Broker the deal

Unless you're a mortgage aficionado, the only way to ensure you end up with the best loan for you is to go with a broker. But the good ones aren't always easy to spot. It pays to do your research, says Jessie Hewitson

There are two crucial decisions you have to get right when choosing a new home: the property itself and the mortgage. The first is easier to decide; the second, however, is tricky. Even though the range of mortgages is not nearly as extensive as it was a few years ago, wading through the different deals on offer and working out which one to sink your hard-earned pounds into is still daunting, particularly when it's your first time.

This is where mortgage brokers come in. Advisers and experts in mortgage finance, brokers are a particularly important resource given current lending conditions. Getting a good broker is crucial. While it's definitely getting easier to find banks that lend at competitive rates for high loan-to-value (LTV) mortgages - the loans of 80 to 85% that most first-time buyers require - it's still not always easy. Bristol-based London & Country, one of the biggest brokers in the country, reports that 5% of the mortgages it has secured over the past two months are for 85% LTV and above - proving that larger loans, while still only accounting for a small percentage of the total, are on offer.

"Obviously, people are still getting rejected for high LTV mortgages, but these high LTV mortgages are definitely more available," says Richard Morea of London & Country. "This is partly because the partially state-owned banks are having their arms twisted by the Government to relax lending, and this is resulting in more lending to first time buyers, and at higher LTV rates than before."

Certain type of properties, such as new build flats, are particularly unpopular with lenders at the moment, and a variety of new government-funded housing schemes aimed largely at first time buyers have not been supported by all lenders. This is another reason, Morea says, why you need a good broker by your side - someone who knows the best banks to approach and who will fight your corner. "Doing your research and applying to a lender who will accept a new build flat as security not only saves you time and money, but also will avoid making multiple applications, which can harm your credit profile," he says.

The downside is that most brokers cost a minimum of several hundred pounds, so can you do the research yourself to save money? Unsurprisingly, brokers think not, and for good reason. "There are some deals that are only available to brokers, so the man or woman on the street really can't access them," explains Andrew Montlake of Coreco. "A good broker, if they are independent, will be able to review the whole mortgage market. Brokers have the best rates at their fingertips and they know what type of property lenders like, so you shouldn't have to go through the stress of being refused after you've paid for a survey. Also, brokers liaise with valuers, lenders, solicitors and estate agents, so they take all that hassle away from their clients - and for first time buyers who are not sure of the process and perhaps finding it a bit daunting, that is a big plus."

Quite how much brokers cost will vary. Some, like London & Country, don't charge anything - their payment comes via commissions paid from lender to broker for their business - while others charge clients a fee and don't rely on commissions to make their money. Fees vary from £200 up to £1,000, depending on the complexity of the mortgage, with first time buyers generally paying between £200 and £500.

Many brokers who charge a fee will warn you against brokers who don't. "If brokers don't charge fees and are only depending on the lenders' commission to get paid, there is often a nagging feeling, as their client, that you are only with that lender because it pays the best commission to your broker," says Andrew Montlake. "If you don't operate on a commission-only basis it's more transparent." Meanwhile London & Country, a company that maintains a good reputation in the industry, argues it still manages to offer unbiased advice while relying on lenders' commissions as payment.

A few key questions can generally sort a good broker from a bad one. "Do you cover the whole of the market?" is a good place to start, following it up with a query about exactly how many lenders they do cover (in some brokers' definition, "the whole of the market" is surprisingly narrow). Shop around - see more than one broker before you decide who to use - and don't be afraid to ask what you think may be foolish questions or to say if you don't understand anything. Ask friends and families for recommendations, and don't automatically accept the broker your estate agent is suggesting.

Ivan Rice knows the value of speaking to more than one broker before deciding which broker to use. As a freelance writer who had only been self-employed for six months, he knew his mortgage application wasn't going to be straightforward: usually banks like to see a few years of tax returns before giving the green light. The first broker he spoke to didn't charge a fee and was abrupt and impatient when Ivan, a first time buyer, was explaining his circumstances. Another issue was the broker's "mortgage-speak" - an impenetrable language for the average first time buyer, and one that requires translation into plain English.

Having heard Ivan's background, the broker quickly stated his only option was to go the self-certified route - which meant higher interest rates.

After deciding to seek a second opinion, Ivan eventually went with a broker who charged a fee, but who spent the time listening to what he wanted. This broker advised against a self-certified mortgage, and instead steered him towards Abbey, a bank he knew was more relaxed about lending to self-employed candidates with not much of a track record.
"The difference in rates between the self-certified and the non-self-certified mortgage I finally chose was about 2%, so taking the time to speak to another broker really saved me a lot of money," says Ivan. "He was expensive - my mortgage cost £500 to arrange - but I do believe that in the long term he saved me a great deal of expense."

Many first timers are so focused on saving for their deposits they forget the other significant costs involved in buying - such as stamp duty, mortgage arrangement, valuation and solicitors' fees. Good brokers will help you budget to make sure you really have enough to go around.

"Brokers will try to minimise the initial expense before contracts are exchanged," says Morea. "Fees such as a Higher Lending Charge and those for different types of survey will be new to many first time buyers, so it's important they are made aware of them, and that the broker works to minimise how much the borrower is paying." Morea suggests buyers shouldn't be guided purely by the interest rate of the loan, and instead look at the overall cost, including arrangement fees and early repayment charges, which can be very expensive. Once you've decided which is the best mortgage for you, he suggests you get cracking, as lenders are withdrawing products at lightning speed these days, often with little or no notice.

Buyers also need to consider protecting their mortgage through appropriate life assurance, critical illness cover and unemployment protection. Again, using brokers can mean a more competitive rate, as well as reducing the risk of being sold something you don't actually need.

As for the mortgage deals available, Savills Private Finance suggests the current best fixed-rate mortgages for anyone wanting up to 80% LTV are Clydesdale Bank, which is offering two years fixed at 3.79% with a £1,449 fee, and Loughborough Building Society, which for the same LTV ratio is offering two years fixed at 4.39%, with a £449 fee. For 85% LTV and a 10-year fixed rate, Manchester Building Society is offering 5.89%, with a £995 fee.

"A small handful of lenders will lend at 90%," says Melanie Bien of Savills Private Finance, "but there can be a premium of up to 2%to pay on the rate compared with a 60% LTV deal, because of the perceived higher risk. Lloyds TSB has just launched a first time buyer deal at up to 95% LTV, while Nationwide will lend the same to existing customers buying a new home, but first timers will need a sizeable deposit. Those lenders that are offering fairly competitive rates at higher LTVs have catches: HSBC will lend at 90% but you need to open a HSBC Premier account to qualify, while Lloyds TSB wants to take a legal charge on a certain level of savings." Bien's advice to first time buyers is to go fixed rather than variable - that way you can budget the same amount each month for your mortgage and sleep soundly at night no matter what the interest rates do.