With their detailed knowledge of the mortgage market, brokers can help you find the right mortgage deal for you.
But getting a mortgage broker usually isn’t cheap. 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?
Brokers make their money in a few different ways.
Procuration fees – or “proc fees” – are paid by the lender to the broker once the mortgage completes. For a standard residential mortgage, a proc fee is usually between 0.3% and 0.6% of the total value of the mortgage.
Proc fees vary depending on what kind of mortgage product you’re getting. Some types of mortgage, such as lifetime mortgages, tend to have much higher proc fees. This is because the deals are more difficult to arrange, and because they’re worth more to the lender.
All brokers get a proc fee from each deal they hep to arrange.
On top of their proc fee, some brokers charge a fee to their client too. This is called commission.
Commission can be paid as:
A percentage of the total value of the mortgage deal. This is usually between 1% and 3% of the total value of the deal, but it varies a lot depending on:
- What kind of mortgage product you’re getting
- The broker you’re working with
A flat fee up-front: Some brokers charge you a flat fee up front. This is usually around £500, but again, it varies depending on:
- What kind of product you’re getting
- How much the mortgage is worth
- The rates of the individual broker.
Buy to let mortgages, for example, tend to be more difficult to arrange, so the fee for getting one through a broker will probably be higher than a standard residential mortgage.
An hourly rate: This is dependent on the broker.
You can negotiate how you want to pay your broker.
The exact fees you pay also depend on the type of broker you’re working with.
Tied, multi-tied and whole of market: the three types of mortgage broker
There are three types of mortgage broker: tied, multi-tied and whole of market.
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 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 are “fee-free”. This means you don’t have to pay for their services. Instead, all their income comes from their proc fee.
Fee-free mortgage brokers sound great, but it’s not for everyone. There’s always the risk that, because all of their income comes from proc fees, they’ll prioritise working with lenders who offer high fees, rather than the ones who offer the best deals for you.
That said, most brokers will aim to find the best deal for you, not just the best one for their bank account - in fact, it's a regulatory requirement. It’s 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.
All mortgage brokers have to offer you the option to pay a fee. By paying a fee, you can be more confident that they’re looking out for your interests.
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 or commission from their clients.
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 proc fees 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)
- 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 proc fee they get from the lender at the end isn’t enough in itself to be worth their time. That’s why they charge additional fees, whether these are based on commission or a flat fee up-front.
This is why most fee-free brokers won’t deal with clients with complex needs. For example, Trussle, the fee-free digital-only mortgage broker, asks you before you sign up if you’re using Help to Buy. Say yes, and you’ll get a message telling you you’re not suitable for the service.
How you pay mortgage broker fees
You can usually choose when to pay your mortgage broker fees. You can either pay them up front, or you can add them to your mortgage, and your lender will pay the broker’s fees up front.
Adding your broker fees to your mortgage is a good option if you don’t have the money available to pay up front. The downside is you’ll then get charged interest on them, so the fees will be more expensive overall than they would have been if you’d paid up-front.
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.