Updated 07 May 2020
The cost of mortgage advice can vary from around £400-£500 to no direct fee at all, with the mortgage broker instead receiving commission from the lender. Sometimes the broker will charge one or the other, and in some cases they will receive both a fee and a commission.
You have the right to know in advance how your mortgage broker will be paid. Remember to ask him or her whether they take a fee from you, commission from the bank/lender, or both. You should also ask how much the fee and/or commission will be, and confirm that any fee you pay will depend on the mortgage deal going ahead.
Some mortgage brokers will let you decide whether to pay a fee or let them take commission instead.
There is no major disadvantage to having a mortgage broker paid via commission instead of a fee. A broker paid by commission should still be able to give you unbiased advice on the best mortgage deal for you, though you should ask about this up front. Check that your mortgage adviser isn’t tied to just a few providers and can advise you on all available products.
Sometimes, however, it may be worth your while to pay an upfront fee if this means getting the best possible mortgage deal. This can happen if the broker finds that the best deal for you will not pay commission (or not enough to justify their work). It may be that this deal represents better value for you in the long term, so will repay the cost of the adviser’s fee over time.
If your mortgage broker does charge you a fee, ask them to explain why, so you can be sure it is providing value for money.
Most mortgage lenders will pay mortgage brokers a commission, or procuration fee, of about 0.35 per cent of the loan size. This means that, for a £100,000 mortgage, a typical commission would be £350. You don’t pay any of this, and it doesn’t affect your costs in any way.
However, it is still worth finding out what commission your broker would be paid. You need to be sure that the mortgage broker is choosing the deal that is best for you – not just for them!
A mortgage broker’s fee can vary from around 0.3 per cent of the loan size to as much as 1 per cent – no-one should ever be asked to pay more than this. So for an average-size mortgage of £150,000 a fee at 0.3 per cent would be £450.
Make sure you confirm your mortgage broker’s fee in advance with a written quote. Also get written confirmation that if your mortgage deal falls through, there will be no fee to pay. Remember that using a mortgage broker should mean that you spend less money over the long term, so have the adviser explain to you how their fee is justified.
A mortgage broker’s fee can be made back very quickly if your deal is even slightly better than the next best offer available.
For example, suppose you were to borrow £150,000 at an interest rate of 2.5 per cent. Your monthly repayments would be £673 and you’d repay a total of £201,903 over 25 years.
If your mortgage broker could improve on that by even 0.1 per cent (giving you a rate of 2.4 per cent), then you’d repay £666 per month and a total of £199,694 – saving £2,209. Allowing for a £500 broker fee, this still saves £1,709, and you’d make back the £500 fee after six years.
Bear in mind that this example is illustrative only (actual mortgage deals will need renewing every few years) – but it shows how even a small difference in interest rates over time can result in big savings. In reality, a mortgage broker can often beat high street deals by more than this amount, making it worth seeking advice every time you remortgage.
For this reason, even with a broker who is paid by commission, it’s worth asking them if there are better deals out there that can be accessed for a fee.
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