Obtaining a Mortgage isn’t just a tick-box exercise, it’s a journey; one laden with paperwork, decisions, and yes, a fair bit of stress. This is where a mortgage broker steps into the frame, smoothing out the bumps and guiding you on the right path towards your new home.
Yet, these brokers don’t work for free. So how do they get paid?
Let’s dive into the crux of the matter. The long and short of it? They may get paid a fee from you, a commission from the lender, or a bit of both – depending on the type of broker you choose.
The Nuts and Bolts of a Mortgage Broker’s Pay
Here’s the rub: when you’re scouting the market for your dream home, a mortgage broker acts as your compass. They scour the landscape of lenders, pinpointing the best mortgage deals that match your circumstances. But, like any service, this expertise has to be paid for.
Fees from Clients
Some mortgage brokers charge clients a fee for their service, which could either be a flat fee or a percentage of the loan amount. This fee typically ranges from £300 to £1000, but is likely to be more for complex cases.
Lender Commissions
Mortgage brokers can also receive commission from lenders. This is a percentage of the mortgage value – usually around 0.35% to 0.5% as a one off payment. This means that a mortgage of £200,000 would pay them £700-1000. The commission payment does not affect the monthly cost of a mortgage.
Combined Payment Structure
Then, there are brokers who receive both – charging you a fee whilst also accepting a commission from the lender.
It’s important to understand that a broker only receives a commission payment when the mortgage actually starts. The lender makes no payments to them during the application and underwriting phase, or when the mortgage offer is issued. Where property chains collapse, it means that the broker has worked for many months but will not get paid for the time spent thus far.
Even when the payment is made, it will be several months after the initial contact with a borrower. With house moves taking anywhere from 2-6 months the broker is the last to get paid.
Are Mortgages Cheaper Without a Broker?
Perhaps the question you’re itching to ask is:
“Wouldn’t I save money by sidestepping the broker and going straight to the lender?”
On the surface, it seems logical, doesn’t it?
Yet, remember this: time is money, and hunting for a mortgage is a time-consuming endeavour. A broker saves you hours of research, potentially getting you a more suitable mortgage deal than you might find on your own.
Also the cost of a mortgage does not change due to the broker being involved, or not.
In addition, brokers will have access to ‘broker only’ deals which borrowers cannot apply for direct.
Do mortgage brokers charge a fee?
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Transparency
When it comes to payment, mortgage brokers are required to be as clear as the summer sky. As a client, you have a right to understand how your mortgage adviser is remunerated for their services.
So how is this done?
From the outset, your broker should explain their payment structure. Whether they charge a fee, earn a commission from the lender, or utilise a combination of both, they are obligated to make this clear to you. This should be outlined at your initial meeting/call and also in any contractual documentation provided.
For brokers who charge a fee, they must tell you the exact amount you’ll be expected to pay. If they charge a percentage, they should provide an estimate of what this will be in money, so you understand the potential costs involved.
When it comes to commission payments from lenders, your broker is required to disclose these in the Key Facts Illustration (KFI) or European Standardised Information Sheet (ESIS). This document is given to you before you agree to take out a regulated mortgage. The mortgage quote outlines the terms of the mortgage, including the interest rate, total cost over the term, monthly repayments, and crucially, any commission the broker is to receive from the lender.
The KFI or ESIS is a crucial document designed to provide transparency, ensuring you understand all aspects of the proposed mortgage. By outlining the broker’s commission, it helps you understand how the broker is being compensated and by whom.
Ultimately, a trustworthy broker will be transparent about their earnings, fees, and commissions. It’s part of their commitment to clear communication, honesty, and providing the best service for their clients.
Is a mortgage illustration the same as a mortgage offer?
What is a Mortgage Illustration?
How Much Does a Mortgage Adviser Get Paid?
Before we delve into the numbers, it’s worth noting that the pay of a mortgage adviser can vary widely. It’s influenced by factors like their employment status (are they employed or self-employed?), their level of experience, the complexity of the cases they handle, the volume of business they conduct, and even their location.
Employed Mortgage Advisers
Typically, an employed mortgage adviser can expect to earn a base salary, which could range between £25,000 and £30,000 per annum. However, with additional commission payments from successfully completed mortgage deals, their earnings could easily rise to between £50,000 and £70,000 a year. These advisers won’t receive all of the commission or fee for a particular mortgage. Rather this is paid to the company they work for, to pay for the overall business running costs. In some instances an adviser is salaried only, with no additional commissions.
Self-Employed Mortgage Advisers
There’s also the breed of self employed advisers who work for themselves. They may operate from a home office, focusing on providing personalised services to a smaller client base. These advisers typically rely on a mix of fees from clients and lender commissions. While their income can be less predictable, the potential for higher earnings exists, especially if they carve out a niche or establish a strong reputation that leads to referral business. It’s not unusual for a hard-working and successful self-employed broker to earn £60-£100,000 a year. Once again, though, they must shoulder the running costs of their businesses, which eats into their net income.
Business Owner Advisers
There are many mortgage advisers that are also the business owner.
Invariably they will have other staff that work for them such as administrators and possibly other advisers. Any fees or commissions will be paid to the business and not them directly. This pot of money needs to pay for the rent, staff wages, licenses, insurance etc. The owner will be able to enjoy any profit at the end of the year.
In all cases, it’s worth noting that while earnings can seem high, the job of a mortgage adviser also involves significant responsibility and often long, irregular hours. Mortgage advisers are tasked with guiding their clients through one of the most significant financial decisions of their lives, and their compensation reflects that responsibility. It’s not just about securing a deal, but finding the right deal for each unique client.
Mortgage Broker Guide
In this guide we’ll take a look at what mortgage brokers do, how they can help you, how they get paid plus tips on how to find a good one.
The Lay of the Land: Independent Brokers vs Panel Brokers
When it comes to choosing a broker, it’s crucial to understand how they work and the scope they have when sourcing mortgages.
Independent, or whole of market, brokers have access to the entire mortgage market, which will mean a wider range of choices for you. There’s over 120 lenders for them to work with.
Panel brokers, on the other hand, operate from a select list of lenders. This could include 5, 10 or maybe 15 lenders. Far less that the whole of market mortgage broker.
What is a whole of market mortgage broker?
Which Broker is Best for Me?
Finding the right broker isn’t just about pound signs; it’s about finding a service that fits your needs.
Are you time-poor and need a wide-ranging service? An independent broker might be your best bet. Or you need specialist advice regarding a barn conversion mortgage, or perhaps a bridging loan.
The Upshot for Borrowers
Understanding how your broker is paid helps you navigate the world of mortgages with eyes wide open.
It’s about knowing who’s incentivised by what, so you can make decisions that align with your interests.
Final thoughts
In the swirling, at times daunting world of home buying, a mortgage broker is your anchor. They’re there to guide, to advise, to point you in the right direction, to save you time and often, save you money. But, as with anything, it pays to know how they make their money. It’s not a question of right or wrong, simply a matter of transparency.
Remember, the best broker for you won’t just be the one who charges the least, but rather, the one who delivers the most value.
They’ll be the one who listens, understands your situation and goals, and works tirelessly to find a mortgage that matches them. They’ll be the one who answers your questions, reassures you, and stands by your side, every step of the journey towards your new front door.
So, armed with this knowledge, it’s time to take the next step on your property journey. And if this article has shed light on the world of mortgages for you, why not pass on the torch?
Share it with someone else looking to navigate the complex currents of home buying. Happy house hunting!
Ready to explore your options?
If you’re on the cusp of starting your property journey and could use the guiding hand of a professional, don’t hesitate to reach out to a reputable mortgage broker.
They will make the process smoother and more profitable than going it alone. And remember, knowledge is power.
The more you know, the better decisions you can make. Keep reading, keep asking questions, and keep moving forward on your journey.
Also in this section
What is a whole of market mortgage broker?
What does a mortgage broker do?
Do mortgage brokers charge a fee?
Why should you use a mortgage broker?
This post first appeared on Respect Mortgages - Be In The Know, please read the originial post: here
