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With Britain in the grip of a mortgage price war, your most valuable money-saving weapon is the telephone number of a good broker.
Since the start of the year, dozens of lenders have cut interest rates on home loans, in anticipation that the Bank of England will follow suit. It’s welcome news for the more than 1.5mn households who are set to roll off cheap fixed-rate deals in the year ahead, as well as for those planning to buy — but working out your battle plan can be daunting.
How much lower could rates go? As lenders jostle for business, sub 4 per cent fixes are available to the best-capitalised borrowers, yet if inflation continues to fall, optimists predict we could see sub 3 per cent deals by the end of the year.
Before anyone with a looming refinancing starts to reach for the holiday brochures, it’s worth repeating that nobody can predict the future path of interest rates with any certainty, nor the swap rates that inform mortgage pricing.
With rates in flux and thousands of different deals to choose from, deciding when to lock in, and for how long, is a fraught decision. The Association of Mortgage Intermediaries estimates that more than two-thirds of those coming to the end of a fixed rate will end up either remortgaging or fixing again with the same lender via a broker.
However, it pays to be picky. There are mortgage brokers and there are mortgage brokers. A good one will find you the cheapest deal on the market; a great one will help you strategise for the long term. A bad one could end up costing you money. So how can you tell the difference?
Let’s start with the similarities. All brokers earn commission from lenders and are regulated by the Financial Conduct Authority, which checks that their recommendations are impartial. A broker who recommended lenders solely on the basis of who paid the highest commission would stick out like a sore thumb.
Some brokers — but not all — will also charge a fee on top. What you’re going to be charged, and when, should be made clear from the get-go.
Brokers commonly sell their clients other products such as life insurance; a sensible consideration for anyone taking out a big debt. But never forget this is another way brokers can earn a fee. A guest on my Money Clinic podcast last year paid handsomely to take out a policy without realising he already had cover via his employer.
As for the differences: there’s huge variation in the market from big corporates to smaller companies, plus the in-house brokerage arms of estate agency chains (making it possible for them to earn a fee from both buyer and seller). Convenient, but you need to question if they really are the best person for the job.
Ask brokers if they are “whole of market” or are restricted to a smaller panel of lenders — you want them to be searching as many products as possible to find you the best deal. If they charge an additional fee, what additional services does it buy you? The key things to question are communicating after hours, and the level of aftercare you can expect.
Homeowners braced for the “payment shock” of cheap loans expiring have channelled their anxiety into finding their next deal well ahead of time. Most people remortgaging look for deals up to six months in advance. A great broker will keep on searching for better deals after your new fix has been agreed, and proactively suggest moving to a cheaper rate even though they won’t get an additional fee.
“It’s a hell of a lot more work, but the savings this can generate will win you a client’s loyalty for life,” says Simon Gammon, managing partner of Knight Frank Finance.
The wealthier you are, the more complicated your finances are likely to be. Does your broker have experience of dealing with clients in similar circumstances, such as those with homes overseas?
For those buying a home, a great broker will know which lenders are more prepared to take bonus payments into consideration and could even help with the timing of your purchase, says the buying agent Henry Pryor. “We’re now seeing the brakes being put on some property deals as the brokers want to wait a few weeks to get a better mortgage rate,” he says.
Finally, a first-rate broker will spend time getting to know your financial circumstances, in the hope that this investment will win them repeat business. “A great broker won’t be afraid to tell you what you need to hear, rather than trying to work out what you want to hear,” says Andrew Montlake, managing director of Coreco.
Of course, trying to time any market is a gamble. Where the broker’s skill lies is in helping you decide how much risk you can comfortably afford to take.
So, if a friend says they know a really great mortgage broker, by all means take their number — but until you’ve done your own due diligence, don’t take them at their word.
Claer Barrett is the FT’s consumer editor and author of the FT’s Sort Your Financial Life Out newsletter series; [email protected]; Instagram @ClaerB
