What's The Difference Between a Broker And a Lender?
Not sure whether you should choose a mortgage broker or a mortgage lender? Read our guide to work out the difference between the two.
Getting a mortgage can be a confusing process. There are fixed terms, interest rates, hundreds of thousands of mortgage products and a lot of lingo to get your head round, but one of the first puzzles prospective buyers face is deciding whether they should use a mortgage broker to secure a mortgage or go directly to a lender.
In this article, we'll give you the low-down on whether you should use a broker, or go direct to lender, and what the pros and cons of each are.
What is a mortgage broker?
A mortgage broker or advisor will search for a lender from either the whole market or a restricted panel of lenders, to find the buyer the best possible loan for them. A mortgage broker is a ‘middle man’, and acts on the buyer’s behalf. Firstly they'll source the right mortgage product for the buyer, taking into account their preferences (e.g. a fast sale is needed, or they want lower interest rates but don't mind paying a lender fee). Once they've found the right product, they'll submit the mortgage application, and act as a go-between, helping to manage any additional questions the lender has at valuation stage, or when they are reviewing the application. 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 a procuration fee by the lender too.
In the current market, we're seeing lenders pull products and rates with less than 24-hours notice. If you engage an expert to help you in your home buying journey, they'll be able to navigate these changes on your behalf and arrange a new lender and application quickly. Buying a house is stressful enough, a broker can take some of that weight from your shoulders.
Mortgage Team Lead
What is a lender?
A lender provides the mortgage funds for the buyer, so if you have a 10% deposit to buy a £100,000 property, the lender will be putting in the £90,000. The lender (which is often a bank or credit union) will calculate your affordability and determine whether you're eligible based on their own internal processes and rules. They'll also set the interest rate, and term of the mortgage. If you want to shop around for different rates, you will likely have to go direct to a few different lenders, as fees and interest rates vary lender to lender. Once an application has been submitted and accepted, the lender will then send the loan amount to the seller (usually through each party's solicitors), 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 for your purchase. A lender provides the loan to you to buy the property. So that's a pretty big difference!
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 for example, you’ll be choosing a mortgage product from the Halifax range alone, ignoring say, Nationwide, Generation Home or Tipton who may have better rates or deals live at that moment.
The pros and cons of using a mortgage broker or advisor
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.
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.
The pros & cons of going directly to a lender
You apply directly with the lender. If you've done your research and you know exactly what product you're after, then this can help you save some time.
You won’t pay a broker fee. Going direct to the lender means you won’t pay a fee for advice, although product fees from the lender may still apply.
You might not get the best deal. 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.
There may be some products and deals you can't access. 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.
If you have a complex situation, it may be hard for you to find a solution. Lender criteria varies significantly, and what first direct deems to be ineligible, might be perfectly acceptable at Skipton Building Society. Add in a guarantor mortgage, a visa or self-employment and things can get even more complicated. It's not easy to navigate alone.
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.