Do mortgage brokers charge a fee UK?

Do mortgage brokers charge a fee UK?

If you’re thinking of getting on the property ladder, chances are you’ve looked at mortgages online and felt a tad overwhelmed. There’s a lot to digest… Shared ownership mortgages, fixed-rate repayments, and variable rate trackers — if you’re wondering what any of this actually means, you’re not alone! Lucky for confused first-time buyers everywhere, mortgage brokers can help debunk all those technical terms and guide you along the process.

But at what price? If you’ve already had a quick Google, you’ve likely found all kinds of mortgage brokers offering different packages. Some claim to be “fee free”, while others charge a small fortune. Aside from those options, there are plenty of brokerages who stay hush-hush about the real costs so it’s hard to know what the “standard” is exactly.

So, do all mortgage brokers charge a fee in the UK? And, why do some mortgage brokers charge a fee while others don’t? Stick with us and we’ll crack the case together.

Do mortgage brokers charge a fee UK?

Okay, so before we get into the nitty gritty of hiring a mortgage broker, let’s cover the basics — do mortgage brokers charge a fee? Well, the simple answer is that some do and some don’t. As unsatisfying as that might be, especially when there are so many other things to look out for as a first time buyer, there’s really no standard rule (or price) that applies to mortgage brokers in the UK. A broker fee can be calculated in quite a few different ways, but keep reading to learn more about that next…

What is a broker’s fee?

Figuring out what a mortgage is and how to go about applying for one can be tough for a first-time buyer. Mortgage brokers are there to help you via consultations, financial advice, negotiations with property sellers, organisation of paperwork, and much, much more. The broker’s fee they’re paid takes this work into account, but as you’ll see below, the pricing models between brokerages can vary significantly.

Here are some examples:

  • Fee free

Fee free mortgage brokers don’t charge fees at all because they get their commission from the mortgage lenders themselves. Given how expensive buying and moving properties can be, this is often the most attractive option for mortgage applicants.

  • Hourly rate

For quick consultations, a mortgage broker who charges an hourly rate can be an efficient way to get the advice you need before making a mortgage application. Unfortunately, this can get expensive if you run into any difficulties along the way — for example, if there’s a problem with your credit or if you’re unsuitable for a mortgage for any other reason. In these cases, that hourly rate can rack up pretty quickly.

  • Fixed charge

Fixed charge brokerages are transparent about how much you’re going to need to pay for the service overall — on average, this is usually close to £500 according to the Money Advice Service. For this reason, fixed charge brokerages are a good option if you’re keen to avoid any hidden costs or nasty surprises later down the line.

  • Mortgage percentage

These brokers charge a percentage of the total mortgage being taken out. So let’s say you take out a mortgage for £300,000 and your mortgage broker is charging 1%. In this case, you’ll end up paying them £3,000 which is significantly more than the average cost for a mortgage broker. The higher the value of the property in question, the more money the mortgage broker is likely to make. Some people choose these brokers for their expertise or lender connections, but it’s good to check what you’re paying for before committing so you don’t get ripped off.

  • Combination

Sometimes all bets are off and the mortgage broker uses a combination of pricing models. They might get a commission from the mortgage lender (like a fee free broker), but also charge each customer a fixed rate for a bit of additional income. If you’re planning on working with this kind of mortgage broker (or any broker in general), you’ll want to get a full outline of the fees in writing before you proceed.

Quick note: Wondering how much help you’re likely to need? Why not check out our: ‘First time buyer mortgage guide’.

Why do some mortgage brokers charge a fee?

So, you may now be wondering why some brokers choose to work fee free while others prefer to charge their customers. You might assume that it’s to do with how successful that mortgage broker is — ie. the better the broker, the more expensive the service you’re paying for. But actually, this isn’t always the case.

Some larger brokerages have business costs, such as employee salaries or office hires, that smaller brokerages don’t need to worry so much about. It’s also not the case that mortgage brokers who work fee free on a lender’s commission aren’t earning as much as their fee-charging counterparts. A trusted broker will do just fine as long as they’re working to a high standard and bringing their mortgage lenders good applicants. To give you a picture of how much fee free mortgage brokers earn, it’s calculated as a percentage (around 0.35%) of the full mortgage loan taken out. So a £200,000 loan will pay the broker £700 — not bad, right?

A few final tips…

At the end of the day, choosing the right mortgage broker for you is about deciding what you’re prepared to pay and finding someone you trust and feel confident will deliver. But before you commit to anything, it’s also a good idea to check your chosen broker is registered on the FCA’s Financial Services Register. If you can’t find their name listed there? Walk quickly in the opposite direction!  

Wondering what other costs you might need to factor in? Take a look at: ‘Do I need a survey when buying a house’.

Ready to make an offer? Here are our top tips on: ‘How to negotiate house price discounts’.

If you’re not quite ready to take the plunge yet, why not read up on: ‘How to save for a mortgage while renting’.

Urban Jungle is not a financial advisor and information in this article should not be taken as advice or recommendation.