Buying a house is undoubtedly one of the most expensive purchases you'll ever make and getting the best deal on your mortgage is a must.
However, if you're not familiar with the inner workings of the mortgage market knowing where to start can be difficult to say the least.
Many people simply go to their existing bank or building society for a mortgage, while others use a broker recommended by their estate agent without looking elsewhere. However, it's important to realise that neither approach alone is guaranteed to get you the best deal.
So, to help make finding the right mortgage for your circumstances hassle free, we explain the benefits and potential pitfalls associated with both arranging your mortgage direct and using a mortgage broker so that you can make an informed choice and decide on the solution that's right for you.
What are my options?
Direct Deal -
You can arrange your mortgage with your bank or building society directly and this is a route that many people go down. However, contrary to popular belief, applying for a mortgage with your usual bank or building society isn't necessarily the best option.
It's important to realise that just because you arrange the rest of your finances with a particular bank, it's unlikely that they will give you anything in the way of preferential treatment when you come to apply for a mortgage. You'll be put through the same rigorous checks as any other customer and are unlikely to be offered any 'special' rates just because you bank with them. What's more, you will also be limited to the range of mortgage products they offer, significantly restricting the variety of deals available to you.
Mortgage broker -
A mortgage broker is an intermediary who will help you to both find and arrange a deal on your mortgage.
There are three different classes of mortgage brokers regulated by the Financial Conduct Authority (FCA) and each differs on the range of deals they are able to access and consequently, the scope of advice they are able to offer.
Tied mortgage brokers - Offer mortgage products available from a single lender.
Multi-tied mortgage brokers - Offer access to products from a select panel of lenders.
Whole of market brokers - Offer access to all of the mortgage products on the market made available to mortgage brokers.
In general, whole of market mortgage brokers will be your best option as they are free to find you the best deal on your mortgage by comparing all of the options made available to them without being restricted to certain products or lenders.
As 'whole of market' is an FCA regulated term, a mortgage broker must make it clear to you exactly what kind of advice he or she is able to offer. The easiest way to find out this information is simply to ask a potential broker whether they are able to offer access to "whole of market" (i.e. able to arrange you a mortgage with any UK lender).
This information will also be detailed in the 'Key Facts' document a mortgage provider will give you at your first meeting.
According to FCA regulations, a mortgage adviser that advertises themselves as 'independent' should offer you access to 'whole of market' mortgage deals and offer you the option of paying by a fee to remove the risk of bias towards any one lender.
How do brokers get paid?
Fees - Some mortgage brokers charge a fee for their services. This will either be on an hourly or 'flat fee' basis and can either be charged up front or on completion.
Using a fee-based broker service can help to reassure you that they will make their recommendations based on your best interests rather than on which deal will earn them the most commission.
Commission - 'Fee free' mortgage brokers are compensated directly by lenders when they arrange a mortgage which means their services won't be at any additional cost to you. The FCA have regulations and checks in place to ensure that brokers working on commission offer their customers genuinely independent advice without being influenced by their potential earnings from a deal.
Fees & commission - Some mortgage brokers will charge a fee for their services and take commission from a lender when they arrange a deal. In this instance they may offer to offset some of the commission earned against the cost of your deal.
Dealing direct - the advantages
Exclusive direct only deals
Not all of the mortgage deals offered by banks and building societies are available through brokers; some deals are reserved for clients who arrange their mortgage directly.
The extent to which banks and building societies offer direct only deals varies; some providers will offer some products through brokers as well as 'exclusive' deals available to direct customers, while others have no dealings with brokers at all.
Technically, while a good whole of market mortgage broker will still include these independent products in their comparison, it is not compulsory for them to do so. As a result there is potential that you may miss out on a good deal simply because it is outside the scope of products your lender covers.
Additionally, some banks and building societies offer discounted mortgage rates to direct customers who already hold certain other financial products with them. Again, if you go through a mortgage broker you would not be able to take advantage of these.
No broker fees
Dealing with a lender directly also has the added benefit of eliminating any broker fees.
Dealing direct - the disadvantages
The main disadvantage of dealing direct with a bank or building society is the limited choice of mortgage options that become available to you, both in terms of the type of products and individual deals on offer.
Your choice of mortgage deals will be restricted to the lender's products alone and it is possible that they will only offer certain types of mortgage deal, potentially meaning that you miss out on the best option for your personal circumstances.
Mortgage brokers - the advantages
Whole of market comparison
The main advantage of arranging your mortgage through a whole of market broker is the wide range of mortgage products you will have immediate access to.
A broker will have the experience, connections and technology to assess your financial situation and compare the different mortgage products and deals available and recommend a loan option that's right for you.
What's more, as mortgage deals are getting harder and harder to come by, working with a reputable mortgage broker will ensure that you get the chance to apply for the best deals as soon as they become available.
Many lenders, particularly those that offer specialised mortgage products, operate exclusively through brokers and as a result enable them to offer deals that wouldn't be available to you otherwise.
If you're not familiar with the different types of mortgages available, knowing where to start looking for a new deal can be overwhelming to say the least; this is where a mortgage broker comes in really handy. They can explain the range of deals available to you in a way that you understand and advise you as to which is likely to be most appropriate for you.
This is particularly helpful as your mortgage broker will be able to suggest which lenders will be most likely to approve your application, removing the risk that you will damage your credit history by getting multiple applications rejected.
Applying for a mortgage via a broker usually means that you save a considerable amount of time and legwork by cutting down on both the research you need to do and the number of applications you need to fill in. Typically you only need to provide your information to mortgage broker once and they'll be able to use it to find a suitable deal and submit an application.
Mortgage brokers - the disadvantages
No direct deals
The main disadvantage of arranging your mortgage through a broker is that you risk missing out on deals that are available exclusively to direct customers. Having said that there is nothing stopping you from continuing to investigate direct deals yourself while working alongside a mortgage broker, if they are unable to do this for you.
Possible broker fees
If you arrange your mortgage via a broker you may need to pay out extra to cover fees for their service and this can be an added cost at an already expensive time. The best way to overcome this is to use a fee-free broker if possible.
However, it is worth remembering that the additional cost of a reputable broker should be weighed against the considerable savings that can be made by a broker helping you to find the best mortgage for your circumstances.
Summary of mortgage brokers vs applying direct:
Whole of market comparison
Exclusive broker-only deals
No direct-only deals
Possible broker fees
Exclusive direct only deals
No broker fees
Limited choice of mortgage products
Limited choice of mortgage deals
How do I ensure I get the best mortgage deal?
By taking either approach in isolation you run the risk of missing out on the right mortgage deal for your circumstances, consequently it can be a good idea to combine the two.
This way you get the best of both worlds, comparing deals only available via a broker with those only arranged directly and giving you a full picture of what's available on the market.
Our site can help you to research the best deals available, but beware of following headline rates alone as they only represent part of your total mortgage costs.
Other factors such as introductory periods, fees and the general direction of the market all need to be taken into consideration too.
If you decide to use a broker then make sure you choose one that offers access to whole of market data so that they're in a position to give you the best possible advice.
Read our guide How to Interview your Mortgage Broker to find out how to make sure you get the best service possible.
Once you've found a reputable broker, don't rest on your laurels; it's important to make them work for their money. Research the products they recommend and ask why they believe these products are better suited to your needs than any of the other deals available. Any broker worth their salt will be able to explain their choices to you clearly and confidently in a way that you understand. Our mortgage advice service can put you in touch with a reputable, 'whole of market' broker in your area.
At the same time, it's worth reviewing some of the direct only deals available via banks and building societies just in case they present a better offering. Compare these direct deals with the recommendations your broker has made.
It's worth taking the time to research all your options and find the right deal for your circumstances as both the rate and type of mortgage you choose will impact the overall amount you pay for your home. Ultimately, finding the best possible mortgage deal will help you to make big savings over the term of your mortgage.
On a final note, whether you end up arranging your mortgage direct or through a broker it's important to be aware of cross selling. It's likely that the person providing your mortgage will attempt to boost their sales by offering to arrange life assurance, income protection or even home insurance for you.
While this can be a useful resource it's important that you take the same precautions you did with your mortgage to make sure that you're getting the best deal. Make sure that they are offering you whole of market comparisons and do your own research to see how the cost and level of cover compares.