Mortgage broker fees explained

With their detailed knowledge of the mortgage market, mortgage brokers can help you find the right mortgage deal for you.

Here’s how mortgage brokers make their money, and what fees you can expect to pay for their services.

How do mortgage brokers make their money?

Mortgage brokers always get paid for their services, but how they make their money can be via a few different ways.

Commission

Some mortgage brokers opt to get paid from commission paid by the lender once the mortgage completes. The actual commission amount can vary but starts from around 0.35% of the total value of the mortgage. With these payments, home buyers don’t pay an upfront fee to the mortgage broker, so they are sometimes referred to as “fee-free mortgage brokers”.

Client fees

Some brokers choose to charge a fee to their client, too. Commission can be paid as a percentage of the total value of the mortgage deal or a flat fee up-front. This can either be in place of, or as well as, commission payments but either way, the home buyer would only be expected to pay the “client fee”, not contribute to the commission amount.

What are the average mortgage broker fees?

Mortgage brokers may offer a fixed fee or a percentage-based fee. For fixed fees, you can expect to pay up to around £500, in some cases it might be slightly higher particularly if the purchase is complex. For percentage-based fees, you can expect to pay between 0.35% - 1% of the loan amount. This means for a mortgage of £250,000, you might be expected to pay them upwards of £875 on the percentage-fee model.

It’s important to factor the mortgage broker fees into your overall property purchase estimates to make sure you can afford the different packages available.

The three types of mortgage broker: Tied, multi-tied and whole of market

There are three types of mortgage broker: tied, multi-tied and whole of market. Each operate in slightly different ways, and have access to different rates and lenders depending on who you choose as a mortgage broker.

Tied

Tied mortgage brokers only work for one lender. Their recommendations will only come from that lender. They may also have access to exclusive deals that you can only get through a broker.

Like all brokers, tied brokers will get a proc fee from the lender for arranging the mortgage deal. They’re less likely to charge you.

Multi-tied

Multi-tied brokers are still limited, but they have access to deals from more than one lender. Like tied brokers, multi-tied brokers are less likely to charge you a fee.

Whole of market

If brokers aren’t tied or multi-tied, they’re independent. This means they can give you access to any deals on the market. Brokers with full access are called “whole of market” brokers.

Mortgage brokers are regulated by the Financial Conduct Authority (FCA). This means they have to be clear and honest about what service they’re providing. Ask them if you’re not sure what type of service they offer.

Fee-free mortgage brokers

Some brokers market themselves as “fee-free”. This means you don’t have to pay for their services. Instead, all their income comes from the commission paid by lenders.

Fee-free mortgage brokers sound great, but some people worry that because all their income comes from commission, they’ll prioritise working with lenders who offer high fees, rather than the best lender for you.

But, brokers will aim to find the best deal for you, not just the best one for their commission - it's a regulatory requirement. It’s also better for them if a client has a good experience, because they’re more likely to use them again when they remortgage, and they’re more likely to recommend them to others.

Should you pay mortgage broker fees?

It can sound like a no-brainer to go for a fee-free mortgage broker, but sometimes it’s worth going for a broker who charges fees.

This is because different brokers have different business models, and they make their money in different ways. Some brokers specialise in turning around businesses quickly. These brokers only tend to work with “mainstream” residential mortgages, because these deals are much simpler to arrange. The criteria for eligibility tends to be clearer, and less documentation and admin is needed.

If these brokers can turn around enough business quickly enough, they’ll make a decent profit simply from all the commission they’re getting, so they can afford not to charge their clients on top of that.

So, if you’re:

• Looking for a simple residential mortgage or remortgage
• In full-time employment, with a job that pays you a regular salary
• Not ultra-high net worth

You can probably find a fee-free broker who will get you a good deal.

Other brokers specialise in clients with more complex needs, such as those who are:

• Very high net worth
• Buying a property to let it out (buy to let)
• Self-employed
• Using Help to Buy, or another affordable housing government scheme

These cases take time to process, the eligibility criteria can be very complicated, and lenders often need to see a lot more documentation before they can process an offer.

This means the brokers on these cases need more time to get your mortgage from initial application to completion, so the commission they get from the lender at the end isn’t enough in itself to be worth their time. That’s why they charge fees.

How you pay mortgage broker fees

You'll usually be asked to pay your mortgage broker fees either up front or on completion of the mortgage. 

If you use a broker, you need to factor their fees into the overall costs of buying a house, along with things like:

• Arrangement fees
• Valuation fees
• Booking fees
• Higher lending charges
• Legal and survey fees

Different mortgage brokers charge different fees, so it’s worth comparing them and reading customer reviews before you go ahead and use them to get a mortgage.

Expert thoughts on mortgage broker fees from Smart Money People

With different types of mortgage broker fees available, our most important piece of advice is to make sure you understand which model your mortgage broker is working to. If they are offering services on a percentage-fee, it might sound like a good deal but could quickly work out to be more expensive than brokers offering a fixed fee rate. There are a lot of great mortgage brokers who work on a fee-free basis, so if you’re looking to save money during your purchase that’s a good opportunity to do so, too. 

We’d recommend comparing trusted, authentic reviews of mortgage brokers from past customers so you can make sure you’re choosing a mortgage broker who has done right by people like yourself, after all, they could save you a lot of money over the course of the purchase!