There were over 4,500 mortgage schemes to choose from, offered by over 200 lenders – or more accurately around 100 lenders, each with multiple identities. Since the credit crunch hit the UK these numbers have reduced by over 50%.
So how do you choose the best mortgage deal for you and your particular circumstances?. How can you compare a 2 year tracker, with a 2 year discount, a 2 year fixed rate and a 2 year capped rate, if the fees charged are different? What if one of the deals offers a free valuation, and another, free conveyancing?. What if yet another deal has slightly higher fees, but a £500 cashback. What if two of them work on daily interest, and the other two yearly interest?. How important is flexibility?. Will any of them overlook your CCJ for £87 that some awful music club hit you with 4 years ago?. Can you keep your existing property to rent out if you want to?. Will any of the lenders take non-guaranteed overtime into account?. What about a freehold flat? ….
What if the mortage deal that you’d like to take is offered by an obscure Building Society with only one branch, 300 miles away?. They don’t offer an agreement in principle service, but do charge a non-refundable £300 application fee.
One way of trying to sort your way through the maze of schemes is to walk into your local bank or building society and ask them. You may well find though, that you are only offered a mortgage provided by that Bank or Building Society. That may be fine if the deal is competitive, but how would you know?
Worse, you may not meet their lending criteria, and be turned down for a mortgage which would be readily offered by another lender.
Another option would be to assess the whole mortgage market, in an effort to find a) lenders who’s criteria you fit, then b) the best deal from these lenders.
Then, you’d have to contact the lender concerned, and either visit them, to obtain an agreement in principle, or persuade them to visit you. After that you’d complete an application form.
How Mortgage Brokers Choose, then Recommend a Mortgage or Re-Mortgage
They use a mortgage sourcing system.
There are three or four main mortgage sourcing systems in the UK. The software is provided by the developers, who also provide training on it’s use. The systems are updated daily to maintain accuracy. Users can update via their internet connection. Brokers will pay £30-£60 per month for a licence to use the software.
Property, proposed loan, type of mortgage, and applicant information are entered into the software, which then sifts through all available schemes to find those that fit the applicant profile.
Sounds great, but a list of perhaps 2,500 mortgage deals in alphabetical order, is still of no use whatsoever in choosing a particular scheme.
The number of mortgage deals can be reduced by selecting further filters. For example, selecting only fixed rates, with a free valuation. But there may still be a choice of over 500 schemes.
Here’s what I do
After conducting a short mortgage fact find with the applicants, either face to face, or via telephone, I input this information into my mortgage sourcing system.
Unless a particular type of mortgage is specified by the applicants eg. fixed rate, I will search all mortgage types. I select “no extended redemption penalty” as the next filter.
Here’s the good bit. I then ask the software to sort the schemes by “total to pay” over a time period chosen by me – usually 2-5 years. The software, calculates ALL payments made by the borrower for each scheme over this set period of time. It adds any fees, deducts any cashbacks, and takes account of daily, or annual interest.
The result is then a screen with an additional column showing the total payment. In simple terms, the cheapest mortgage deal is the choice. Unfortunately, it’s not that simple to find the best mortgage deal.
Many lenders will apply higher income multiples based on higher credit scores, but will set their criteria for the sourcing system at the highest multiple offered.
The information supplied by lenders, or input by the software suppliers is sometimes incorrect.
Lenders know how the sourcing systems work, and will sometimes manipulate their mortgage deals to come top in the tables. The deals are not neccessarily the best available. Manipulation of this type can include a very low rate for 2 years, followed by 3 years at a further smaller discount. Sorting for true cost over 2 years will probably have this deal in top spot. In reality the borrower is trapped with the smaller discount for the next three years.
In addition, some lenders are efficient at processing mortgages, and some are not. For a remortgage, this doesn’t matter too much, but for a purchase, it can be crucial.
The fact is that the mortgage sourcing systems that brokers use are a tool. Add experience with the system, including criteria selection, knowlege of individual lenders criteria, and the ability to obtain decisions in principle from a variety of lenders, and you have the basis for selecting the best mortgage deal.
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