USING A MORTGAGE BROKER TO GET A BUY TO LET MORTGAGE - ADVICE FROM LETTINGFOCUS.COM
LettingFocus.com property expert David Lawrenson looks at if you should use a mortgage broker to get a good deal on your buy to let mortgage.
Whether you are better off going to a mortgage broker is an interesting question and one which is a particular concern for people taking out buy to let mortgages because buy to let loans are currently treated like commercial mortgages in that they are unregulated (unlike standard residential mortgages) though this may change in the future.
MORTGAGE BROKERS AND THE MAZE
Of course, with thousands of mortgages to choose from a good broker will help you through the maze.
Many people start their search by looking at sites like www.moneysupermarket.com but these sites will not list the detailed criteria that each mortgage firm uses - which could mean that one lender will ultimately reject you whilst another is prepared to accept you.
This is where a good mortgage broker who will be familiar with the nuances of each lender’s criteria - can really help. A good one will look at the whole market to find the best deals for you and do all the administrative work to get the mortgage deal approved.
MORTGAGE BROKER FEES
But how much time can a mortgage intermediary really save you? Does the fee paid by the lender to the broker (the so called procuration fee) sway the advice you get from the broker?
And how do "repeat fees" paid by lenders to brokers to keep clients with that lender influence the extent to which good advice is given?
Clearly brokers are doing something right because around two thirds of all mortgages are taken out via a broker, with the figure for buy to let mortgages thought to be even higher than this.
But anyone taking out a mortgage may be worried about whether they are being recommended the best mortgage product or just one that pays the highest commission.
Sometimes the fee the lender pays to the broker for introducing the customer is 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. However, 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.
One broker I know says, “Charges may look high but really they work in favour of the customer. We save 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. We also have the lender’s underwriters in our own office and we can sometimes get special deals that are exclusive to us”
The broker, Mortgages for Business says, “The customer benefits from a faster service because brokers know how to properly complete the lenders’ application forms so that they are right first time.”
My view is that bokers 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, though the brokers ability to have the ear of a lender may depend upon the extent to which they have brokered good business (i.e. good clients who don’t default) in the past.
MORTGAGE PROCURATION FEES
If a broker only gets remuneration from procuration fees from the lender (i.e. because he does not charge the client at all), he clearly is going to be more driven by procuration fees than if he is getting paid from both client and lender. In this case, he will be most unlikely to recommend a lender that does not pay a fee or only deals direct with end-customers.
Mortgages for Business told me, “Our business is based on our reputation, so it is not in our interest to recommend a lender purely based on commission - especially in buy let where we want landlords to keep coming back as they build up their property businesses." This is only a rough guide.
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