We are all aware of the sayings - “you get nothing for nothing,” “there is no such thing as a free lunch,” “if it looks too good to be true” … etc. etc. This can often be the case with some firms of Mortgage Advisors.
We would always recommend paying a fee to a professional to carry out work on your behalf. The fee you pay will guarantee impartiality and will ensure you are getting the best mortgage deal for you and your circumstances.
Let us explain. If you take out a mortgage with a Mortgage Broker then they will receive a payment from the lender, this is called a procuration fee. Most of the lenders pay different amounts. For example, if you are borrowing £100,000 then the payments could vary from £0 to around £450 with an average payment of around £300 assuming it’s a straightforward mortgage.
So, if your Advisor is not charging you a fee you can see that they may be swayed to use a lender who pays them the most. The lenders who pay the most commissions often have the highest rates and associated fees, so these can cost you more. For example, if you are trying to avoid a £200 broker fee but you get placed with a lender who charges you £50 per month more, over a 3-year fixed-rate period you are worse off by £1600!
Also, some Mortgage Brokers purely see mortgages as a way of selling you life and other insurances. So, if you have used a “fee-free” broker you may have noticed how motivated they are to review your insurances as the insurance companies often pay significantly higher commissions than mortgage lenders. If you already have mortgage or life insurances and you are persuaded to change, and it is unnecessary, then this is called “churning.” This “churning” of insurances is frowned upon by the Financial Conduct Authority, as you could be better off approaching your existing provider for an extension or a variance to your insurance to avoid being liable for new set up fees etc.
In summary, if you pay a broker you know 100% where you stand, and they shouldn’t be swayed by commissions paid by lenders. The most appropriate mortgage will be selected regardless of the commission paid and the fee is only paid upon success.
If during the process you have clear insurance needs then these can be addressed, but if your existing policies are suitable then they would be left in place or amended, not re-brokered or churned, as the advisor has already earned their money from the clearly confirmed fee you pay for a professional service, prior to commitment.