What do you look for in a broker?

MortgageMamma

I've not found a software wizard anywhere near as sophisticated as the one's a broker uses (the main being trigold, mortgagebrain, mortgage encore 2000, mortgagelink enterprise) - I think you would really have to have a look at the systems themselves and their capabilities before you could really justify that comment

I agree I do network with other professionals, for example I get 30% of my business through 2 firms of solicitors, a bit more through a small local building firm who build small estates, I get referrals from two local IFA's who don't do mortgages, and one estate agent who does not have an inhouse mortgage broker. Most of these I pay a referral fee upon completion of a sale - but it works both ways as I refer business back to them also. I also get paid for any referrals that I make to a conveyancing firm - so thats another source of income. However the key to all this is disclosure, and in line with the FSA and Law Society regulations anybody who pays me a fee/who I pay a fee to is disclosed to the client.

Another thing that concerns me is, and I don't know why/the technicalities so forgive my ignorance - I have yet to see companies such as Egg, HSBC etc appear on my sourcing system. Of course Britannia do, and I think I saw Direct Line appear once last year - but thats about it - surely it would be better to have these on a sourcing system rather than brokers having to periodically update themselves on these companies products via other means?

HelpWhereIcan

kenshaz wrote:

they build up networks with solicitors and estate agents,receiving a thank-you drink,and receive procuration fees from lenders and a fee from the client,all this is ultimately paid for by the borrower. It all adds up.

I have to say that I feel this is a common misconception. The cost to a lender of processing broker introduced business is considerably less than processing business that comes in through the branch or direct channels - that's why most lenders encourage it.

Many brokers submit electronic applications rather than paper ones - less need for someone to input the data into their system; brokers also take away the regulatory obligations that a lender woud face with respect to responsibility for the advice; in house advice staff have salaries, commission, pensions, sick pay, holiday pay etc etc to pay (and contrary to popular belief, not every branch based adviser earns £15k and not every broker earns £60k.

In many respects the consumer has benefited from the existence of brokers as competition has been encouraged (as has innovation in products), margins have been squeezed and all this reflectd by the rise of the broker over the last 10 years and the choice and quality of deal available to the customer.

Yorkshire Building Soc set up a dedictated lender to accept business from brokers (Accord); Direct Line is the Royal Bank of Scotland who are very active in the broker market; Britannia has Platform who have some very good self cert, buy to let and tracker products as well as adverse. The point I am trying to make is that the only lender who truely has nothing to do with broker is HSBC; and it can be argued that, while good, their products are not the most competitive in the market.

MortgageMamma wrote:

Another thing that concerns me is, and I don't know why/the technicalities so forgive my ignorance - I have yet to see companies such as Egg, HSBC etc appear on my sourcing system. Of course Britannia do, and I think I saw Direct Line appear once last year - but thats about it -

I think the reason is that the lenders have to pay to appear in the sourcing systems. At one time this was a direct fee to Trigold etc, but even if this has been withdrawn, most still have a dedicated team whose job it is to keep the sourcing systems up to date which is obviously a waste of money if you have no intention of paying a broker commission. I think they appear occassionally, but there will also probably be some pressure from the clubs and networks to keep them out.

MortgageMamma wrote:

surely it would be better to have these on a sourcing system rather than brokers having to periodically update themselves on these companies products via other means?.

Get a subscription to Moneyfacts £80 ish per year and also register for e-Moneyfacts. That has an online sourcing tool that includes every lender including the direct only offerings from the likes of the Portman etc

EdInvestor

Ian_W wrote:

If you're not a FTBer, financially inexperienced, self-employed, pushing the edge of lending criteria, or in debt and you are prepared to do your own research, get together the documentation and fill the forms in - do Brokers add value?

What level of savings could you make by using a DIY approach on an average mortgage/remortgage?

HelpWhereIcan

EdInvestor wrote:

What level of savings could you make by using a DIY approach on an average mortgage/remortgage?

Interesting point. Even if you were to use a company like MortgageGenie or MoneyBackMortgages to get a share of the commission the amount could be quite small.

Let's assume that the average mortgage is £130000 and that the mortgage you want is with Nationwde who would pay an average commission to a broker on that loan size of 0.35% ie £455. If you get half of that back by using MortgageGenie etc, then you have £227.50 that you would not have had otherwise.

If you go to the Nationwide direct, you get the same deal, but no rebate of commission.

If you use a fee free broker, you get the same deal, no rebate of commission, but it still does not cost you any more than going direct to the branch.

Putting aside the service aspect of what a broker offers (chasing the application, dealing with the admin etc), not to mention the potential 'cost' in time and effort that you incurr if you choose a lender that subsequently declines your application on a point of criteria; the main crux of the argument comes down to one thing:

If, for whatever reason, your choice of lender when going direct or using MortgageGenie etc is wrong; it could end up costing you 000s in extra interest charges etc in the future and you have no redress.

If the fees free broker offering advice gives you incorrect advice that costs you £000s, you will have recourse to ensure that you are put in the same position you would have been had the advice been correct.

So, it comes down to how savvy you see yourself and how confident you are in your own ability to find the 'best' deal for you (however you may define that).

Could it be worth paying £000s in extra interest, fees etc if you get it wrong to potentially get a cashback of £227.50 - if yes, maybe you do not need to use a broker; if no, use one. Personal choice, individual needs etc etc

HelpWhereIcan

Ian_W wrote:

Oh, and didn't travel agents use the same argument? Our services don't cost the holidaymaker anything?

Now there is an industry full of smoke and mirrors where you never know the relationship between the middleman and the service provider!!! Most of the travel websites are connected to the larger agents/tour operators or link to them or one of their subsidiaries.

Try phoning any of the My Travel group of tour operators and getting a discount by booking direct on the basis that they will not have to pay Going Places commission. Of course there is Direct Holidays and some other 'direct only' companies, but they are part of My Travel and are no different to HSBC et al in the mortage market - not always the cheapest/ best for everyone - but their marketing would have you think so.

All of their operators/agents have their own subsidiary sites offering "direct discounts", but at the same time you will see similar discounts available through all their channels, including competing agents where they have to pay commission.

Do not think the internet has spelled the death of the travel agent, just a difference in the way they work and market themselves. One firm local to me has gone from a one-shop local Travel agent to a very large, national agent for cruises/flights on the back of the internet - they still receive commission and can probably demand more from the operators as a result of their increased volumes.

Arch-Angel

Originally Posted by MortgageMamma
Just out of curiosity (for my own market research reasons) Arch Angel, when you begin looking for a broker, as you have mentioned you will be doing in the near future, what will you look for in your adviser?

Will you do your own research on the internet?

Assuming the broker is fee's free, so will likely only recommend a lender who will pay a procuration fee, would you be prepared to agree to pay fee's if the mortgage/company selected do not pay procuration fee's to mortgage intermediaries? (for example, Britannia, HSBC, Direct Line)

Or would you rather keep fee's free, and be recommended the best mortgage excluding these companies then do your own research?

I know its a lot to ask you to think about but, I just want some insight as to how people value "true whole of market" as opposed to "whole of market if it pays commission" following a heated discussion with my business partner.

Well, I suppose I had better try to answer this! (Sorry MM - and others! - been busy on other things for the last few days) I can only answer this from a FTB perspective with no previous contact with a broker (of any kind)...I was about to apologise in advance for my misconceptions, however, these misconceptions are, I suspect, made by a great many people, FTBers and others.

The first point to make is that "whole of market fee's free broker" seems to mean "we can search every mortgage product from lenders that will pay us for placing the mortgage with them". Doesn't sound like whole of market to me (I know that this aspect has been covered at length)!!

So why go to a broker then? If he/she is 'fees-free' I'll only see the best deal in which the broker gets paid commission. However, another aspect then comes into play - if the 'fee's free' broker finds the best deal for their customer that does not pay any commission to the broker, does this mean that the broker has spent several hours working for free? More importantly, what does this say about the character of the broker? Such service, in the eyes of many I suspect, would be a significant reason to recommend the broker to friends and family, generating more business (and inevitably more commission) for the chosen broker. What I cannot answer is how many such customers - whereby the broker doesn't get paid - makes the business model of the broker unviable.

Another aspect of the 'why use a broker' was the point made by kenshaz regarding "mortgage wizards". Although I accept MM's point that the software used by brokers is far more sophisticated, 10 years ago we bought our car/house insurance from a broker - now we use search wizards on the internet. Internet mortgage wizards will soon - if they don't already! - offer the potential to interact directly with a provider, with the wizard helping to search out the best mortgage. But this brings up two points:

1. Messing up your car/home insurance (via a DIY search wizard) could see you losing £200-300 at most. Messing up your mortage (using the same method) could cost hundreds if not thousands!

2. If you used a fee's free broker then it still has not cost you anything - you don't save money via a search wizard, you just find the best deal, which is what the broker is doing!

I hope this all makes sense - and again, this is from my perspective (my research on MSE and other sites have corrected some of these misconceptions). However, to answer MM's post directly:

1. Yes, I have/will be researching via the internet (what products are out there, what could I reasonably expect them to cost, how much should I expect my mortgage to be every month (at 5%, 6%, 7%) etc. etc.)

2. I personally don't have any issues with paying the broker who has highlighted that the best mortgage is one that he/she doesn't receive commission. However, what I would want to see was the difference between the best "I pay" mortgage and the best "commission" mortgage in order for me to make the best decision. Pay £1000 to the broker up front, or pay £1200 over 3 years to the mortgage company....some would prefer to keep the £1000

Ramble over!!:D :beer:

MortgageMamma

Thanks for your views arch angel, I can see exactly what you are saying.

Personally I think a whole of market broker should be just that. 100% whole of market - I mean, it would be pretty silly to say to a client. "I'm whole of market but don't deal with direct line, egg, hsbc or brittannia".

Soon asda and companies like that will be dealing in mortgages. It makes me wonder if they will be advised sales or not. Probably not?
I know this would only happen in the ideal world but I'd love to see the FSA reign in the definition of whole of market as the current definition is totally unfair on the consumer and leaves a lot of leeway for the more unscrupulous advisers to con a client into thinking they are getting true whole of market.

I'd also welcome it if the major sourcing system providers included the non commisison paying lenders as mandatory. I know there if moneyfacts (I'm not subscribed I do my research independently with each lender) but with the already quite narrow margins of proc fee's in relation to work done, it would be of massive benefit to a broker to be able to rely a little more upon their primary tools

EdInvestor

I'd love to see the FSA reign in the definition of whole of market as the current definition is totally unfair on the consumer and leaves a lot of leeway for the more unscrupulous advisers to con a client into thinking they are getting true whole of market.

Just as a matter of interest, let's say a borrower went to a broker and was told he was receiving "whole of market' advice, such that the borrower thought the broker was checking every mortgage out there. In fact the broker is not considering the providers who don't use brokers.

Subsequently, having chosen a mortgage on the broker's advice, it comes to the borrower's attention that if instead he had been offered a mortgage from one of these other providers, it would have been much cheaper. As a result of the broker's advice he has made a loss.

Will he have a case against the broker for misselling redress?

HelpWhereIcan

EdInvestor wrote:

Just as a matter of interest, let's say a borrower went to a broker and was told he was receiving "whole of market' advice, such that the borrower thought the broker was checking every mortgage out there. In fact the broker is not considering the providers who don't use brokers.

Subsequently, having chosen a mortgage on the broker's advice, it comes to the borrower's attention that if instead he had been offered a mortgage from one of these other providers, it would have been much cheaper. As a result of the broker's advice he has made a loss.

Will he have a case against the broker for misselling redress?

Morally, I would suspect that it would depend on the size of the loss and how that is quantified. ie for a 2 year fixed rate, is it looked as total cost over the 2 years?, difference in rate?, difference in fees to set up? what account would be taken of the long term svr and/or deeds release fees, underwriting policy etc?

The difference from investments (IMO) is that the differences are potentially so small - £200 - £300 max in total cost over a 2 year term between the 'top 2' in any sourcing results list - that it may be that a lender with a slightly higher cost is better due to flexibility/speed in underwriting, flexible payment options, policy on retention deals etc etc meaning that the lowest cost deal is not automatically better.

I have been doing some sourcing this morning and have used Moneyfacts as above to provide a second evidence of research that includes the lenders in question. As it happens, they have not worked out best for any of the 3 customers I have been looking at (in terms of total cost over term of deal).

Regulation wise, the quick answer is no. The FSA do not insist that the broker looks at lenders that are not available to them; But I suppose that there may come a time when a very small number of people may find that they are a couple of hundred £ worse off over 2 years, but I would suspect that the argument would be too hard to make effecttively enough to provide a living for claims firms as the endowment crisis has. It is not as if the lenders we are talking about are consistently top performers in terms of quality of deal - you may be surprised at how infrequently they appear at the top (in terms of total cost over period); not saying that they don't, because of course they do, just not as often as some people seem to think.

EdInvestor

If the potential for making a significant loss is very small and the protection from misselling is pretty meaningless,it rather begs the question of why bother with a broker at all.