What you need to know about mortgage broker fees
Are you curious about mortgage broker fees? This is the post for you. We'll explain what they are, how they work, and why you might want to use a mortgage broker.
First things first—do mortgage brokers charge a fee?
Do mortgage brokers charge fees? Yes, they do. You might not always see an invoice for their services, but as all businesses need to turn a profit to cover costs, so do mortgage brokers (or mortgage advisors). In many instances, they’ll bill you directly; in others, they’ll be paid a commission by the lender you finally decide is the right one for you.
The main reasons mortgage brokers charge a fee
A mortgage broker provides a range of services designed to make securing a competitive mortgage easier for borrowers and save them money.
- Calculating mortgage affordability – the realistic amount you can afford to borrow depending on your income or your application’s joint income.
- Locating the best mortgage deals in the market for applicants in your financial position.
- Negotiating for the best terms and loan amount possible on your behalf.
- Completing the mortgage application paperwork and organising the mortgage application process.
- Explaining the mortgage process, your offers, different products, and which are most suited to your application.
- Guiding you through your choices, your application, and completing the process.
As you can see, your getting expert mortgage advice from a professional. It only makes sense that the time and resources it takes will carry some kind of broker fees.
How do mortgage brokers charge, and how much?
The average mortgage broker fee in the UK lies somewhere around £500. However, that figure could drop as low as £350 or rise into the thousands. It shouldn’t be a secret; you’re entitled to ask your mortgage broker how they organise their fees, what they include, and if they work on commission, how much that is. In fact, you should.
A reputable agency or trustworthy mortgage broker will have no problem being transparent, with many showing all the relevant details on their initial quote, contract, or cost.
Fee-free
Some borrowers feel cheated having to pay mortgage broker fees. There’s no such thing as a free breakfast, as they say, but some mortgage brokers will work solely on commission from the lender, meaning you don’t pay them for the work they do—the lender does.
Be careful, though; all that glitters is rarely gold. For example, fee-free mortgage brokers could be tied solely to one provider, offer a low-quality service, or calculate their commission using higher-than-average rates reflected by your mortgage.
Fixed fee
Fixed fees are easier to budget than open-ended costs; the buyer knows precisely where they stand and how much they will pay for their mortgage advice. Fixed fees may be charged upfront, on the mortgage offer being produced or on completion.
Commission / Percentage
Every mortgage lender pays a commission to the brokers. Some brokers find this is enough to support their costs, whereas others will need to add a fixed fee on top to make a profit. It’s not because they’re greedy and want to make as much money from their customers as possible, but what each agency needs to charge is based on the size and costs of running their operation.
The industry standard for a straight forward mortgage is usually under 0.5% of the loan size; however, rates vary from 0.35% to 1%. If the rate is higher than 1%, it’s likely due to complex or unusual circumstances, often due to adverse credit that the client may have, or unique buying situations, such as limited companies, or HMO's.
Hourly rate
For complicated applications, the work may run over the allocated time expected of a standard mortgage, and a fixed fee would fail to cover costs. So instead, by working for an hourly rate, those mortgage advisors earn a fairer price, and the client only pays for what they need.
Additional charges
Some less-than-reputable providers will find ways to add extra charges to your bill. It’s always worth asking for documentation showing possible up-front costs, so you don’t get hit with any unexpected surprises.
Fee-free and low-cost fixed-fee mortgages may be genuine deals offering great value, but it’s always worth running the numbers.
Combination
Finally, some brokers charge a combination of any of the above. Charging a fee while claiming a commission is relatively standard, but you may also be liable to additional costs or extra work at an hourly rate.
Avoid unnecessary costs – be as honest as possible, or you could be setting yourself up for a fall
If you provide false details or hide things that will affect your application, they’ll come out eventually. Lenders will revoke any offers made in that time, and the work starts again.
It’s somewhat likely that your broker will have a clause in your contract to cover this, so you could end up being charged for the additional work they’ll have to undertake.
At what point do you pay your mortgage broker fee?
Some brokers will expect you to pay upfront; others will invoice you on completion. But, of course, if the lender pays the fee or the commission, you won’t have to pay at any point during the process, although you’ll still likely have to sign a contract before the work gets underway.
Can you negotiate a preferable mortgage broker fee?
Again, it depends on the broker. Some fixed fees are precisely that, whereas, with others, there may be a little wiggle room for straightforward applications.
Which is best, a fee-free or paid mortgage broker?
Not all applications are equal, and the rates each can achieve can significantly affect how much you’ll pay over the term of the loan. So you’ll have to work out which is likely to save you the most money based on each broker’s initial estimations, mortgage deals, costs, and projections.
Which is best, an independent, high street, or tied mortgage broker?
For the best range of options, you’ll need a whole-of-market broker. They have access to various providers with a massive variety of products. High street lenders, mortgage advisors, and banks are usually tied to a single lender, which is unlikely to be able to offer the same competitive options.
Always choose a Financial Conduct Authority (FCA) regulated broker
The FCA regulates the mortgage industry, so always choose an FCA-registered provider and broker. Not only does it offer you peace of mind that they’re reputable, but you’ll have their support if there are any disputes.
Fee-free mortgage brokers may be your best bet if you’re going to remortgage regularly
Typically, morgage broker costs cover the work required to organise the mortgage. If it’s for a fixed-rate loan over a specific term, you’ll likely need a new fixed-rate agreement when it ends. If that’s the case, you’ll need to be sure that the money you save covers the broker’s cost and then some—otherwise, you’ll end up out of pocket.
In such cases, fee-free brokers are more likely to be a viable option.
Is a mortgage broker worth the money?
With a preferential deal, applicants can soon save the value of the broker fee associated with using a broker, in the form of lower monthly payment compared to mortgages arranged by high-street lenders and banks. It's highly likely your best mortgage deal will often come from a specialist mortgage broker.
The other genuine value that often goes overlooked when using a mortgage broker is the amount of work they do for you. Having a professional mortgage broker handle the mortgage paperwork, negotiations, payment management, communication, and completion brings incredible peace of mind and gives you a reliable point of contact in a complex process.
