Back in the days when Mortgage Brokers were a rarity, one of the catchcries was that it was free to use the services of one. Unfortunately, this perception has continued with a number of borrowers to this day.

The good news for a potential borrower is that going through a Mortgage Broker, to arrange lending with a trading bank, generally comes at absolutely no cost to the client. This is because the bank pays the Broker’s fee. It is not because the Broker is doing charity work.

There are times when a Broker will charge the client direct – examples include commercial lending or borrowing requirements that fall outside of the traditional banking arena. Situations like this mean that the Broker does not get paid by the funder so simply charges the client instead. As with any service, the client should be made aware of this in advance.

Increasingly, Mortgage Brokers take on the duty of looking after the borrower not only to secure lending in the first place but also to help arrange re-structuring and re-fixing through the life of the mortgage. This works well for the client as they are looked after by someone who does not have the bank’s profits as a priority and it works well for the bank as they can outsource the labour required to handle all the client’s lending requirements. Brokers take up no bank real-estate, nor does the bank have to pay them a salary. The other positive for the bank is that they don’t have to worry about covering the increasing regulatory costs that come with providing lending advice. This cost will go up substantially over next two years.

So, you have what seems to be a perfect situation for all parties - the borrower gets the choice of a wide range of lenders, great advice and a cost-effective mortgage structure at no cost to them, the bank effectively gets a third-party to help distribute mortgage funds and the Mortgage Broker gets paid. On the surface this is correct, Mortgage Brokers get their fee paid for doing the work (often a great deal of work) just like everyone else involved in a property transaction – the Solicitor, the Accountant, the Real Estate Agent etc. However, there are two large differences between a Mortgage Broker’s income and every other professional involved in the process. Firstly, the borrower pays for the service of everyone else out of their own pocket, where a Broker costs them nothing and secondly, if the lending gets paid back – for any reason – within a period of up to 27 months then the bank claws back the fee they pay to the Broker.

A home-owner/borrower’s situation changes just like anyone else and there could be many different reasons to sell and repay the lending, or move to another bank, but the bank who has paid the Broker does not differentiate – the fee gets clawed back. Selling within 2-years of buying has no effect on the Solicitor or Accountant of the borrower as they don’t give up their fee when that happens but for Mortgage Brokers there is no absolute certainty until that 27 months has passed and the fee for their effort, and the work of their team, is finally safe.  

As a Mortgage Advisory we love what we do, we’re good at it and we make sure that our clients are looked after in the best way possible (sometimes at a financial cost to ourselves). We are very grateful to the many clients we have and for the referrals they give and will continue to provide the service we do. As a matter of transparency, it is good for people to understand how Brokers work and to clear up any misunderstandings about the work we do being “free”.