How Can I Find a Good Mortgage Broker? - A Guide to Using Mortgage Brokers Part 3

11th June 2007. In the third and final part of this blog on mortgage brokers, I’ll look at whether the commission fees paid out by mortgage lenders to mortgage brokers could result in a conflict of interest and customers getting offered a less than optimum buy to let mortgage loan. (For parts one and two of this topic, please see the blogs dated 24th May and 5th June.)
It’s worth making it clear that mortgages for business purposes – such as a buy to let mortgage loan – do not get the same degree of protection as a normal residential mortgage does, so there is an inherent enhanced risk that a broker could sell you an unsuitable product.
For example, suppose a mortgage broker has two lenders – both with similar products - but one pays him a higher commission than the other. Clearly, the one with the higher commission is more likely to get the business.
Alternatively, the broker may decide to reduce the fee he charges to the customer from the higher commission paid by the lender. (Most mortgage brokers charge their client a fee as well as getting a commission from the lender)
Of course, a problem exists if the customer is not offered what would have been a better product because of commission differentials paid by the lender.
The risk is all the greater if a broker only gets remuneration from the procuration fee paid by the lender (i.e. say, because he chooses not to charge the client at all).
Clearly, in this case, he is going to be more driven by procuration fees than if he is getting paid from both client and lender and will be most unlikely to recommend a lender that does not pay a fee.
It’s worth knowing too, that most lenders now also pay so called, “repeat fees" to brokers. These are paid to intermediaries by lenders if they advise existing borrowers to remortgage with the same bank or building society.
These types of fee are relatively new but the amounts paid have increased in recent years as each bank and society lender tries to stop the loss of business to other lenders.
Clearly, these payments could mean an intermediary encourages a client to remortgage with the same lender even though a better deal is on offer with another lender.
However, don’t be too worried, because as another broker told me “Our business is based on our reputation, so it is not in our interest to recommend a mortgage loan purely based on commission -especially in the buy let arena where we want landlords to keep coming back as they build up their property businesses.”
At the end of the day, as ever, it always pays to shop around. If you use a mortgage broker to arrange a buy to let mortgage, don’t be afraid to ask him what fee he is getting from the lender. Then check on the net that what he has offered you looks good.
But, be prepared to pay him for the work he has put in on your behalf. In other words, be aware, ask questions – but don’t be mean!
David Lawrenson is the author of “Successful Property Letting.” His website is at www.lettingfocus.co.uk Copyright: David Lawrenson 2007.

How Can I Find a Good Mortgage Broker? - A Guide to Using Mortgage Brokers Part 2

For part one of this guide, please see the blog entry on Thursday 24th May.
Clearly mortgage brokers are doing something right because around two thirds of all mortgages are now taken out via a broker, with the figure for buy to let mortgages thought to be even higher than this.
But mortgage lenders are now paying more to brokers so anyone taking out a mortgage may be worried about whether they are being recommended the best product or just one that pays the highest commission.
The payment that the lender makes to the mortgage broker is sometimes called the "procuration fee" - which is just another word for a commission.
Sometimes this is calculated as a flat rate per case – say anything from £150 to £600, sometimes as a percentage of the amount being borrowed or sometimes whichever of the two ways of calculating it gives the highest amount!
Each mortgage lender uses a different fee structure. The amount paid is usually dependent upon the type of product type, who the broker is (and how much business they have put the way of the lender) and what type of loan it is – with more risky “sub prime” loans paying as much as two or even two and a half per cent.
While charges may look high they can work in favour of the customer by saving the lenders money by in effect doing a lot of their work for them.
The lender saves on the cost of having to train and keep qualified sales staff and all the overheads that entails. Many brokers have the lender’s underwriters in our own office and they can sometimes get special deals that are exclusive to them.
Also, the customer can benefit from a faster service because brokers know how to properly complete the lenders’ application forms so that they are right first time.
Also, a really good mortgage broker can also help a customer get a loan where the strict application of the lender’s underwriting requirements would mean that they would not get a loan if they went direct to the lender.
The mortgage broker’s ability to “bend the ear” of a lender will depend upon the extent to which they have brokered good business (i.e. good clients who don’t default) in the past.
In part three, due soon, we will look at whether the fees paid out by mortgage lenders to compete for business from brokers, could result in a conflict of interest and the customer getting offered a less than optimum mortgage loan. Go to my main website at www.lettingfocus.co.uk Copyright: David Lawrenson 2007.