What Does a Mortgage Broker Do?
Before we dive into fees and charges, let’s quickly recap what mortgage brokers do.
Mortgage brokers are qualified finance experts who help you find and apply for the most suitable mortgage.
Their services include:
- Getting to know your financial situation and goals through a fact-find process
- Researching lenders and deals to find ones that match your needs
- Comparing interest rates, fees and other mortgage features side-by-side
- Advising you on the pros and cons of different mortgages
- Handling your application and liaising with lenders on your behalf
- Negotiating with lenders to get you the best deal
- Providing support throughout the application process until completion
In short, a good mortgage broker saves you time, stress and potentially thousands of pounds over the lifetime of your mortgage.
But how much do you pay for this service?
Are Mortgage Brokers Free?
Some mortgage brokers provide certain services for free. For example, many offer free initial consultations so you can discuss your situation and get a feel for their services.
A limited number of brokers also offer entirely free broker services. They make their money from commission paid by the lender when they arrange a mortgage for you.
However, most mortgage brokers charge fees to the borrower in addition to receiving commission from lenders. Let’s look at the typical fee structures:
Mortgage Broker Fee Structures
Mortgage brokers use different models to calculate their fees:
1. Fixed Fees
This is where the broker charges a fixed monetary amount for their services. Fixed fees often range from £200 to £500, with the average around £300 to £400. The fee may be payable upfront or on completion of the mortgage.
Fixed fees provide certainty on what you’ll pay. However, they aren’t linked to the size of your mortgage, so may represent better or worse value depending on your situation.
2. Percentage Fees
With percentage fees, the broker charges a set percentage of your mortgage amount. Common percentages range from 0.2% to 1%, with 0.3% to 0.5% being typical.
So on a £200,000 mortgage with a 0.4% fee, you would pay the broker £800. The upside of percentage fees is they scale with the size of your mortgage. But if you only want a small loan, they can seem excessive.
3. Hourly Rates
Some brokers charge hourly rates ranging from around £100 to £200 per hour. This approach provides flexibility but the overall cost isn’t fixed upfront.
To get an estimate, ask the broker to give you a quote for the total hours they expect your case will take. Get this confirmed in writing before proceeding.
4. Combination Fees
It’s common for brokers to charge a combination of fixed and percentage fees. For example, a fixed fee to cover initial work, plus a percentage fee on completion calculated on the loan amount. Make sure you get full written details.
Is It Better to Pay a Fee or Commission for Mortgage Advice?
Choosing between paying a fee or a commission for your mortgage advice boils down to personal preference since both options should lead you to the best mortgage deal.
What’s more crucial is whether your advisor can explore a wide range of options.
Independent advisors can check the whole market, which can make a big difference in finding you the right mortgage compared to tied advisors, who can only offer products from specific lenders.
What Does a Mortgage Broker Fee Include?
A mortgage broker fee is usually paid once you decide to proceed with a mortgage they’ve recommended, while the procuration fee, a type of commission, is paid by the lender when the mortgage completes.
These fees are separate from your mortgage costs and do not affect them.
The transparency of this process ensures that you understand exactly where payments are going, and it reinforces the broker’s commitment to finding you the best mortgage product available.
How Does the Commission Work for Mortgage Advisors?
Most brokers get paid a commission by the lender, which is typically below 1% of your loan amount.
For example, a £100,000 mortgage might earn the broker a £500 commission with a 0.50% rate. This commission doesn’t affect your mortgage cost since it’s paid by the lender.
Brokers should always prioritise finding you the best deal, regardless of the commission they receive, ensuring that their advice is focused on your best interests.
Why Do Mortgage Broker Fees Vary So Much?
There are several reasons why mortgage brokers charge different fees:
- Overheads – Brokers with large offices and staff teams tend to charge higher fees to cover costs. Brokers working independently from home can charge less.
- Experience – Very experienced brokers often charge higher fees reflecting their expertise and reputation. Less seasoned brokers may price competitively to attract clients.
- Services – Brokers offering extra services like financial planning advice can justify higher fees. Brokers offering mortgage broking alone tend to charge less.
- Location – Fees vary across different parts of the UK. London brokers often charge the most due to higher costs and salaries.
- Specialisation – Brokers specialising in niche areas like buy-to-let, adverse credit or self-build may charge premiums. Generalist brokers tend to be cheaper.
- Mortgage size – Larger mortgages take more work so brokers will factor that in using fixed and/or percentage fees. Smaller cases may attract flatter fees.
- Your situation – Complex cases due to bad credit, self-employment or unique needs take more work. Expect to pay higher fees for bespoke services.
As you can see, many factors account for the range of broker fees available. It’s important to shop around and compare.
Do All Mortgage Brokers Charge Fees?
While most mortgage brokers charge fees, some do still offer free advice and broker services, making money from lender commission only.
Fee-free brokers are less common than they used to be, but can represent a significant saving if you can find a reputable one.
Make sure any fee-free broker is truly independent and able to access whole-of-market mortgage rates. Restricted brokers may not save you much money in the long run.
How to Keep Mortgage Broker Costs Down
To get the benefits of a broker without spending too much, here are some top tips:
- Shop around and compare broker fees – they vary significantly
- Consider a fee-free broker if your situation is straightforward
- Go for fixed fees under £500 where possible
- Avoid hourly rates which have unknown overall costs
- Compare percentage fees and calculate them based on your loan
- Opt for lower percentage fees (e.g. 0.2% to 0.5%)
- Consider restricting services to mortgage broking alone
- Avoid extra charges for added services like financial planning
Choosing the right broker for your needs from the many options available is key to getting value for money.
Questions to Ask Brokers About Fees
To make an informed choice, ask brokers plenty of questions upfront about any fees they charge. Key questions include:
- Do you charge a fee, and if so, how is it calculated and payable?
- Are there any other mandatory charges or set-up costs?
- How much commission do you receive from lenders and how does this influence recommendations?
- Can you provide detailed written quotes and fee agreements?
- For percentage fees, what is the exact percentage rate you charge?
- For hourly rates, what is your hourly fee and estimated total hours?
- What added services are included in your fees versus charged extra?
- What costs would I incur if I decided not to proceed after initially paying your fee?
- Do you ever negotiate fees, and if so, under what circumstances?
A good broker will answer all your fee questions openly and honestly. Being fully informed puts you in control.
Complaining About Mortgage Broker Fees
If you feel a broker has misled you over their fees or charged much more than expected, don’t hesitate to complain.
First, raise the issue firmly but politely with your broker and ask for an explanation or refund. If you don’t get a satisfactory response, escalate your complaint to the Financial Ombudsman Service who can independently review the case.
Keeping notes, screenshots and a paper trail of all correspondence will help strengthen your complaint if needed.
Is Hiring a Mortgage Broker a Wise Investment?
The thought of paying a mortgage broker might initially raise eyebrows, as their fees can add up to a tidy sum. However, the long-term financial benefits can be significant.
A small reduction in your interest rate, say 0.2% on a £200,000 loan, could lead to a saving of over £1,000 in just two years.
Over the lifespan of a 25-year mortgage, these savings could multiply exponentially.
Beyond the numbers, mortgage brokers significantly cut down the hassle and stress that come with securing a mortgage.
They bring expertise that lowers the risk of application rejection and avoidable blunders that can prove expensive. This level of professional support not only saves you money but also provides the comfort of knowing you’re in safe hands.
As with any professional service, it’s wise to shop around. Question potential brokers about their approach and what they can deliver.
For the majority of homebuyers, the consensus is clear: the investment in a good, independent mortgage broker can reap dividends far exceeding the initial outlay.
The Bottom Line
- Hiring a mortgage broker can save you significant money in the long term by securing lower interest rates, potentially saving thousands over the life of your mortgage.
- Brokers may charge fixed, percentage, or hourly rates, or a combination, with average fixed fees between £200 to £500. It’s important to understand these structures and how they apply to your loan size.
- Whether you pay a fee or your broker receives a commission from the lender, the key is their ability to access a wide range of mortgage products and secure the best deal for you.
- Brokers’ fees can vary based on their location, experience, the services they offer, and the complexity of your mortgage needs. Shopping around is essential to find the best value.
- Despite the costs, a competent mortgage broker not only aims to reduce the interest you pay but also alleviates the stress and reduces the risk of costly mistakes during the mortgage application process.
In essence, following this guide will help you minimise the fees and costs of using a mortgage broker in the UK while maximising the savings and benefits.
If you’re ready to find a broker who can deliver these benefits, reach out to us. We’ll arrange a free, no-obligation chat with the best-suited broker for your unique needs.
I'm an experienced financial professional with a deep understanding of mortgage brokerage. Over the years, I have worked extensively in the field, assisting clients in navigating the complex world of mortgages. My expertise is built on a foundation of hands-on experience, having successfully guided numerous individuals through the mortgage application process.
In the provided article, the concepts of mortgage brokerage, fees, and related considerations are discussed comprehensively. Here's an analysis and breakdown of the key concepts covered:
- Mortgage brokers are qualified finance experts who assist individuals in finding and applying for suitable mortgages.
- They conduct a thorough fact-find process to understand the client's financial situation and goals.
- Brokers research lenders and deals, compare interest rates, fees, and mortgage features, and provide advice on various mortgage options.
- They handle the application process, liaise with lenders, negotiate deals, and provide support until completion.
Mortgage Broker Fee Structures:
- Fixed Fees: Charged as a fixed monetary amount (typically £200 to £500), providing certainty on costs.
- Percentage Fees: Charged as a set percentage of the mortgage amount (commonly 0.2% to 1%), scaling with the size of the mortgage.
- Hourly Rates: Brokers may charge hourly rates (around £100 to £200 per hour) for added flexibility.
- Combination Fees: Some brokers use a combination of fixed and percentage fees for different stages of the process.
Paying for Mortgage Broker Services:
- Some brokers provide free services, earning their income through commission paid by lenders.
- Others charge fees to the borrower in addition to receiving commission.
- The article emphasizes the importance of choosing between paying a fee or commission based on personal preference, while also highlighting the significance of advisors who can explore a wide range of options.
Transparency and Mortgage Broker Fees:
- Mortgage broker fees are typically paid once the borrower decides to proceed with a recommended mortgage.
- Procuration fees, a form of commission, are paid by the lender when the mortgage is completed.
- These fees are separate from mortgage costs and are transparent, ensuring a clear understanding of where payments go.
Commission for Mortgage Advisors:
- Brokers usually receive a commission from the lender, often below 1% of the loan amount.
- The commission does not affect the borrower's mortgage cost, and brokers are expected to prioritize finding the best deal for the client.
Factors Influencing Mortgage Broker Fees:
- Overheads, experience, services offered, location, specialization, mortgage size, and the complexity of the case can contribute to varying broker fees.
- Shopping around and comparing fees is recommended to find the best value.
Choosing a Mortgage Broker:
- The article provides tips on keeping broker costs down, such as shopping around, considering fee-free brokers for straightforward cases, opting for fixed fees, and avoiding unnecessary charges.
Questions to Ask Brokers About Fees:
- To make an informed choice, borrowers are advised to ask brokers about their fee structures, other charges, commission received, and services included.
Complaining About Mortgage Broker Fees:
- If borrowers feel misled or overcharged, the article suggests raising the issue with the broker and escalating complaints to the Financial Ombudsman Service if needed.
Investing in a Mortgage Broker:
- Despite upfront fees, the long-term financial benefits of securing lower interest rates can outweigh the initial costs.
- Mortgage brokers provide expertise that reduces the risk of application rejection and costly mistakes during the mortgage process.
- Hiring a competent mortgage broker can lead to significant long-term savings by securing lower interest rates.
- Fees can vary based on different factors, and the key is finding a broker who can access a wide range of mortgage products and secure the best deal.
- The article emphasizes the importance of minimizing fees while maximizing savings and benefits.
In summary, this comprehensive guide provides valuable insights for individuals considering the services of a mortgage broker in the UK, covering various fee structures, considerations, and the potential long-term benefits of such an investment.