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Mortgage broker vs mortgage lender: what’s the difference?

We take a look at mortgage brokers and mortgage lenders, making it easier for you to decide which is the right option for your needs.

Summary

  • A mortgage broker can help you find the best products and rates, while a mortgage lender lends money for a property purchase.

  • Brokers and lenders have different pros and cons that make them the right choice for your specific requirements.

  • Unlike mortgage lenders, mortgage brokers consider your unique circumstances when finding a mortgage for you.

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What is a mortgage broker?

Applying for a mortgage can be complicated, especially if you aren’t sure whether you should opt for a mortgage broker or a lender.

It’s not surprising that in 2022, 70% of first-time UK home buyers turned to mortgage brokers. 

Also known as a mortgage adviser, a mortgage broker is an individual or company that arranges a mortgage between you (the homebuyer) and a lender, which is usually a bank or building society. 

The broker considers your circumstances and preferences when searching for the best deal and lender.

They will either search among a restricted panel of lenders or the whole market. After finding a product you’re happy with, they will submit the application on your behalf and assist with any queries.

What is a mortgage lender?

A mortgage lender is usually the bank or building society that provides the funds to buy a property. These funds supplement the deposit that you put down on a property.

The lender will first calculate your affordability to find out if you qualify for a mortgage according to their rules and processes.

If the lender decides you are eligible, they will offer you a mortgage based on what they’ve determined you can afford, setting the term of the mortgage and interest rate.

For example, you want to buy a property that costs £100,000, and you have enough money to put down a £10,000 deposit, which is 10% of the asking price, and your mortgage application is successful

 The mortgage lender will supply the remaining £90,000, sending it to the property seller, usually through solicitors. You will then pay back the lender over the mortgage term.

What is the difference between a mortgage broker and a lender?

The biggest difference is that a broker doesn’t lend money. Instead, they will help you find the best lender and mortgage product for your unique circumstances.

A mortgage lender is a bank, building society, or other financial institution that lends you the money to purchase a property.

Another major difference between mortgage brokers and lenders is that some brokers will help you choose a mortgage from a pool of lenders, basing their guidance on your needs and circumstances.

This is different from lenders, who only offer their own products. 

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What are the pros and cons of using a mortgage broker?

There are many benefits to using a mortgage broker if you’re looking for the best products. 

However, it’s also essential to understand that there are a few downsides.

Let’s delve into the pros and cons of using a mortgage broker.

Pros:
  • Various mortgage options: Mortgage brokers have access to the whole market or a pool of lenders, allowing them to offer a variety of deals that you can compare. 

  • Expert advice: Brokers can offer expert advice and information. Trustworthy brokers are impartial, so they’ll focus on what’s best for you rather than pushing certain products.

  • Lower product fees or interest rates: A mortgage broker can assess products available across the market to find a lower product fee or interest rate. Even if a fee or interest rate is lower by a few percentage points, it may result in significant savings.

Cons:
  • Mortgage broker fees: Some mortgage brokers charge a pre-agreed set fee or a fee of 1%–2% of the loan amount, which could add to overall costs. Other brokers don’t charge a fee but receive a procurement fee from the lender instead.

  • Limited access to lenders: Not all brokers have access to a large pool of lenders, so you could miss out on more suitable products.

  • Potential bias: There are brokers who might encourage you to choose a mortgage product or lender that offers them a higher commission or other incentives.

What are the pros and cons of a mortgage lender?

It’s impossible to fully understand whether a mortgage broker or lender is best without considering the pros and cons of mortgage lenders. Let’s unpack them.

Pros:
  • No advice fees: You won’t need to pay a fee for advice if you go directly to a mortgage lender, although you may need to pay product fees.

  • Save time: You can save time by going directly to a lender if you have done your homework and know exactly what mortgage product you want.

  • Favourable rates: If you already have a relationship with a mortgage lender, you might get a more favourable rate.

Cons:
  • Missing out on products and deals: Mortgage lenders have a limited number of products and deals. If you don’t do your research or limit yourself to one lender, you could miss out on better options.

  • What you see might not be what you get: With changing mortgage interest rates, you might not get the rate that you saw on the lender’s website or price comparison site by the time you submit your application.

  • Complex circumstances might make you ineligible: If you have complex circumstances, you might not meet a lender’s eligibility criteria. However, what one lender sees as ineligible, another lender might find acceptable.

Get expert financial advice

Deciding between a mortgage broker or lender is a personal decision that you should base on your unique circumstances and needs.

However, there’s much to be said for approaching a mortgage broker, as they can help you secure the best products and rates. 

Get matched with a professional mortgage broker through Unbiased to learn more about mortgages, find the most competitive deals, and get expert advice.

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About the author
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.