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.

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. 

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.