Fee-Free vs. Fee-Charging Mortgage Brokers

When considering a mortgage, borrowers must decide whether to use a mortgage broker to help them with the process. There are several benefits to using a home loan broker, including access to mortgage deals that borrowers dealing directly with lenders may not see. However, it is important to understand how your mortgage broker is being compensated for their work, as this can influence the mortgage broker fees you will pay when taking out the mortgage. Typically, prospective borrowers will come across a choice between a fee-free or fee-charging mortgage brokers. This article explores the difference between these two and how to decide which type of broker to work with.

What Do Fee-Free and Fee-Charging Mean?

It is important to understand that no mortgage broker is in reality free. Regardless of whether you choose a fee-free mortgage advisor, they will be compensated for the work they do through some form of home loan broker fees.

• Fee-Free Brokers: These brokers do not charge you, the borrower. Instead, they earn a commission, sometimes referred to as lender-paid compensation or a procuration fee, directly from the mortgage lender upon completion of the deal. This commission usually ranges between 0.35% to 1% of the mortgage loan amount.

• Fee-Charging Brokers: These brokers charge their borrower clients, based on either a fixed fee or a percentage of the mortgage loan amount. Some brokers may also receive commission from lenders in addition to the fees they get from their borrower clients.

How Much Are Mortgage Broker Fees?

Usually, mortgage advisor fees are around £400-£500 or 0.35%-1% of your mortgage loan amount. If consulting with a potential mortgage broker, it is crucial to ask them for their fee structure at the outset to ensure that you understand how you will be charged for their services.

Choosing Between Fee-Free and Fee-Charging Brokers

To choose which option you believe suits you best, it is essential to understand the potential benefits and limitations of both types.

Fee-Fee Brokers

Benefits:

• No upfront cost or additional outlay in mortgage advisor fees.

• Access to a wide range of current mortgage deals, provided they are whole-of-market.

• Generally sufficient for straightforward borrowers with standard income and credit profiles.

Limitations:

• May focus on higher-volume, simple cases to maximise lender commission outcomes.

• May not wish to take on complex cases suited to niche lending markets.

• Some clients may find them less responsive due to higher caseloads.

Fee-Charging Brokers

Benefits:

• More likely to spend time servicing complex cases, such as those involving self-employed income or past credit issues.

• May provide a more customised service.

• The extra cost might be justified if they help you secure a mortgage which you might not have got otherwise, or a better mortgage rate than what you would have got.

Limitations:

• Paying a mortgage broker fee adds to your upfront costs.

• Not guaranteed to offer better deals. It may be possible to obtain similar outcomes using fee-free brokers.

How to Choose the Right Mortgage Broker

• Your borrowing situation: If you are a straightforward borrower, a fee-free broker is often sufficient. However, if you have complex income or a poor credit history, a fee-charging broker may be worth the added cost.

• Market access: Always check if your broker is whole-of-market. A broker who only works with a small panel of lenders may not be able to provide access to the best deals, regardless of their fee structure.

• Transparency: Ask for a written explanation of all mortgage broker fees before starting the process. This should include any commission they expect from the lender.

• Value for money: Do not focus on the headline cost alone. If a fee-charging broker saves you thousands over the life of the loan, their fee may be worth paying. Equally, a fee-free broker might deliver the same result at no extra cost for straightforward cases.

Questions To Ask Before You Commit

1. “Are you whole-of-market?”

Not all brokers can access a wide range of lenders. Some are tied to a smaller panel of banks or building societies while others have full market access. Whole-of-market brokers are generally better placed to find the most competitive mortgage deals.

2. “What are your mortgage broker fees?”

Fee structures vary widely. Some brokers charge flat fees, some charge a percentage of the loan, and others work on lender commissions alone. Always confirm how much the fee will be, when it is payable, and whether it is refundable if your mortgage doesn’t complete.

3. “Are you qualified and regulated?”

You must check that your mortgage broker is properly authorised by the Financial Conduct Authority and listed on the Financial Services Register. Regulation is important, as it gives you recourse to the Financial Ombudsman if you receive poor advice.

By asking these questions upfront, you can ensure you know what service you are paying for, what mortgage broker fees are involved and that your broker is properly qualified to guide you through the process.

Conclusion

The choice between fee-free and fee-charging brokers ultimately depends on your circumstances. If you want to minimise upfront costs, a fee-free option may suit you best. If your case is more complex or you want a more personalised service, paying higher mortgage broker fees could be worthwhile. The key is to balance cost against value. Always ensure transparency, confirm market access, and select the broker that aligns with your financial situation and needs.

FAQs

Q. What are typical mortgage broker fees?

A. Typical mortgage broker fees range from £400 to £500, though some charge up to 1% of the loan. They will probably also receive a commission from the lender. Fee-free brokers do not charge the client directly, relying instead on lender commission.

Q. How do mortgage advisor fees differ from broker fees?

A. Mortgage advisor fees usually mean the same thing as broker fees. They cover the cost of professional advice and arranging the mortgage, whether you pay directly or the lender pays commission, or it is a mixture of both.

Q. Are mortgage broker prices fixed or negotiable?

A. Some mortgage broker prices are negotiable, especially flat fees. Others are percentage-based and harder to change. Always ask in advance.

Q. Do home loan broker fees guarantee better service?

A. Not necessarily. Some fee-charging brokers provide a very tailored service, but many fee-free brokers are equally thorough. It depends on the broker’s business model and expertise.

Q. Why do some brokers charge while others don’t?

A. It depends on their business model. Fee-free brokers rely entirely on commission from lenders, while fee-charging brokers prefer to be paid directly for their advice and time, although they may also be paid commission by lenders.

Q. Can brokers that charge fees also take commission?

A. Yes, some fee-charging brokers collect both client fees and lender commission. This makes it important to understand exactly how your broker is being paid.

Q. Are mortgage broker fees refundable if my mortgage doesn’t go ahead?

A. Policies vary. Some brokers refund the fee if your mortgage doesn’t complete, while others keep it. Always clarify before signing an agreement.

Q. Do fee-free brokers give access to the whole market?

A. Many do, but not all. It is important to ask whether a broker has access to most lenders or only a select panel.

Q. How do I choose between a fee-free and a fee-charging broker?

A. Consider your circumstances, the level of service you need and your budget for mortgage broker fees. Compare several brokers to understand how their charges and services differ.

Additional Sources

https://www.comparemymove.com/guides/mortgages-and-deposits/mortgage-broker-fees

https://hoa.org.uk/advice/guides-for-homeowners/i-am-buying/mortgage-fees-and-costs/

https://www.experian.co.uk/consumer/mortgages/guides/mortgage-brokers.html

https://www.onlinemortgageadvisor.co.uk/mortgage-broker/mortgage-broker-charges/