Martins View On Using Mortgage Brokers...

EdInvestor

... the fee option can be cheaper than commission with some mortgages. This is why seeing an independent is better than whole of market as you can get both options priced up and make the choice from there.

I find Martin's advice puzzling as the fee option will be the cheapest in some cases, as dunstonh says.In others a combination of a fee and commission will be the best way.

...alternatively they’ll suggest you can just pay a “0.65% fee and keep all the commission” in other words, no difference.

Obviously in some cases there will be no difference, but I believe there is often a difference caused by no requirement to pay VAT?

A potential problem with choosing an advisor who doesn't offer a fee option is what's known as "commission bias", where an advisor might choose a mortgage ( or other product) on the basis that it pays him a higher commission, rather than because it is the best product for you.

It's really best to compare all the figures: commission only, fee only, or fee and commission combined, to see what is the best deal IMHO. But you can only get all three comparisons from an independent.

Moneysavers should realise that any commission payable to the salesman on the product is charged to them eventually. Not paying a fee doesn't mean you are getting something for nothing, quite the opposite.

dunstonh

Martin appears to be saying that if a broker offers a whole of market service then this is good, but if they charge a fee for their advice (rather than work on the commission alone), look for another broker. Yet Independents charge fees.

Independents DO NOT have to charge fees. That is your choice.

Some mortgage advisors (doesnt matter if they are tied, multi-tied, whole of market or independent) will charge a fee on top of the arrangement of the mortgage. That is the bit that Martin is telling you to avoid (at least how I read it anyway)

Some transactions will be cheaper on fee basis than commission. Although this is probably more common on investment class business than mortgages. Larger mortgages or difficult lending cases are probably cheaper on fee basis than commission.

By seeing an independent, you can ask them to price the transaction on fee basis and commission basis and then you get to choose which you do.

By this logic isn't a "non independent" perhaps a better option, because they dont charge fees and yet can still offer "whole of market?

No. A non independent doesnt have to be whole of market. They can be tied or multi-tied.

Beena_Rashid

But a non independent that is whole of market, and doesnt charge a fee, costs less than a broker that does charge a fee ? Yes ?

The other thing I dont understand is why you say it is probably cheaper to have a larger mortgage arranged on a fee basis, rather than commission, if my broker is not going to charge me a fee anyway.

Surely fee free is cheaper than payng a fee ?

Beena_Rashid

Hang on a minute.
Dunstonh said that I could pay a fee and have all the commission refunded to me.
So if an independent adviser charges me say £600 as a fee to sort out a mortgage for me, but the commission is £1000 that he earns from the lender, he would end up giving me £400 as the balance.

In other words, he is paying me to do my mortgage !

(Martin says he wouldn't refund all the fee, but Dunstonh says he would. Who is right?)

dunstonh

Beena_Rashid wrote:

Hang on a minute.
Dunstonh said that I could pay a fee and have all the commission refunded to me.
So if an independent adviser charges me say £600 as a fee to sort out a mortgage for me, but the commission is £1000 that he earns from the lender, he would end up giving me £400 as the balance.

In other words, he is paying me to do my mortgage !

(Martin says he wouldn't refund all the fee, but Dunstonh says he would. Who is right?)

http://www.fsa.gov.uk/pages/Doing/small_firms/mortgage/PDF/Lamb_IDD.pdf

That is a sample disclosure document from the FSA. As you will see in part 4. There is a fee taken and all commissions are refunded.

The important thing to remember is that there are many different business models. You also have the IFA authorisation which works on different rules to mortgages (IFAs have to refund all commission when done on fee basis but with mortgage advisors, they can charge fees and keep some of the commission. Just because they can though, doesnt mean they will).

The initial disclosure document (IDD) describes their charging method.

http://www.fsa.gov.uk/pages/Doing/small_firms/mortgage/PDF/DouglasFir_IDD.pdf
this is one where there is no fee option but commission only.

http://www.fsa.gov.uk/pages/Doing/small_firms/insurance/pdf/barracuda_cidd.pdf
here is another that offers a different combination which you dont get to see until page 3 as its a combined investment, mortgage and general insurance IDD.

So you can see, you get a variety of charging methods (and the above is just a sample of the options). Every advisor must provide an IDD to you at the first contact. This allows you to compare charging options along with authorisation status and a range of other things.

EdInvestor

Here's where the confusion seems to lie:

Stanmore says:

I am whole of market and nearly always charge a fee in addition to the proc fee paid by the lender- It's a business decision! And, suprisingly, i disagree with Martin on this!

This fee is in addition to the commission.However this fee is not the same fee that I was referring to, and which dunstonh refers to here:

IFAs have to refund all commission when done on fee basis

where the fee is instead of the commission.

However just to confuse the issue completely,

with mortgage advisors, they can charge fees and keep some of the commission....

There is a different rule between advisors dealing with different products.

This is called "depolarisation" and if it's any consolation, hardly anyone else understands it either.

Beena_Rashid

I've looked at all the examples, but it still doesn't answer the conflicting statements made regarding the full refund of commissions made earlier, that would result in me getting paid for allowing an independent to do my mortgage for me, where the commission is larger than the fee.

You say the broker does have to refund all the commission he receives on one posting, but then says he does not on another ?

Perhaps Martins advice is the best to follow:
"You want a fees-free, whole-of-market broker. This means it only earns commission, however as it’s whole-of-market, it must give you best advice anyway."

and

Advanced MoneySavers Note: Why ‘independent’ is irrelevant

LMac

Sorry if this has been done before - Im a bit overwhelmed by all the new info!

Im really new to all this - Im buying my first home. I called L&C to make a basic enquiry, and got a little carried away and the guy searched the market and called back promptly with a mortgage by Abbey. But can I get advice from someone else (or indeed go through that one that gives a rebate-i know, its a little cheeky), and what are the benefits of applying through the broker compared to directly with abbey?

dunstonh

You say the broker does have to refund all the commission he receives on one posting, but then says he does not on another ?

As Ed highlights, its not as straight forward as that. I perhaps have been answering more from the IFA side which is more clear cut than those only dealing in mortgages. Partly as your initial posts suggested more that it was an IFA with mortgage authorisation that you were seeing. After all, the independent and whole of market definition only exists on the IFA side and not on the mortgage side.

If you agree fee basis with an IFA (on IFA related business), the IFA has to refund any commission that is paid (or use it to offset the fee agreed). A whole of market mortgage advisor can choose whether or not to do that and must disclose what they do on their IDDs. The IDD is the key document here and that can vary widely as shown in the examples higher up.

Lets cut to the bottom line here.

Does an whole of marke/independent mortgage advisor charge a fee and keep the commission?

Answer: yes, no, maybe. You will find some that will, you will find some that wont and you will find some that do a combination.

You are trying to pigeon hole the independent advisor into one business model and assume all independents are that way and that is not the case. We have both at various points floated into IFA/Whole of market discussion points, as has your second advisor and that may not be appropriate in the overall consideration when it is the mortgage side that matters.

EdInvestor

Beena

The closest to what you want would be the "execution-only" broker Mortgage Genie, which will rebate some of the charges ( 'cashback' as Martin says.)But you need to know what mortgage you want - you have to DYOR to take advantage of this.