Is using a mortgage broker recommended for first-time homebuyers
Purchasing your initial home can be a major financial decision, possibly the most significant one you'll ever make. Therefore, it's vital to obtain a favourable deal on your mortgage. One option is to conduct extensive research on numerous lenders and apply for a mortgage independently. Alternatively, you can enlist the services of a mortgage broker, who can undertake the groundwork to secure a favourable deal for you.
A mortgage broker, or mortgage adviser, can come in handy. They have the expertise to explore the market and give you advice on which product is best suited for your financial situation. Once you decide on a mortgage, the broker can apply for it on your behalf.
Mortgage brokers receive payment in the form of a commission from the lender they secure your mortgage with or through a fixed fee or percentage of your loan amount charged to you. They can either be 'tied' to a specific lender or group of lenders, or they can be 'whole of market,' meaning they have access to almost every mortgage available.
Choosing a whole of market broker can ensure that your options aren't limited, and you're getting the best possible deal for your unique situation.
For first-time buyers, acquiring a mortgage can be an intimidating task. However, an independent mortgage adviser can be a valuable asset in such a situation. In fact, some mortgage brokers specialize in the first-time buyer market, and they can assist you in navigating the complex process, increasing your chances of obtaining the best mortgage deal, and overseeing the entire application process from start to finish.
After discussing your financial circumstances, a broker can initiate the search for the best deals on the market that suit your budget and preferences. They can also help you determine which type of mortgage is best for you, such as fixed-rate, variable-rate, or tracker options.
Brokers calculate the total cost of your mortgage, clearly explaining its terms and conditions, charges and fees, as well as pros and cons. They can also identify any limitations you need to be aware of, such as early repayment fees, or a charge for switching.
If you're looking for a guarantor mortgage or want to use your Help to Buy ISA or Lifetime ISA, a broker can be particularly helpful. They can also advise you on how to take advantage of government schemes, like the Help to Buy mortgages and the Shared Ownership scheme, that aim to help first-time buyers enter the property market.
Moreover, brokers should be knowledgeable about which high-street lenders are offering the government-backed 95% mortgage scheme that helps you secure a mortgage with just a 5% deposit.
It's worth noting that mortgage brokers are regulated by the Financial Conduct Authority (FCA). Hence, if you feel that your broker has mis-sold you a mortgage, you can register a complaint with the broker. If the issue remains unresolved, you can further escalate it to the Financial Ombudsman Service.
Selecting the right mortgage broker is crucial, and assessing their experience and services can aid in making an informed decision. Here are some relevant questions that you could ask:
Do they have access to the entire mortgage market or are they tied to specific lenders? Can they also provide information on direct-only deals?
What are their qualifications and experience? The FCA approved Certificate in Mortgage Advice and Practice (CeMAP) is the most recognized qualification.
Are they authorised by the FCA, which you can verify on the Financial Services Register website?
What are the services they offer? Will they apply for your mortgage, assist you with paperwork, and communicate with and follow-up with the mortgage provider throughout the application, approval, and sign-off process?
If their advice is 'fee-free', how do they earn their commission? Keep in mind that brokers who operate 'fee-free' are likely to be associated with a lender or group of lenders.
Do they charge a one-time fee or a percentage of the loan amount? Make sure you agree on the costs in writing before engaging with your broker.
Is payment only expected if the broker secures a mortgage for you?
It is not uncommon for your lender or broker to pitch other financial products during the mortgage process. However, it's important to note that you're not obliged to take out their insurance policies. In fact, you could find more affordable policies elsewhere. So, it's crucial to weigh your options and make an informed decision about which policies to opt for.
Safeguarding your mortgage is vital, and various insurance policies can offer added protection. Let's take a look at some of them:
Mortgage payment protection insurance (MPPI) provides coverage for your mortgage payments if you are unable to work due to an accident or illness.
Buildings and contents insurance is a prerequisite for your mortgage, but you are not obligated to purchase it through your lender or broker. It's wise to shop around and find a policy that suits your home and finances. However, it's crucial to ensure that you have an adequate level of coverage, as your lender may reject it and require you to obtain a more comprehensive policy.
Mortgage life insurance repays your mortgage in the event of your demise. The coverage decreases over time in line with your remaining mortgage payment balance, providing you with peace of mind.