There's an easy way to save £962 on your mortgage, apparently -- but do the figures still stack up in today's tough economic climate?
Mortgage brokers may not be at the top of many Fools' Christmas card list. While not in the league of traffic wardens and estate agents, they are understandably often viewed with suspicion. After all, they are mainly remunerated by commission and the cynical may suspect that such a set-up could affect judgment.
But here at The Fool, we believe that mortgage brokers offer a useful service. Indeed, that's why we set up our own mortgage brokerage, The Motley Fool Mortgage Service. There are thousands of upstanding brokers out there who have worked hard for their qualifications, jumped through hoops to satisfy regulatory bodies and genuinely have their clients' best interest at heart.
But can they save you any money?
Well, according to the Association of Mortgage Intermediaries (AMI), going to a mortgage broker could save you up to £1,830 per year -- not to be sniffed at.
This is based on the average fixed rate (most often recommended by brokers) compared to the average SVR (most frequently offered by lenders). Of course, brokers will not always be able to offer borrowers such savings and the same study showed that the average saved was £962 per year.
But can they still save you money?
However, things may be different now. Thanks to the credit crunch, the mortgage market has changed rapidly in recent months.
One big change has been that lenders have tended to make direct products more competitive than those available through brokers. So if the same survey was done by the AMI again in six months, the results might be very different.
Indeed, you could well find a better deal by going to direct to a lender. While brokers are still able to access 72% of the market, a study by Moneyfacts has found that the deals that are only available direct from lenders are the most competitive. In fact, Moneyfacts claims that the top 13 two-year fixed rates are only available direct.
The question is: can you find that competitive deal? Can you scour the whole of the mortgage market for the best deal to suit your needs? And even if you find it, can you make sure your application is processed quickly, before the deal is withdrawn?
Once again, I must stress that The Motley Fool has its own mortgage brokerage service, so cynics may wonder if we're impartial on this.
However, I have been writing about mortgages for nearly a decade and I genuinely believe that going to a broker is advantageous, even in today's tough economic climate, for the following reasons:
1 Lenders do not always offer full advice in the regulatory sense. Instead they often provide information on their own products and ask set questions to come up with suitable products. This is fine for financially sophisticated borrowers who know what they want. But others might need full advice, specific to their needs from a qualified and experienced broker. Also, if your sale is ‘advised' you have far greater rights should you need to complain.
2 Brokers can scour the market for the deal that suits you. Some direct deals may be more competitive but brokers will look across a wider range of lenders. Half of borrowers that go direct go no further than their own bank and another 40% visit less than three lenders, according to the mortgage watchdog. The chance that they will happen upon the lender with the best deal for them is slim in a market of 4,000 products. A broker can search over 100 lenders' products.
3 Brokers can get the deal placed. A lender may not have a wide enough product range to be able to place a client, particularly in the current market. A mortgage broker can scour the market to find a lender that will be able to place the deal. A census of brokers in Feburary 2008 found that over 73% were able to place over 95% of their clients with a lender first time.
4 A client with unusual needs or circumstances can often only be provided for. Many lenders that operate in specialist markets, such as the sub-prime sector, do not operate direct to consumers. From April 2006 to September 2007, 83% of borrowers who had suffered financial difficulties were assisted by mortgage brokers, according to the AMI.
5 Brokers provide a service in demand. In the current market the number of borrowers turning to advisers rather than lenders is actually increasing as people seek advice they can trust. The Council of Mortgage Lenders has found that the number of first-time buyers using an intermediary has increased to 82.5% in the first quarter of 2008, 10% higher than in quarter one 2007. The figures also show that intermediaries are now responsible for 79% of all remortgages.
6 Advice when you need it. Mortgage brokers understand that people cannot always take a day off work to discuss their homeloan. Your bank branch may close at 3.30pm but your broker will work until 9pm at night, visiting you in your home, workplace or their office at your convenience.
7 Your deal will go through more quickly with a broker. They have tried and tested processes to avoid going back and forth, and can speak to the people who make the lending decisions. In addition, they may be able to commission your valuation immediately.
8 A broker will look at your wider financial situation, not just your mortgage. When it comes to related insurances the broker can check the entire market. A lender will offer you their product, or those of a firm they are tied to. On each product a broker can look at what best meets your needs and saves you money.
9 Most clients have a stronger bond of trust with their financial adviser than with their product provider. Brokers can look after your financial circumstances over the long-term. For example, your broker is likely to contact you to remind you to remortgage just before your new deal finishes, which will ensure you aren't automatically moved onto the lender's expensive SVR. Your adviser is likely to have a more in-depth understanding of your financial circumstances and attitudes to risk than a provider. After all, a broker knows that the best way to retain your business is to serve your interests.
10 When a better deal comes along from a competitor a broker will contact you. Your product provider will not.
More: Mortgage Lenders Are Still Ripping You Off | More Relief Mortgage Payment Shock
>The Motley Fool Mortgage Service is fee-free and will always recommend the best deal to suit your needs, regardless of whether or not the deal is actually available through our service.
