Key Post The pros and cons of using a mortgage broker

[Brendan Burgess]

90% of people do not need to use a mortgage broker and there is no benefit to them in using one.

• They can get the best deal by applying directly to the lenders themselves
• They can find the deal most suitable for themselves here or through doing their own research
• They are educated enough to submit an application direct to the lender
• They should be applying to their own bank anyway

There are disadvantages in using brokers

• The best value lender is Avant and many (most?) brokers do not have an agency with them so will not apply to them
• The broker may otherwise be biased towards a particular lender which might not be the best lender for the borrower
• Some brokers are inefficient and incompetent and don't submit the paperwork as promptly as they should
• Some brokers might not be interested in a small mortgage
• You may be charged a fee for their services - see separate post below

 

[Brendan Burgess]

A big advantage of brokers for some people

Most people default to getting mortgage approval from their own bank and not trying anywhere else. A broker will encourage people to shop around.


You should use a broker if your application is not straightforward

If you need to borrow the absolute maximum a broker may well help you to prepare your case in the best possible light. For example, if you are looking for an exception to the maximum loan of 3.5 times your salary (or 4 times for a FTB) , a broker should increase your chances of getting such an exception

If you have a dodgy credit record, a broker might be able to use their influence to sway a borderline decision in your favour.

If you are self-employed and don't have a long steady earnings record, a broker might swing a mortgage for you.

But even if you use a broker, apply directly to your own bank anyway.
If you bank with Bank of Ireland, you should apply directly to them for a mortgage as well as using a broker.

 

[Brendan Burgess]

If you use a broker, check your agreement to see if there are circumstances in which they charge you a fee

• Some charge a fee which they refund if you draw down a mortgage with them.
• Some only refund the fee if you take out other products such as mortgage protection
• Brokers get paid commission by the lender and if you switch from that lender within a certain period, usually 3 years, the lender claws back the commission from the broker. The broker may then charge the client for the refunded commission. (But unless it's in their agreement with you, they cannot charge you for this.)

Go with mortgage broker (and pay fee) or try more banks

Hello, We (I & wife) have a house but want to move. We have applied with our existing bank; but to see more options we also decided to try a broker. The broker came back with some preliminary evaluations for a couple of banks (which look good) - and is now asking for a 300 Euro fee. The fee...

www.askaboutmoney.com

Broker fees/Clawback Commission

Hello, Just looking for some advice. I recently switched from KBC to AIB. I completed a 2 year fixed term with KBC and i used a broker. I was told this was a free service at the start. I've recently received an email from my broker stating I've to Pay back some of the commission my broker...

www.askaboutmoney.com

Here are the template terms and conditions from Brokers Ireland

Statement of Charges

We are remunerated by commission and other payments from product producers or lenders on the completion of business.

OR

We may earn our remuneration on the basis of fee, commission and any other type of remuneration, including an economic benefit of any kind offered or given with the insurance contract .

You may choose to pay in full for our services by means of a fee. Where we receive recurring commission, this forms part of the remuneration for initial advice provided. We reserve the right to charge additional fees if the number of hours relating to on-going advice/assistance exceeds X hrs.

In certain circumstances, it will be necessary to charge a fee for services provided. These are listed below. In other circumstances where fees are chargeable or where you choose to pay in full for our service by fee, we will notify you in writing in advance and agree the scale of fees to be charged if different from fees outlined below. Where it is not possible to provide the exact amount, we will provide you the method of calculation of the fee.

If we receive commission from a product provider, this may/will be offset against the fee which we will charge you. Where the commission is greater than the fee due, the commission may become the amount payable to the firm unless an arrangement to the contrary is made.

 

[Brendan Burgess]

Do any brokers refund part of the commission on a big mortgage?

 

[misemoi]

Borrower behaviour/state of mind is a reason to go with a broker. So while 90% of cases may be uncomplicated, the borrower might not realise this due to lack of knowledge.

I think a lot of people start with a broker as they believe they will get best choice/rates etc and applying to banks direct can be very overwhelming...you get to talk to a human with a broker which a lot of people like, and get your hand held through the process. A lot of banks promise this but I am unsure in practice if you really speak with one person the whole time.

Also maybe for someone who is suffering from paralysis on starting the process (ie with no understanding of how much they can borrow etc preventing them from starting the house search in the first place) should also use a broker. Better to be buying with a broker than not at all. The broker can act as an educator of sorts, even if they never go with them.

Was surprised to see the claw back on commission! Wasn't aware of that and would def be something that everyone should ask as I assume it will get more common to be a clause if switching continues apace. Completely understand the basis of it though, the broker has to earn their fees and if they get clawback then they either have to get it from the original borrower or introduce fees for all to cover it.

 

[fayf]

I used brokers about 20 years ago, but discovered they were all directing/recommending ICS building society, afterwards, i found out that ICS were paying the highest broker commission of all main banks & building societies, so that had become their default recommendation for all mortgages. The one i used, was clearly NOT providing independant advice, but was also not charging me a fee as they received commission. I moved away from them shortly afterwards and did my own shopping around.

However if one can find an Independant- fee based broker, that would be a totally different scenario

 

[Brendan Burgess]

Borrower behaviour/state of mind is a reason to go with a broker. So while 90% of cases may be uncomplicated, the borrower might not realise this due to lack of knowledge.

I think a lot of people start with a broker as they believe they will get best choice/rates etc and applying to banks direct can be very overwhelming...you get to talk to a human with a broker which a lot of people like, and get your hand held through the process.

Very interesting observation.

Some people are definitely afraid of money and numbers. But those who take out mortgages have clearly progressed enough in life to have a decent job and accumulate the deposit. So they are well capable of dealing with mortgage lenders. Maybe I need to address this in the opening post?

Brendan

 

[Monbretia]

Very interesting observation.

Some people are definitely afraid of money and numbers. But those who take out mortgages have clearly progressed enough in life to have a decent job and accumulate the deposit. So they are well capable of dealing with mortgage lenders. Maybe I need to address this in the opening post?

Brendan

I don't really think it follows like that, many well educated people earning good money and able to save cannot deal with or understand financial things and other things too, we all have different talents! I can totally see why someone would use a broker if they thought it would simplify the process for them.

I dealt with a consultant anaesthetist once who couldn't grasp anything about the mortgage they needed, my face must have shown my thoughts as he said to me when you're on the table for surgery I'll be an expert at looking after you but can't do the financial stuff!

There are many services out there that people could do themselves but choose to pay someone to do it who may be better at it or save them time, how many people wash their own car anymore? I do as it happens but I won't fill petrol unless I really have to, I frequent a service station that still has people to do it, if they charge me a few extra pence per litre so be it!

 

[Brendan Burgess]

I can totally see why someone would use a broker if they thought it would simplify the process for them.

I can see that too, but using a broker complicates the process rather than simplifies it!

You have to collect the same information and submit it to a broker. If there is a problem the bank tells the broker and then the broker tells you.

For most people, the broker adds no value and runs the risks which I have outlined above.

Brendan

 

[Monbretia]

Yes but you only have to submit it once usually, if you intend applying to several different lenders yourself they may have different salary forms to be completed, different requirements even. I worked as a mortgage advisor in a bank for years and I still totally get why someone would go with a broker rather than having to arrange appointments with every lender and go through the process each time.

 

[misemoi]

Very interesting observation.

Some people are definitely afraid of money and numbers. But those who take out mortgages have clearly progressed enough in life to have a decent job and accumulate the deposit. So they are well capable of dealing with mortgage lenders. Maybe I need to address this in the opening post?

Brendan

You would be very surprised at very successful people in work who have very little knowledge of personal finance. Sometimes the more you earn the less you need to mind your money as you have plenty of it. When I am banging on about switching mortgages with my well educated and strong career peers, most of their eyes glaze over.

 

[Bronte]

90% of people do not need to use a mortgage broker and there is no benefit to them in using

Now is that really true I wonder.

Would it be fair to say instead:

- many people have not one clue about mortgages
- mortgages are complicated
- dealing with banks would do your head in
- brokers are there because of the above
- many brokers successful provide a customer service that one used to get when dealing with bank branches that no longer do this
- brokers are good at navigated the intricacies of mortgage approval

 

[_OkGo_]

90% of people do not need to use a mortgage broker and there is no benefit to them in using one.

In fairness, I think you have your AAM blinkers on here Brendan. I would put that figure much much lower. Most AAM users are financially literate but the vast majority of people aren't, they just want to know how much they can borrow and what the monthly payments will be.

We used a broker as FTB on a new build and have since switched twice by myself so this is my experience of a broker:
- Cleaning up your financial profile. We were fine but our broker said the first thing he has to do with a big chunk of clients is to make them wait 6 months so that their accounts are clean, consistent and clearly demonstrating affordability
- Delaying AIP. More relevant to a new build but they helped time our AIP so that it didn't run out while waiting for completion and also got it extended with minimal fuss.
- Getting married. We also had a number of big one off expenses around the same time as AIP and was easily explained with a broker

But even if you use a broker, apply directly to your own bank anyway.

Why?? Either decide to use the broker or not but no point doubling the work. Other than AIB who don't deal with any brokers as far as I am aware.

And additional while it wasn't a problem for us, when we switched to AIB they asked about transactions that were much older than the 6 month of required statements. So that is a negative towards your own bank.

found out that ICS were paying the highest broker commission of all main banks & building societies, so that had become their default recommendation for all mortgages

They may still have a bias towards particular lenders if they feel it is easier to get AIP but as far as I know, all lenders pay 1% so the decision is not driven by commission and should be more appropriate for the customer

I'm neither for or against using a broker but I would generally only use someone that has been directly recommended for something like this.

Difficult to find Irish statistics but I think it is something like 60% of UK mortgages are arranged through brokers

 

[Brendan Burgess]

So here is an example, where the borrower appears to have been let down by their broker by not renewing their AIP.

Query on Cashback offer with PTSB

We have gone sale agreed and our broker never renewed our AIP. We are franticly trying to get our AIP but the broker is pushing PTSB. The broker keeps referring to how their interest rate with the cashback is best. We can avail of the 3 year fixed green rating interest rate of 4.05% with 7.4k...

www.askaboutmoney.com

The borrower seems to realise that Haven is a much better deal, but the broker is pushing ptsb.

 

[Mark Coan]

90% of people do not need to use a mortgage broker and there is no benefit to them in using one.

• They can get the best deal by applying directly to the lenders themselves
• They can find the deal most suitable for themselves here or through doing their own research
• They are educated enough to submit an application direct to the lender
• They should be applying to their own bank anyway

There are disadvantages in using brokers

• The best value lender is Avant and many (most?) brokers do not have an agency with them so will not apply to them
• The broker may otherwise be biased towards a particular lender which might not be the best lender for the borrower
• Some brokers are inefficient and incompetent and don't submit the paperwork as promptly as they should
• Some brokers might not be interested in a small mortgage
• You may be charged a fee for their services - see separate post below

Happy to come back on this Brendan as requested with a few points to consider.

Based on my experience I believe the opposite to be true, 90% of consumers would benefit from using a mortgage broker. AAM users are not representative of the level of knowledge of the average buyer/switcher, most facing these major financial decisions are under prepared and need a lot of support. Taking your points one by one.

• Get the best deal direct - Right now for 80% of cases this is correct as the most competitive lenders have a direct channel, but for about 20% of cases with more complex needs you will need lenders only available via brokers.
• Find the best deal themselves - I think this is the biggest flaw in your argument, I don't think it's realistic to expect consumers to understand fully the tradeoffs between long term fix/short term rates/cashback, intro v follow on rates etc.. A good broker will spend around an hour with the client laying out the full cost of credit for these options as the impact on your finances is so significant (€9K cashback = ~€40K more in repayments for example). This is where there is almost always an aha moment from the customer that saves them a few thousand euros and can make a huge difference to their household wealth over time!
• Able to submit the application themselves - Perhaps surprisingly every lender has significantly different credit policies and who you submit to and the way you submit makes a big difference to your chance of approval. If you are way over the criteria then you are probably ok, but anybody close to the line and with house prices where they are and affordability so stretched the majority will benefit from broker knowledge.
• Apply to your own bank anyway - This is actually where most go wrong as they believe it is the easiest or they don't even know they can get a mortgage anywhere else. I'd say for over 50% applying to your own bank is exactly the wrong thing to do 1) It's unlikely to be your best choice 2) You get no advice on the best Product or Term for your needs or how to manage the rest of the process (solicitor, surveyor, insurers etc..). So working with a broker is a way to make sure you don't 'default' to your own bank and that you have checked all options first.

I completely agree with the disadvantages listed of brokers as a whole, but I'd differentiate between good brokers and bad ones. So I'll respond to the points on behalf of the lots of good brokers that are out there!

• Limited Choice - If a broker is any good they will have all or almost all lenders so they can offer the best products. All of the bigger brokers now have Avant for example.
• Bias - All lenders pay 1% commission on drawdown, so there's no misalignment on incentives. So the only reason for 'bias' will be if they think the lender will be more likely to approve the mortgage or make the process go more smoothly. In 90% of cases the Customer and Broker will be aligned on these needs.
• Incompetence - The regulation around this is looser than it should be and there are some brokers who unfortunately let the industry down on this. There are however lots of brokers big and small doing a stand out job for their customers. As a general point though brokers operating nationwide are operating to a pretty high standard. I'd include IMC, Finance Solutions, Doddl and of course ourselves ;-) in this list.
• Small Mortgage - This is true, typically below €120,000 there isn't enough margin from the 1% to cover the cost of service.
• Charges - Non of the companies listed above including ourselves charge the consumer and broker fees don't impact the cost of the products. So as long as you pick the right broker it doesn't apply.

I hope this is a useful addition to the discussion, when I was running mortgages for one of the banks it became obvious to me that there was a big gap between the advice and support people need and what they get. That's why I set up moneysherpa 3 years ago, so it's probably not surprising that I have a different view than you on this one Brendan!

 

[Setforlife]

We had a bad experience with a highly recommended well known broker when getting our last mortage. The kind of broker that appears in media telling you what to do. I don’t personally believe the above that they have no bias after the experience, after a slow process they indicated the best possibly deal available on the market to us, etc etc. It happened to be the broker only haven deal.

We were not happy with the amount approved but were given to believe it couldn’t be bettered etc etc. So we did same work again ourselves direct with multiple banks and got better loan offers from the big two, at same rates as broker offered, along with cash back to us, instead of commission to the broker.

Currently we are looking at switching and we’ll probably try a broker to be sure we are not missing out on something but am 99% sure it’’ll be same story.

 

[ddraws]

We just went through the process of buying our first home. We went with a broker for a couple of the reasons outlined above
- brokers are good at navigated the intricacies of mortgage approval
- dealing with banks would do your head in (in hindsight you still have to deal with them, just through the broker)

Avant didnt offer the best rates at the time so there was no financial advantage of using a broker, as we could of got the same rates doing it ourselves. I dont regret going the broker route but having gone through the process once I dont think I would do it again as I am now that bit more knowledgeable on the steps and what to look out for. The main frustration (and I think this is the same for a lot of people) was delays in the bank (Haven) reviewing our information. From a financial point of view it was straightforward as we weren't borrowing near our limits and from a legal point of view the solictor said it was as straighforward as they come.

According to the broker one week one bank can be quick and then another week they slow. But I have no way to know if that is true. I think the regulator should be doing more here by getting the banks to report on their median wait times for AIP and release of funds. If Haven has significantly worse timelines than AIB, you can be sure I would have just gone to AIB directly myself, but I had no way to know that at the outset.

 

[Brendan Burgess]

I dont regret going the broker route but having gone through the process once I dont think I would do it again as I am now that bit more knowledgeable on the steps and what to look out for.

Interesting point. A FTB might get more from a broker.

According to the broker one week one bank can be quick and then another week they slow.

So does the broker speed up the process or slow it down? I would imagine that they are more likely to slow it down. They are another step. You send the stuff to the broker. They send it to the bank. The bank has a query and asks the broker. The broker asks you. The broker tells the bank. The bank says, "yes, but...". The broker has to call you back "the banks has said yes, but..."

And the broker goes on holidays, has a higher priority client, drops the ball...

 

[T McGibney]

So does the broker speed up the process or slow it down? I would imagine that they are more likely to slow it down. They are another step. You send the stuff to the broker. They send it to the bank. The bank has a query and asks the broker. The broker asks you. The broker tells the bank. The bank says, "yes, but...". The broker has to call you back "the banks has said yes, but..."

And the broker goes on holidays, has a higher priority client, drops the ball...

Hi Brendan

By that logic, individuals should be better off engaging with Revenue without an accountant, engaging with the courts without a solicitor, and engaging with planning authorities without an architect/engineer.

I don't buy that logic at all.

Unless a middleman can offer significant added value to their customers, they soon won't have customers.

 

[Brendan Burgess]

By that logic, individuals should be better off engaging with Revenue without an accountant, engaging with the courts without a solicitor, and engaging with planning authorities without an architect/engineer.

By your logic, you would need a personal shopper, a cleaner and a chauffeur.