Getting into the nitty-gritty of the mortgage market can be quite perplexing. This is especially true if you’re a first-time buyer.
Mortgage lenders are more readily available than ever before, with varying interest rates and enticing offers. Yet, how can you make sure that you’ll choose a deal that won’t max you out financially in the long run?
There are two common ways to obtain a mortgage, either directly from a bank, or through the help of a mortgage broker. Continue reading this mortgage broker vs. bank comparison to find out which route is best for you!
A Quick Overview of Mortgage Brokers and Banks
Let’s begin by providing you with a summary of mortgage brokers and banks, in terms of taking out a mortgage:
Mortgage Brokers
Mortgage brokers, or advisors, act as a middleman between the borrower and the mortgage lender. Most lenders will pay the broker a commission fee for introducing a new customer.
A mortgage broker starts by analysing your (borrower’s) financial situation. Then, based on the information gathered, he uses his expertise, connections, and market research to find suitable deals from lenders.
Home mortgages are regulated by The Financial Conduct Authority (FCA). Therefore, you don’t have to worry about them offering you unsuitable options or biased advice. They’re legally tasked to find you mortgage offers that meet your requirements.
There are generally two main types of mortgage brokers that you’ll come across:
- Tied or multi-tied
- Whole of market
Simply put, a tied or multi-tied adviser exclusively offers deals from only one or a small number of lenders. If the best mortgage for you is available from a lender who is not on this advisers ‘panel’ then they can’t suggest it to you, and most likely will be unaware it even exists.
Whereas, a whole of market mortgage broker is an independent advisor who, as the name implies, has access to the entire mortgage market. This translates to a broader range of options for you to choose from and will include specialist and niche lenders.
What is a whole of market mortgage broker?
Banks
Banks are a traditional and simple way of obtaining a mortgage. They provide deals to borrowers directly, and will only offer their own products and services. Again, if a better deal exists elsewhere the bank is not permitted to recommend it to you.
When dealing with a bank, the variety of services is quite limited, as is the flexibility for negotiation. The lending criteria is on the standard side, with little appetite to help those with credit issues or the need for a specialist product such as a bridging loan, CIS mortgage or holiday let mortgage.
You may find this article interesting: Why would you use a mortgage broker instead of a bank?
Not on the High Street!
The high street lenders can’t help every mortgage customer and they prefer the simple, low-risk ones.
If your situation is a bit different or needs a more personalised solution then our brokers can help.
Expert advice, for all situations.
Bridging Loans
The most flexible of secured loans and often misunderstood. Bridge loans can be used in so many different ways and can be arranged super fast.
Large Loans
High net worth mortgage brokers understand complex large loans and unique situations and can source bespoke deals from the right lenders.
Let to Buy
Let to buy combines a buy to let remortgage with a residential mortgage. Allowing you to move house while keeping your current home.
Benefits and Limitations: Mortgage Broker
Now we’ll take a closer look at how a mortgage advisor can benefit you and what limitations you should expect.
Perks of Using a Mortgage Broker
Four aspects set mortgage brokers apart from competitive providers in the mortgage market:
Hassle-Free Experience
Mortgage advisors are qualified professionals who are well-versed in mortgage market secrets and tactics.
Taking matters into your own hands can require a significant amount of time and effort until you arrive at, what you may believe, is the right deal for you. You’ll need to conduct research, contact several lenders, and visit numerous websites to compare offerings.
Even after deciding on a mortgage, there’ll be a lot of paperwork to fill out and constant follow-up with the lender. That’s not even all of it; it’s just a glimpse of the major steps involved in applying for a mortgage.
A mortgage brokers’ job is to take these tasks off your plate and carry them out effectively.
Extensive Industry Knowledge
With so many mortgage providers and platforms available nowadays, prior market knowledge is vital. Having a broker by your side will help you in sorting through all of these options and determining what actually fits your needs.
Mortgage advisors also have connections with a large number of lenders, which opens the door to a safer route for expanding your options. On top of that, they can save you money by getting exclusive offers from these lenders.
What’s more, the mortgage market is constantly fluctuating; changes can occur pretty quickly. That’s why you’ll need a specialist who’s up-to-date on all current events to ensure you receive sound advice.
Expedite the Process
Aside from finding suitable deals faster and more efficiently, a mortgage broker speeds up the entire process. For example, before taking any formal steps, your advisor will conduct a thorough application screening.
This means that he’ll review your application to ensure that it contains all of the necessary documents. He’ll also double-check that all of the information is consistent and free of errors.
The phrase “the devil is in the details” perfectly describes a mortgage application. If any of its details are overlooked, your application may be delayed or, in the worst-case scenario, rejected.
Even after you submit your application, your broker will start a regular follow-up with the lender. This is to ensure that everything runs smoothly and without interruptions.
Personalised Advice
A mortgage advisor reviews your finances before looking into potential agreements. This allows him to focus on mortgages that are a good fit for you and are likely to be approved.
An advisor compares all aspects of a deal before considering it as an option; he doesn’t simply choose the lowest interest rate available. He compares the interest rate to the contract length, the application fee, the exit fee, and so on.
This is to ensure that the mortgage agreement you choose has manageable repayments in the future. When considering the long term, a minor detail in one of the agreement’s aspects can easily make it more expensive than others.
If you have any factors on your record that could make it difficult to take out a mortgage, your advisor will work around them. Having bad credit scores/reports or low income can be a deal-breaker to most lenders. However, mortgage brokers are well aware of providers who are more flexible with these requirements, so that’s where they’ll focus their efforts.
Given all of the above, you can be confident that the advice you receive from an experienced broker will be completely tailored to your needs. He’ll also walk you through the benefits and drawbacks of any deal so you can make an informed decision.
Downsides of Using a Mortgage Broker
There are no downsides to using a mortgage broker. It is the only way to go.
Just kidding!
It’s uncommon to experience a major setback when dealing with an experienced broker. But borrowers generally have two hurdles to overcome:
- The broker fee – Most brokers charge a fee for the advice and service that they provide, whereas a lender would not charge an advice fee. But for this you do get the benefit of the advisers experience, knowledge and contacts.
- The brokers reputation – You may not have used a broker before or even heard anything about them. This can make it difficult to take the leap of confidence that’s needed. But check for reviews and social proof that they have lots of happy clients.
The broker that we work with has won many industry awards and has extremely high review ratings, from thousands of happy clients. Show me.
Benefits and Limitations: Bank
Moving on to the advantages and pitfalls of using a bank to obtain a mortgage:
Perks of Using a Bank
There are two major benefits to getting a mortgage from a bank:
Reliability and Transparency
Dealing with a well-established entity, such as a bank, instils trust, especially if it has a good reputation. Besides, high-street banks are usually transparent about everything involved with a mortgage.
If you’ll be dealing with your bank and are already familiar with their procedures or staff, you may feel more at ease going through this process with them.
Possibility of Simpler Application and Repayments
If you decide to get a mortgage through your bank, you may find the application process less complicated. You won’t need to gather some personal or financial data for the application since they’re already in the bank’s database. They will already have access to your bank statements and how you conduct your account.
Downsides of Using a Bank
Let’s go over three of the drawbacks that you’ll face when dealing with a bank:
Limited Coverage
A bank won’t always provide you with deals that correspond to your needs. They’re restricted in what they can offer, which may not always be in your best interests. As a result, in comparison to mortgage brokers, banks have relatively limited coverage in the mortgage market. You may also find that the adviser does not understand your predicament, as they only deal with the more vanilla mortgage cases. For example, a bank advisor may find it difficult to help you get a mortgage for a flat above a shop or if you are a company director, they are not willing to use your company retained profits as income.
Intolerance of Bad Credit
The vast majority of large banks won’t tolerate bad credit. Their mortgage requirements are quite stringent. Your credit history must be excellent, with little to no financial fluctuations.
A few banks even have minimum income requirements for mortgages. Thus, if your income has recently decreased or you have picked up some bad credit, your chances of taking out a loan through a bank are pretty slim.
Strict Regulations
Banks don’t really have any room to manoeuvre on their lending criteria, and rarely bend the rules when a mortgage case is clearly a good lending proposition. So if you asked them to arrange a mortgage on a castle or converted church they might struggle.
On the other hand, a mortgage broker provides more wiggle room for bargaining and you can end up receiving more deals at better rates.
So, what’s the verdict?
Mortgage advisors or banks?
It really depends on your needs and situation. If you’re someone who wants a reliable and simple experience, a bank may be the better option for you.
However, if you need more flexibility when it comes to repayment options or credit history, mortgage brokers are definitely the way to go. Keep in mind that there are some excellent banks with great offers – it all just depends on what you’re looking for and whether your circumstances demand the extra benefits and specialisms that come with a broker.
Weigh out the pros and cons of both before making your decision! (to use a mortgage broker, obviously!)
