Why we (almost) always use a Mortgage Broker - and why you should too

One of the key’s to success in property is to build long term relationships with a variety of different people, such as Accountants, Agents, Sourcers, Solicitors, Trades, Project Managers, Tenants, Investors, and Mortgage Brokers. This is sometimes referred to as your ‘Power Team’, although that’s a term I particularly dislike!

Using a good, experienced broker, and paying for their service is an essential outlay that will give you a return far in excess of their fee.

When appraising a property investment, I will always add the cost of ￡500 for a broker fee as a guideline.

It can be hard to quantify the savings in time and cost that a broker can deliver if you have never used one because as an individual (or Limited Company) you simply do not have the same access to the market that they do. They will certainly save you far more than the fees that you pay them.

A broker will look at your individual circumstances, which will include: your income, source of income, residency status, nationality, type of property you are purchasing, how you are purchasing (through an agent, auction, off-market), available deposit, credit history, your outgoing/ expenditures, existing property portfolio, your property investment strategy and plans for the future. They will then research the market and come back to you with a range of suitable mortgage products so that you can decide which to proceed with.

They will complete the application for you, and manage that application through to competition. Throughout this process, they act as the conduit between you, the buyer and the mortgage provider, be able to answer any question or queries you have and support you with any obstacles you come across. Even when using a broker, you will often come across challenges that your mortgage provider throws at you, but they will help you through these.

10 Benefits of Using a Mortgage Broker

1. Access to the market. A broker can access products and lenders that you cannot. Up to 75% of lenders will not offer their products to you unless you use a broker, so why would you limit yourself to only 25% of the market? This is especially prevalent when you are looking at HMO, Serviced Accommodation, other non-mainstream products, or when buying through a Limited Company.

A difference of just 0.5% on your interest rate could cost you thousands of pounds a year.

2. Understanding of your circumstances. A good broker will have previously worked with clients who have found it difficult or expensive to get lending. They will have worked with clients that have poor credit, are self-employed, don’t own their own home, have salaries that are below ￡25k per annum, portfolio landlords (4 or more properties), or any other reason that many lenders do not like. Whatever your variation from the 'perfect investor profile' is, a good broker will find a solution.

3. Speed. They will improve your ability to get a mortgage underwritten within your required timeline. This is especially important if you are buying off-market or through an auction, where speed is essential. If a quick completion is required, it is likely to mean that your rate is higher - but a higher rate on a good property investment is a better outcome on a lower rate on a deal that collapses as you couldn’t complete it in line with the expectations of the vender. We have been able to use conventional lending through a broker on numerous auction properties and avoid costly bridging options because we used a broker who could get the property underwritten at speed – but you need to be very clear on your required timeframes.

4. Relationships with lenders. Brokers will be dealing with lenders on a daily basis, so they will know what the timeframes are for underwriting, which providers are keen to lend, and which are not at that particular time. The BTL market is a small part of a wider market where some lenders will be keen for your business, and others may be overexposed to the BTL market at that time and will limit their lending. As we have seen with COVID, this can happen quickly, and changes constantly. You need to know this insight at the time of your application, not a week or two after it has been submitted, rejected, and you need to start again with an alternative provider.

5. Down Valuations. This is where you receive a valuation on the property that you are buying that is less than the value you have agreed to pay for it. Using a broker has a number of benefits in these circumstances. Firstly they can avoid lenders who tend to down value at that time, and secondly, they can help provide you with the collateral you need to re-negotiate with the vendor. They cannot always help, but they will give you the best chance of winning an appeal, or most importantly avoid that lender in the first instance.

6. Lending Criteria. A Broker will be acutely aware of the lending criteria each provider requires, and recommend accordingly.

Rules introduced by the Bank of England in 2017 around ICRs (interest cover ratios) on buy to let mortgages sought to provide a standard approach, where property rental income must cover the mortgage payments at a representative interest rate multiplied by 125%. However, the representative interest can vary from 5-5.5%, and some lenders use a 145% multiplier rather than the standard 125%.

In addition, portfolio landlord stress-testing has been introduced. If you own four or more properties, you are classified as a portfolio landlord, and you will often need to submit mortgage details, tax returns (SA 302s), cash flow projections, and business models for all properties you own when making an application.

All lenders will have their own criteria, which could include maximum portfolio size, limits of the number of properties they will lend on, a cap on maximum LTV (loan to value) ratios across your portfolio (which could be 65% or lower), or that your ICR must be above 100% for every property in your portfolio.

Some lenders have introduced the concept of ‘top slicing’ which can assist portfolio landlords by taking into account your personal income, pension, or other income to make up for any shortfall in your lending assessment.

A broker will know their way around the lending criteria that you need to ensure that you get a product that works for you.

7. Total Cost of Lending. A broker will be looking at products based on the total cost of lending. You should avoid just looking at the headline interest rate. They will also consider product fees, cashback offers, free legals, SVRs, and length of the mortgage deal.

8. Support your Strategy. A broker will work in line with your strategy to determine the best product. This is not just about deciding whether you opt for a fixed rate, or to decide whether you fix for 2,3,5 or even 10 years, but also ensure that you think about costs for re-financing or selling the asset. Some lenders will be open to you refinancing after a short period of time (6-12 months), for others that process is more difficult. If you are looking to release equity in the property, then you can save costs by ensuring that you are with the right lender when you take out the initial mortgage.

If there is a likelihood that you will be selling the property within the timeframe of the mortgage deal, then you may wish to have a product that minimises redemption fees.

9. Paperwork. If you are buying multiple properties, using a broker will mean that they can recycle some paperwork and documentation that you have submitted previously.

10. Leverage your time. A broker allows you to leverage your time. This is one of the most important reasons why you should always use a broker. Your time is precious, and you don’t want to be calling up mortgage providers and be waiting for hours or days to receive a response. Let your broker do all the legwork, which allows you to concentrate on income-generating activities, or your golf handicap.

4 Things to Consider When Finding Your Broker

1. Recommendations. As with anything in life, recommendations are a good way to make contacts. However, make sure that you do your own due diligence, and consider where the recommendation came from, was it an anonymous person on an internet forum, or a trusted business associate?

We had a particularly bad experience with a broker that came from a recommendation. They cost us time and money, and we nearly lost a good deal due to the time it took them to process documentation. However, it was an invaluable learning experience, and we now know what due diligence we need to put in place and how to avoid a similar experience.

2. Don’t build relationships with just one broker. You do not want a single point of failure in your investment cycle. Brokers, have holidays, long term sickness, excessive workloads, and even retire.

We now work with multiple brokers, and we have honest conversations about what their workload and holiday commitments are when looking at a deal, furthermore, they have their own specialisms if we are looking at an investment that needs to be a little more creative, in particular the use of Bridging Finance or a Bridge to Let product.

3. Experience. You want to work with a broker that has experience. They are providing you with a service, so ask them for testimonials, find out whether this is their full-time occupation, how long they have been a broker for, and how many deals they get underwritten per month.

4. Communications. When first contacting a broker, were they prompt in their response, have they stuck to timings on calls or meetings? If they haven’t, what makes you think they will respond quickly and accurately when you need them the most? You shouldn’t expect to be able to call them 24/7, but you should expect a response within 24 hours.

3 Pitfalls to avoid when using a Broker

1. In-house or affiliated brokers. If you are buying a property through an Estate Agent, they will often recommend or even insist that you use their in-house or affiliated broker. Often this should be avoided. You can position yourself to reject this proposal by lining up a broker beforehand, in doing so you have a credible objection to tell the agent.

2. Brokers that are not "whole of the market". One of the key reasons why you are using a broker is to access products and lenders that you cannot.

Why would you limit the market by using a broker that is affiliated to only a panel of lenders and cannot access all of the market?

They may tell you that they can access better deals as they have closer relationships with these lenders, but we have found that to just be sales patter. Avoid.

3. Choosing a broker based on whether they charge a fee or whether they are free. You want the use the best broker you can find, some charge a fee, others do not. If you conduct your due diligence on the broker, whether they charge a fee or not doesn't really matter, you should not make it a key factor.

When would I NOT use a broker (sort of)?

The only time I would not use a broker is when I have a re-mortgage, and the best deal is with my current provider. I will, however, ask them to research the market and see if there are better options, and because I have long term relationships with them, they know that there are multiple deals in the pipeline that I will be using them for, even if I don't use them in this instance.

Do not just re-mortgage with your current provider without exploring alternatives, your circumstances and the market are likely to have changed since you originally took out that mortgage - if it turns out to be the best deal, be pleased with yourself that you have been able to prove it.

I am not, and have never been a mortgage broker, this article is based purely on our experience over the past 10 years. Despite having to kiss a number of frogs over the years, we now have an excellent team in place, and I would be happy to make a recommendation.

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