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With Britain in the grip of a mortgage price war, your most valuable weapon for saving money is a good broker's phone number.
Since the start of the year, dozens of lenders have cut interest rates on home loans, anticipating the Bank of England will follow suit. It's welcome news for the more than 1.5 million households due to hit cheap fixed-rate deals next year, as well as for those planning to buy – but drawing up your battle plan can be daunting.
How low can prices fall? As lenders scramble for business, fixes of less than 4 per cent are available to better-capitalized borrowers, but if inflation continues to fall, optimists predict we could see deals under 3 per cent by the end of the year.
Before anyone with a refinance on the horizon starts reaching for vacation brochures, it's worth repeating that no one can predict the future path of interest rates with any certainty, nor can the swap rates that determine mortgage pricing.
With prices fluctuating and thousands of different trades to choose from, determining a closing date and duration is a risky decision. The Association of Mortgage Brokers estimates that more than two-thirds of those who reach the end of the fixed rate will end up either remortgaging or fixing it again with the same lender via an intermediary.
However, it pays to be picky. There are mortgage brokers and there are mortgage brokers. A good person will find you the cheapest deal on the market; A great one will help you develop a long-term strategy. A bad one can end up costing you money. So how can you tell the difference?
Let's start with the similarities. All brokers receive a 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 fees on top. What you will be charged for, and when, should be made clear from the start.
Brokers typically sell their clients other products such as life insurance; A reasonable consideration for anyone taking on significant debt. But never forget that this is another way brokers can earn fees. A guest on my Money Clinic podcast last year paid a lot for a policy without realizing he actually had coverage through his employer.
As for the differences: there is a huge variation in the market from large companies to small companies, as well as in-house brokerage arms of real estate agency chains (which makes it possible for them to earn fees from both seller and buyer). Comfortable, but you have to wonder if they're really the best person for the job.
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Ask brokers whether they 'deal with the whole market' or limit themselves to a smaller group of lenders – you want them to search as many products as possible to find the best deal for you. If they charge extra, what additional services does it buy you? The main things to ask about are after-hours communication, and the level of aftercare you can expect.
Homeowners braced for the “payment shock” caused by the expiration of cheap loans, directing their anxiety toward finding their next deal early. Most people remortgaging look for deals up to six months in advance. A great broker will keep looking for better deals after your new fix is agreed upon, and proactively suggest moving to a cheaper rate even though they won't charge extra.
“It's very hard work, but the savings this can generate will earn you customer loyalty for life,” says Simon Gammon, managing partner at Knight Frank Finance.
The wealthier you are, the more complex your finances are likely to be. Does your broker have experience dealing with clients in similar circumstances, such as those with homes abroad?
For those buying a home, a good broker will know which lenders are more willing to take bonus payments into consideration and can also help with the timing of the purchase, says buying agent Henry Pryor. “We are now seeing restrictions on some property deals, with brokers willing to wait a few weeks to get a better mortgage interest rate,” he says.
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Finally, a top-notch broker will spend time learning about your financial circumstances, with the hope that this investment will earn them repeat business. “A great broker will not be afraid to tell you what you need to hear, rather than trying to figure out what you want to hear,” says Andrew Montlake, managing director of Coreco.
Of course, trying to time any market is a gamble. The broker's skill is to help you determine how much risk you can comfortably take.
So, if a friend says they know a great mortgage broker, be sure to take their number — but until you've done your due diligence, don't take their word for it.
Claire Barrett is consumer editor at the Financial Times and author of the Financial Times' Sort Your Financial Life newsletter series. claer.barrett@ft.com; Instagram @clairb
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