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Brokers vs lenders: what's the difference?

Getting a mortgage can be a confusing process. There are applications, fixed terms, interest rates and a lot of mortgage lingo to get your head round, but one of the most basic misunderstandings prospective buyers face is whether they should use a mortgage broker or go directly to a lender.

It’s one of the first decisions you make when looking for a mortgage, so we’ve broken down the differences between brokers and lenders, so you can make the best decision for you.

What is a mortgage broker?

A mortgage broker or advisor will search for a lender from either the whole market or a restricted panel, to find the buyer the best possible loan for them. A mortgage broker acts as a sort of ‘middle man’, and acts on the buyer’s behalf, trying to find them a loan that works best for them. A mortgage broker does not lend any money itself. The broker will sometimes charge the buyer a fee for this service, and will usually be paid by the lender.

What is a lender?

A lender provides the mortgage directly to the buyer. The lender (which is often a bank or credit union) will decide your affordability, interest rate, and term of the mortgage. If you want to shop around for different rates, you will have to go direct to a few different lenders. The lender will then provide the loan to the buyer, and the buyer will pay back the lender over the term of the mortgage.

What's the difference?

At the most basic level, a mortgage broker doesn’t lend you money, but helps you find the most suitable lender. A lender provides the loan to you to buy the property. The biggest difference for the buyer is that some mortgage brokers who are ‘whole of market’ or on a panel will help to choose a mortgage from a pool of lenders, to find the best fit for the buyer. 

A lender will only be able to offer its own products, so if you go direct to Halifax, you’ll be choosing a mortgage from Halifax products alone, ignoring say, Nationwide, Generation Home or Tipton who may have better rates or deals live at that moment.

Pros and cons of using a mortgage broker or advisor

Pros

  • The buyer is offered a variety of options to compare. As mortgage brokers have access to whole of market or a list of lenders, they are able to offer the buyer a range of different mortgage options. This means that the buyer can easily compare lenders and products to see which would work best for them.
  • Expert, impartial advice. Mortgage brokers have a strong knowledge of the lender market, and will be able to offer advice that the buyer may find hard to get on their own. They are also impartial, and entirely focused on getting the buyer the best deal for them, rather than selling a particular product. 
  • You could save money. A broker could help you access a lower interest rate or product fee by assessing what’s on offer across the entire market. A few percentage points might not seem like much, but they add up to big savings over the course of the fixed term.

Cons

  • Some brokers charge a fee. This could add to the overall cost of the housebuying process or of your loan. Bear in mind that paying a fee isn’t always a negative thing - it often means that your broker will have more time to dedicate to your case.
  • Not all brokers have access to all lenders. This means the buyer could miss out on products from some lenders. If you opt to go with a broker, check that they are a whole of market mortgage broker to solve this. Tembo has access to a pool of over 100 lenders, including household names like Nationwide, Halifax and HSBC as well as new innovative lenders like Generation Home, Ahauz, Proportunity and Even.
Pros and cons of going direct to a lender

Pros

  • You apply directly with the lender. If you know exactly what product you want, then this can help you save time.
  • You won’t have to pay a broker fee. Going direct to the lender means you won’t have to pay a fee, although product fees may apply.

Cons

  • You might not get the best deal.  By going to direct to a lender you may not find the cheapest rate.  Rates change daily, so what you see on a price comparison site or lender website may in fact not be the best rate by the time you actually get to submitting your mortgage application.
  • It could be harder and more complicated if you don’t know which product would work best. If you don’t have a specific understanding of which lender would work best for you, you will have to go directly to lots of different lenders, which can be incredibly time consuming. 
  • Buyers with complex situations may not meet eligibility. Lender criteria varies significantly, and what first direct deems to be ineligible, might be acceptable at Skipton Building Society. Add in guarantor mortgage, or self-employment and things can get more complicated. 
  • Brokers might be able to find better products. Going direct to a lender means that the buyer won’t be able to take advantage of a mortgage broker’s knowledge of the market. Rates and products change every day - trying to manage this without advice can be incredibly difficult. 
  • You may not have access to lenders that only work through brokers and intermediaries. A small number of lenders are only available through mortgage brokers, so you could be missing out on a whole raft of products you can’t assess without independent advice from an advisor. 

Tembo is the UK’s leading family specialist mortgage broker. We have access to over 100 different lenders and over 80,000 products, meaning that we can find the best mortgage for your specific situation. Some of the lenders we have access to include Barclays, Generation Home, Nationwide, and Skipton Building Society. Register to learn more.

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