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Fee or free? - The best approach to BTL mortgages

buy to let Aug 10, 2021

THE QUESTION

I’m in the market for a buy-to-let (BTL) mortgage, should I use a free mortgage broker (who gets commission from the lender only), or a broker that charges a fee?

THE ANSWER

If you take a balanced view, whether a broker chooses to charge a fee or not is not the main decisive factor in whether they are any good or not. The decision to charge a fee, or not to, will be driven by two main concerns of a broker.

  1. The scale of their brokerage. A one-man-band broker operating out of their home can more easily offer a no fees service if they choose to do so, because their overheads are lower than a larger brokerage with salaried support/admin staff and office premises.

At the other end of the spectrum a massive brokerage may be able to offer no fee brokering services by employing relatively inexperienced (and cheaper) brokers and focussing on simple mainstream mortgage products rather than investing in best buy software.

  1. Their view of working for nothing, The defence of no fee brokering and the view of some borrowers is 'they get paid by the lender'.

True, brokers do get paid by the lender but, and it is a BIG but, they only get paid after a mortgage has completed and you learn very early in your brokering career that not every mortgage application submitted gets as far as the mortgage being drawn down. Cases fall over for a variety of reasons - buyer pulls out, seller pulls out, lender pulls out, property is down valued, property is nil valued (for mortgage purposes).

So there are cases where brokers do some of the work, others where they do all of the work i.e. the mortgage offer is granted and then the case still falls over.

The business challenge for any broker is how do they get paid for the work they undertake when there is no pay out from the lender?

A recent post in a Facebook group asked if they should be required to pay their solicitors bill for a property they didn't end up buying and multiple replies were of one voice - the solicitor did the work, they are entitled to be paid - so what is the rationale for not thinking brokers are entitled to the same treatment?

No fee brokers must then take the business decision that they are happy to work for nothing on all the cases that fall over and make it up on the cases that complete and they get paid by the lender.

Borrowers have the freedom to choose a broker that charges no fees - equally brokers have the choice to charge a fee. Every borrower needs to find a broker they are happy to work with.

Fees aside, what else should you look for -

  • How experienced are they? How many years have they been a broker?
  • What mortgage/finance types are they experienced in? Surprisingly many brokers do nothing more complex than single AST BTL mortgages
  • Are they directly regulated by the FCA or do they work under the umbrella of a network?
  • Are they limited to dealing with a panel of lenders or can they deal with any lender?
  • What is their policy towards volume borrowers i.e. those who will use their services more frequently?

As with most things - you usually get what you pay for. As long as both broker and client are happy with each other, all is well.

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