When you consider that mortgage applications could involve hundreds of thousands of pounds, it makes sense to at least consider taking professional financial advice. An excellent mortgage advisor can be worth their weight in gold.
Due to their qualifications and experience, they can guide you through the minefield of the mortgage industry and secure the best deal for you. Even just a partial improvement on the headline interest rate can save you thousands of pounds throughout your mortgage.
Different types of mortgage advisor
Before we look at the different types of mortgage advisor, it is important to remember they are regulated by the Financial Conduct Authority (FCA). An independent mortgage advisor is regulated directly, while tied and multi-tied mortgage advisors are agents of a regulated firm.
There are three basic types of mortgage advisor.
Tied mortgage advisor
As the term suggests, this type of mortgage advisor is limited in the number of products they can advise upon. In this case, they are tied to one mortgage provider and can only advise on and recommend their (suitable) products.
Multi-tied mortgage advisor
A multi-tied mortgage advisor operates similarly to a tied mortgage advisor, except they can advise and recommend products from a defined group of mortgage providers. There is greater scope, but they are not wholly independent.
Independent mortgage advisor
This type of mortgage advisor has no formal ties to any specific group of mortgage providers. They may have close relations with individual mortgage providers, allowing them to negotiate the best terms. However, they aren't tied to any specific or any group of mortgage providers.
It is important to note that whatever type of mortgage advisor you use; your rights as a consumer are still protected. A mortgage advisor will be held to account if they sell unsuitable mortgage products to their clients.
Benefits of a mortgage advisor
There is no doubt that the internet has changed how we view the financial services industry. It is possible to research any area of business, with a massive amount of information available about the UK mortgage industry. However, very often, the articles and information you read may be out of date.
Consequently, mortgage advisors are now a vital cog in the wheel of the UK mortgage sector. Their importance is even greater for those who may have specific challenges preventing them from accessing mainstream mortgage finance. This may include any of the following groups:
- Those with chequered credit histories
- First-time buyers with a limited deposit
- Homeowners approaching retirement
The market for over 50s and over 60s mortgages has grown significantly in recent times. As we grow older, many homeowners are looking to release equity or remortgage their homes. However, before we look at this particular market, it is worth reminding ourselves of the benefits of using a mortgage advisor.
The terms and conditions of mortgage products in the UK change daily. An experienced mortgage advisor should be up-to-date with the latest offerings within their specific area of expertise. As a consumer, it is impossible to keep up-to-date with the latest offerings, deals, and time-critical promotions. When using the services of a mortgage advisor, you are utilising their market contacts.
Negotiating mortgage terms
As with any product/service, there is always room for negotiation, although it can be a case of who you know not what you know. Mortgage headline figures can be misleading. For example, low mortgage rates could relate to relatively low LTVs. An experienced mortgage advisor will be aware of providers offering a degree of flexibility in negotiations and their preferred customer profile. Negotiation is an art form which many mortgage advisors have managed to master.
Customers with specific challenges
Circumstances can often hamper individuals seeking mortgage finance. For example:
- They may have limited funds, but significant assets
- There may be significant equity in their property, but limited regular income
- Private landlords looking for buy to let mortgage capital can struggle
- Age can sometimes be a limiting factor when applying for mortgage finance
While the mainstream UK mortgage market is well-publicised, there are specific niche areas which are often off the public’s radar. However, these are mortgage providers readily accessible via mortgage advisors, often offering extremely competitive terms.
Looking at the wider picture
When looking to secure a mortgage, there are two main factors to consider: regular income and the size of the mortgage required. However, this does not necessarily utilise your overall finances and circumstances when looking for mortgage funding.
If we strip away the various layers of the mortgage market, it comes down to the risk/reward ratio. In theory, the less risk, the greater level of mortgage finance available. So, if you have:
- Additional assets
- Pension plans
It should be possible to take all of these into account to negotiate improved mortgage terms for you.
Any experienced mortgage advisor should not be blinkered and focused wholly upon your regular income; they should consider your broader financial picture.
Mortgages for those over 50
This area of the UK mortgage market has grown significantly in recent years. As you approach retirement, you will likely see a reduction in your regular income. This can exclude you from the mainstream mortgage market. This market is dominated by the affordability test, and often tight criteria brought in after the 2007 - 08 US mortgage crisis.
The idea behind the test is simple, mortgage availability based solely upon regular income and your ability to pay. So, what are the options for those over 50 looking to remortgage or release equity?
Extended working life
We see more and more people over 50 looking to extend their working life – often well into the traditional retirement age bracket. Consequently, many may be able to secure mortgages or remortgages based purely upon their regular income going forward. This is still a specialist market where a degree of negotiating is required, often with a mortgage advisor's help.
As traditional mortgage finance is based upon your income and ability to pay, lifetime mortgages are taken out of this bracket as there are no monthly repayments. This is a mortgage product used by those looking to release equity, often in their later years.
Traditional monthly interest payments are rolled up and added to the capital repayment at the end of the mortgage term. Upon your death or move into full-time care, your property would be sold, mortgage repaid, and the surplus retained by you, or shared amongst your beneficiaries. In the unlikely event your mortgage slipped into negative equity, the mortgage company cannot claim additional funds from you; they would need to absorb any financial hit.
The growing interest in this type of mortgage has led to significant competition as new market participants emerge. These arrangements tend to be negotiated on relatively low LTV ratios meaning there is always sufficient asset backing to repay the mortgage. But they are still open to negotiation!
Home reversion plan
In the past, home reversion plans have been a controversial element of the UK mortgage market, but times are changing. They involve an investor acquiring part of your property in exchange for a cash payment. Unfortunately, the rate paid can be limited to anywhere from 20% to 60% of the real market value of the pro-rata share in your property.
On paper, this looks relatively uncompetitive, but there are other factors to take into consideration such as:
- Rent-free accommodation until you die or move into full-time care
- No repayments – you literally sell a share in your property
- Home reversion investor can only liquidate their share upon your death or move into full-time care
If for example, you were to take out a home reversion plan aged 50, the investor may not be able to liquidate their investment for 30 years, 40 years or even longer. Over that period you would live rent-free. Having acquired a percentage of your property, they would obviously benefit from any price appreciation. However, their capital is still tied up for an indefinite length of time.
As mentioned above, there are three different types of mortgage advisor: tied, multi-tied and independent. Legislation requires total transparency regarding fees, commissions and relationships with third parties offering mortgage finance. In theory, a mortgage advisor could receive payment via any of the following options:-
- Commission from mortgage providers
- Fee from customers
- Mix of commission/fee
Mortgage advisors are legally obliged to make you aware of their terms, conditions and commercial relationships before seeking mortgage finance on your behalf. Failure to do so could invalidate any agreement and have severe consequences for the mortgage advisor.
Quality advice pays for itself
Like a swan gliding across the water, you are unlikely to be aware of the significant work carried out behind-the-scenes by mortgage advisors. You are using them to find the best deal for your scenario and accessing their contacts in the mortgage finance market. As members of the general public, we only see the headline interest rates, with intense negotiations rarely an option.
Experienced mortgage advisors know which finance providers will best suit your scenario, the degree of possible flexibility and how to play mortgage providers off against each other. The end goal is to secure the best terms and conditions for you, with many mortgage advisors only paid on results.