entire market on your behalf. Over half of all mortgage business is conducted through intermediaries, so what are the advantages?

 

Karen Garner of John Charcol, the UK's largest specialist mortgage adviser, says: 'First of all, going to a broker for your mortgage does save you the legwork, because we will look at every lender and all of the deals they have to offer – so you don't have to traipse up and down the high street.

 

A broker can also help the increasing number of people whose circumstances fall outside a lender's normal criteria – perhaps they have saved too small a deposit, are self-employed or have lived at too many addresses.

 

Even the process of applying for a mortgage has implications for your credit record, she says. 'They may be rejected by some lenders but welcomed by many others, but for every lender they go to a credit search is performed and it leaves a footprint on their credit record. Too many of these footprints and a credit record can come under question,' she continues. 'However, if a consumer goes to a broker, they will take all of the consumer's financial details and an experienced broker will know which lenders will accept their financial criteria. This saves on those telltale footprints.'

 

Another important advantage that a broker offers is an established relationship with a number of lenders. 'Many brokers have a very good relationship with lenders,' says Garner, 'and can discuss exclusive products that are not available on the high street, tweaking existing products to make them better for their clients.'

Independent financial advisers (IFAs) are, as the name suggests, independent and they will advise you on financial matters including investments and mortgages. In fact, they have a statutory obligation to provide the best or most suitable investment advice. However, with mortgages there is no statutory compulsion for an IFA to find the best product.

 

IFAs can be anything from a one-man band to a national firm. They have to get to know certain facts about you – called a 'fact find' – in order to be equipped to provide you with the best advice. They have to tell you how much commission they earn from insurance or investments sold alongside the mortgage. Plus they have to tell you how much they will earn in 'procuration' fees from the mortgage lender they recommend, if the fee is more than £250.

 

If an IFA is charging you a flat fee they must make clear from the outset how much this fee will be. The fee can range from £200 to a percentage of the mortgage that could amount to a four-figure sum. Sometimes the fee is added to the mortgage, but this is not always desirable as a fee of £1,000 will amount to much more when you pay interest on it for 25 years.

As of last October, independent financial advisers are regulated by the Financial Services Authority (FSA) under the provisions of the Financial Services and Markets Act 2000. You can check whether your financial adviser is authorised by checking the FSA’s central register. Contact the Financial Services Authority on 0845 606 1234.