When you are hunting for a new mortgage, should you use a broker or go direct to the lender?
Sections
Tim Wilson, mortgage sales manager at lovemoney.com
Use a broker
This is an old argument that today I am going to try and finally put to bed. So, why should you use a broker rather than going direct to a lender?
Historically direct mortgages, those you get from the lender yourself, were never as competitive, so it was an easy argument. Brokers tended to get the pick of the best products. However, the craziness of the financial world over the last few years shook the market up, and direct products have now become just as competitive.
Let’s look at the three main things we are concerned about:
1. TIME – Is your time precious? Do you have a busy week? Can you go and have a meeting with your bank?
2. EFFORT - How long would it take you to ring every lender to find out what deals they have and whether you fit on the lending criteria?
3. MONEY – Are you getting the best deal?
OK, so that’s a very ‘sales’ thing to write, but if you look at it a little closer and look at what exactly a mortgage broker can offer, then in the background these three advantages will shine through.
A good mortgage broker will have access to all the lenders in the market, they will research this and come back with the best product that fits your criteria (and they should explain the reasons why they have chosen this product), saving you effort and time.
They have expert knowledge of all products & lenders criteria. If you go direct into the bank, they can only offer you their best products, so you will end up spending a lot of time finding the right deal for you.
Brokers deal with both standard and non-standard cases, so if you or your property falls out of normal criteria then they are able to place it with the correct lender. More savings in terms of money and effort!
Brokers also offer a non-biased tailored recommendation service, for free. The mortgage broker will get paid a procuration fee (introductory commission) from the lender that they are recommending, so you don’t have to pay a penny.
One of the biggest advantages is that the mortgage broker will be qualified to give you advice. This is really important as a lot of call centres and high street banks employees work on a non-advised basis. This means they can give you as much information as you want about the products but cannot give you any advice about your particular situation. Again, using a broker saves you money time and effort!
There are also a few extras a mortgage broker can thrown in for you, such as case management, non-tied insurance products and access to the underwriters for quick decisions, but these things are the sugar coating on your doughnuts – I believe the reasons detailed above should be enough to demonstrate that when you are ready to buy a house or you need to remortgage, then your first port of call should be a mortgage broker!
Martijn van der Hjeiden, head of mortgages at HSBC
Go direct
A central plank in HSBC’s responsible lending strategy is that it believes it is best placed to sell its own mortgages, and that lenders and borrowers need to deal with each other during the sale process to make the best lending and borrowing decisions.
No one can argue that shopping around isn’t the most sensible approach to take when looking for a new mortgage. Going to a broker is a useful part of this process, but it definitely shouldn’t be seen as the route to guaranteeing you the best deal.
Part of the confusion in the market is compounded by the language the industry and brokers use. No matter which industry you care to think of, if an adviser said to you that they could show you products from the ‘Whole of the Market’, wouldn’t you assume this means you would be able to see all the products in the market? Even if they couldn’t sell them to you, at least you’d be aware of them. No?
Even the brokers with a wide panel of mortgages who operate under the term of ‘Whole of Market’, in reality won’t compare all mortgages available to you. Indeed as the number of mortgage products which don’t make it onto broker panels increases, and as more and more lenders choose to market and sell their mortgages themselves, it’s more important than ever to use other means of shopping around. Comparison sites, best buy tables, and direct lenders’ own offers are all important sources to check.
At the height of the property cycle in 2007, brokers sold as many as 7 in 10 of all mortgages – many lenders went out of their way to keep brokers on side, even offering better rates than they were prepared to lend customers directly. However as the credit crunch tightened its screw, through no fault of brokers, many of these lenders fell by the wayside, and exclusive deals became less common.
Over the last two years direct lenders have picked up much of the shortfall, with lenders like HSBC and First Direct driving competition in the market. In 2009, HSBC mortgages appeared in 1412 best buy tables, more than any other lender. First Direct were second with 1347. The most competitive lender which sells through brokers managed just 700 appearances in best buy tables.
As the market has evolved, lenders have realised that the ongoing relationship with their customer is more important than making just another sale. Many lenders in the boom years sold mortgages on wafer thin margins on the basis that once they were customers, they would become profitable over time; and secondly, if they could increase the volume of their sales, and encourage brokers to recommend their mortgages, this would offset their reduced profit margins. The very public failure of this strategy has left lenders with no choice but to rethink how they go about selling their mortgages.
Fortunately for HSBC and its customers the bank never embarked on this unsustainable course. Many banks are following our lead in offering exclusive and preferential mortgage deals to existing customers. This practice is one of the few ways in which lenders can maintain competitive mortgage pricing sustainably over the long term. The more business customers do with us, the better the price or interest rate we can offer them.