How much should I pay my mortgage broker?
Generally, when you use a mortgage broker to arrange your mortgage for you, you will be charged a fee. Like most services that you pay a fee for, it’s important to find out how much you’re going to be charged. Your mortgage broker should tell you this at the beginning of the process and you should always know this before you are committed to using the service.
Some mortgage brokers charge a flat fee and with some, it depends on other variables, for example, the size of the loan you are requesting, your credit history, the type of mortgage etc. An example of this would be a broker charging more because it is going to be more time consuming than usual to find a suitable solution for you, perhaps because you have a poor credit history. A mortgage broker will also retain a fee from the selected mortgage lender for arranging the mortgage, this is called a ‘procuration fee’ or a ‘proc fee’ for short. Usually it is around 0.3% - 0.4% of the loan amount. So, in some cases, a mortgage broker may be inclined to charge you less if you are applying for a large mortgage because they will receive a larger proc fee. Contrarily, some mortgage brokers charge their broker fee as a percentage of the loan amount, meaning the more you borrow the more you pay your broker.
Some mortgage brokers will not actually charge an upfront fee but will take the ‘cashback’ from your mortgage. Let me explain… It’s quite common for a mortgage product to offer a ‘cashback’ incentive. This is when the lender will give you a sum of money after completing the purchase of the property. These cashback amounts can vary and are generally somewhere between £250-£1,000. Many mortgage products offer no cashback element at all. It’s your broker’s job to work out which deal is the most suitable for you, including all fees and incentives. Usually they will have software to help them with this, as it can be quite complex. If your broker tells you upfront the amount they are going to charge you and takes part or all of this from your cashback amount after your purchase completes with an agreement between broker and client, then this is generally acceptable. However, if a broker was to tell you upfront that they will take the full amount of your cashback as their fee, regardless of the amount, you may wonder if that broker would recommend a mortgage product which has a large cashback amount rather than whichever deal works out the most suitable overall. So, whether it’s a fixed amount or it is dependent upon certain variables, you should always find out from your broker how much they are going to charge you during your first meeting/call.
As with all services, something to consider when comparing broker prices is the service they provide and whether extra services cost extra money. A mortgage broker’s number one job is generally to find the most suitable mortgage available based on your circ*mstances. But a mortgage broker can often offer much more than this. Your mortgage broker will often be the first professional you speak to when you start considering purchasing a property. If your broker can then be the person who is there for you to call throughout the whole house buying process, even after your mortgage application has already been accepted, this can make the whole process much less stressful. Some brokers will help you when it comes to negotiating the price of the property you want to purchase. This could be anything from a quick phone call with some general advice to taking over the negotiating process for you.
Some brokers are also qualified to give you professional advice on the insurances that generally go with purchasing a property and help you compare options. So it’s always important to find out exactly what your broker can do for you, whether there will be extra costs involved and of course, you should always do your own research.
Once you have done your research, checked reviews and found out what services are included, you should also consider your future relationship with your broker and costs of getting further help down the line. For example, it is common to re-mortgage every few years and many people move home several times in their lifetime. In some cases, a broker will charge you a fee which may be higher than other brokers but offer a discounted or even free service when you require their assistance again in the future.
Let’s look at an example of this…
If one broker charges you £500 every time you use the service and another broker charges you £800 the first time and £200 every time after that, you could start saving money if you use them three times or more. If you do come across this kind of deal, it is worth considering whether it is a company which you would expect to still be around for a long time to come, that is, will they still be there to give you the discounted service when you need help in the future? When agreeing to a deal like this you should also check that you have it in writing.
So, it is clear that there is a lot to think about when comparing mortgage broker fees and of course prices may be higher in more expensive areas (e.g., London). But I couldn’t let this be my answer to the question without giving at least a roughly estimated figure. So, here it is... Whilst I am unable to speak for other brokers, my company (Free Life Financial) charge a flat fee of £499 and this includes negotiating for properties, help with insurances, recommending a solicitor and a direct mobile number where you can contact your broker.
Now that we are clearer on what kind of broker fees to expect, the next important question is…
