Independent mortgage advice is a helpful way of finding the right deal for you amid a complicated and overwhelming range of home buying options.
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Our guide explains everything you need to know about getting independent mortgage advice.
What is independent mortgage advice?
A broker, or independent financial adviser, or a bank can give you independent mortgage advice, and can be held responsible if the decision you made as a result of that advice proved to be damaging or completely opposite to your expectations.
Independent mortgage advice looks at your financial circumstances and what you are hoping to borrow to buy a home, and then advises you on a mortgage that they think you should apply for. They will pick a mortgage that they think you can reasonably be expected to have a good chance of being approved for.
There are different levels to the term 'independent' though. For example, a bank is only going to show you the mortgages they provide. They will try to find a mortgage that is suitable to you and your situation, and will do their best to ensure there is as little risk to you or them as possible.
However, if you are only looking at one mortgage provider, then you are limiting your options and may not get the best value deal available.
A mortgage broker or independent financial adviser (IFA) is often a better option if you want to get a look at a wider range of deals. However, brokers and IFAs are not always 'whole of market' advisers.
You do not necessarily need to see the entire mortgage market, because not every mortgage is going to be relevant to you, or even offer a deal good enough to compare with the rest. The only potential issue is that some brokers and IFAs will select from a pool of mortgages that they receive commission on.
Although they are regulated and must give you 'good' advice and can be held responsible if they do not, this aspect can still limit your options.
When looking for an IFA or mortgage broker, check how they take payment first. Some will offer their services for free and take commission from the mortgage provider. That's not necessarily a bad thing, but you should just check how much of the market they cover. If it's a very limited selection then look elsewhere.
Some brokers will ask to be paid upfront, or will take a percentage fee of the mortgage you get. They will usually cover a broader range of the market than the brokers who offer their services to you for free.
It's worth considering all of your options first, and also doing your research on online mortgage comparison websites like uSwitch. While these websites cannot replace independent mortgage advice, they provide an easy to use tool to do your own research and get a good sense of what you might be looking for.
Do I need mortgage advice?
Not everyone needs mortgage advice - some people will have a very good idea of what they need, through experience or knowledge, but it's never a bad thing to do additional research when making a commitment as large as a mortgage.
The most important part of mortgage advice is that those legally allowed to provide it are regulated and can be held responsible for the advice they give you. Rather than making a decision based off of your own research and assuming all of the risk, mortgage advice takes some of the pressure off.
Another positive aspect with independent mortgage advice, particularly with a broker, is that they can give you an indication of how likely it is you will be approved for a mortgage.
After the Mortgage Market Review concluded in 2014, mortgage lenders are imposing stricter affordability checks, which look beyond your credit history and income, and delve into your day to day spending habits and credit card debts.
Many lenders will also test your current financial situation against strenuous situations, such as losing your job or facing a hike in interest rates, to see if your money can still keep up with the monthly mortgage repayments.
Brokers want you to get approved for a mortgage, so they will generally try to stick to the deals they think match your financial situation and your eligibility.
Getting advice from a bank can also be helpful in this regard, especially if you are speaking to one you are already a customer with. They want to have your business, so they will try to find an option that works for you. However, your options are limited to that one provider so you may not get the best deal available.
If you are a customer with the bank you're getting advice for, they could try to be more helpful in approving you for a mortgage as they likely know your spending habits well and understand your situation more intimately.
Doing a combination of online research and speaking with a mortgage broker can help you get a fuller picture of what is available on the market.
How to compare mortgages
Comparing mortgages yourself can seem daunting, but it's actually quite simple once you understand all of the key components. Knowing how to compare mortgages can also save you time and give you a better idea of whether or not you should get mortgage advice.
The main number you will see on mortgages when doing a comparison is the Annual Percentage Rate, also known as the interest. This is usually an introductory rate, and not the actual rate you will get over the entire course of a mortgage.
The initial interest rate period usually lasts two or five years, sometimes less or more. This interest rate can be a fixed, variable or tracker rate.
- Fixed rate means that the rate you see on the mortgage is the interest rate you will pay for the initial period. For example, if you see a two-year fixed rate mortgage at 3%, that means your interest rate will be fixed for two years at 3%.
- Variable rate mortgages can also be known as discount mortgages, and the rate you see will be discounted from the usual interest rate, but it can still go up or down during that period. For example, if you see a five-year variable rate mortgage at 3%, it will rise or fall if the mortgage's Standard Variable Rate (SVR) rises or falls.All lenders will have an SVR which can rise or fall according to markets and competition as well as what happens with the Bank of England's decision on base rates. If you have a fixed rate, then you avoid any risk of your rate changing for the initial period.
- A tracker mortgage rate closely follows the Bank of England base rate (this is the amount banks are charged), so it is similar to a discounted or variable mortgage rate.
The interest rate is the most important aspect to compare on a mortgage, but if you're only looking at the initial period cost, then it's not going to give you the best idea of how much the mortgage will cost.
Many comparisons now include the APRC (Annual Percentage Rate of Charge) which is the estimated interest cost over the mortgage's lifetime, not just the initial period.
There are also mortgage fees to consider. Some mortgages will entice you by waiving the booking and set up fees, which can be extremely costly, but will do it at the expense of a less than favourable interest rate. So it's important to look at the interest rate (APR), and the APRC, as well as the mortgage fees when doing a comparison.
Mortgages and the market
The mortgage market can be quite confusing, which is why brokers can be especially helpful. How do you know when to fix your mortgage or remortgage? Brokers can give guidance on the market as well as potential Bank of England rate rises, and what mortgages to consider in response.
You should try to do your own research too. Irrespective, it's important to see what's out there on the market so that you're prepared when your initial interest rate is about to expire so you can remortgage to a better one.
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Compare mortgages if you're remortgaging, a first-time buyer, looking for a buy-to-let or moving home