One of the biggest stories post-Brexit is how the housing market has proven to be more resilient than anyone could have imagined.
Even setting aside the doom and gloom reports of falls in house values and a struggling economy - neither of which came to fruition - house prices have continued to surprise many.
Nationwide has released figures that show house prices are still on the up. February saw an increase of 0.6% over the month before. This was three times the 0.2% prediction calculated by analysts prior to the release of the figures. Following a 0.8% increase in December and a further 0.2% increase in January, house prices are clearly still on the up.
It looks like low interest rates are continuing to drive the rise in house prices. With more people looking to secure mortgages to get onto the housing ladder or to move home, demand is steady.
This gives estate agents a great opportunity to generate incremental income, if they can offer home buyers a quality mortgage service.
However, the bad news is that some estate agents are missing out on mortgage revenue because they are working with unprofessional brokers, who are lazy and only use lenders that they are familiar with, rather than searching for the best deal for the client.
In the worst case scenario, bad brokers can be outright fraudulent – lying about income, or other aspects relating to the applicant.
Bad mortgage brokers are also prone to setting up buy-to-let mortgages, when it should be a residential mortgage. They do this to either bypass income requirements, bypass lenders tougher residential lending criteria, or to get a mortgage more affordable. Buy-to-let mortgages allow interest-only, whereas the majority of residential mortgages do not allow this.
We have also seen evidence of mortgage brokers securing mortgages for investment properties which are then inhabited by family members, or arranging a mortgage for an investment property that is either a multi-let, Airbnb or student accommodation, without informing the lender.
In order to maximise income and maintain solid business practice, estate agents need to ensure they are partnered with professional mortgage brokers that offer a high level of service.
*Darren Pescod is managing director of The Mortgage Broker Ltd
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In response to the statement above citing unprofessional and lazy brokers circumventing and sidestepping their responsibilities to their clients, I wish to outline what a responsible broker should do.
Thorough research
Firstly, it is vital that a broker establishes their client’s requirements and circumstances when it comes to identifying an appropriate mortgage product.
In order to do this, a detailed and thorough ‘fact-find’ should be undertaken by the broker. A fact-find is a question and answer process that establishes the nature of the mortgage the client needs, based on the outcome they wish to achieve.
‘Outcome’ is key. What ‘problem’ is the client looking for a solution to?
What a consumer can find is that they have a preconceived idea as to the product they believe fulfils their needs; they ask a broker for the latest rates for said type of product and are given options, based on what they dictated to the broker. Recommending a product based on this information alone is fundamentally wrong.
The skill of a credible broker is, like detective work, to establish the facts. They must take the client back to basics to understand the solution that is required. This may mean unravelling any preconceptions, even if the client is seasoned investor, because a broker who works daily with a broad range of lenders should have up to date information that the client will not always be privy to.
For instance, the client feels certain that a 2 year fixed rate with lender X is what they want, however, they want to complete in a tight turnaround time. The broker knows that the lender the client is confident in has a very slow processing time and is highly unlikely to meet the deadline. The broker can present the options to the client, giving the client the ultimate choice of time over rate. Situations such as this have the potential to cost, or in the right hands save, a client significant amounts of money.
It is worth pointing out that a broker’s advice can only ever be as good as the information given by the client. A responsible broker will always ensure the client is aware that the information given must be accurate, as the mortgage recommendation is based on it, and again, errors can be costly.
Detailed market, lender and product knowledge
Secondly, a broker should have a detailed knowledge of the market, the lenders who operate in it and the products they offer. Commercial Trust works with a panel of forty lenders, who offer thousands of products catering to a wide variety of client needs.
If a broker works with a very small sub-section of available lenders, the products they can recommend will be fewer in number and may not offer the client everything they are looking for. The more restricted the panel, the more likely this will be.
Brokers who can access a broad range of lenders and therefore a huge range of products, is in a far better position to meet the clients requirements and offer competitive rate options and ensure all this is achieved whilst taking into consideration a client’s circumstances.
There is no point submitting an application for a fantastic rate, if the broker has not done their homework and the lender declines the client because they don’t fit with the lenders criteria.
We often speak to clients who had been promised a given rate by another broker, only to have them come back to us when the deal falls through, because the broker hadn’t correctly researched the client’s fit with the lender criteria. This shouldn’t happen with a broker who really knows their subject (and the client has given honest disclosure of all the facts).
Skill, care and diligence at all times
Thirdly, a broker should always conduct their business with due skill, care and diligence. This permeates across all aspects of the business, from basics, such as backing-up an income declaration with tangible evidence, to the intricacies of remortgaging a complex portfolio from sole to limited company ownership with the right product or products.
‘Backdoor’ residential buy-to-let mortgages
As to the comments regarding brokers placing ‘backdoor’ residential mortgages as buy-to let, a good broker should quickly ascertain the motives of the client through the fact-find and therefore establish the need for a regulated mortgage. Under no circumstance should a broker knowingly help a client apply for a buy-to-let mortgage for a property they intend to live in.
Similarly, if a client wishes to rent property to a family member, the mortgage will need to be a regulated product.
Conclusion
In summary, a reputable and upstanding buy-to-let mortgage broker will strive to consistently offer a client professional advice, having gained a thorough picture of the clients circumstances and needs, identifying the most appropriate mortgage for them, and make a recommendation based on the client’s needs and wants.
Estate agents who have been caught out by a broker they are working with offering their client bad mortgage advice would benefit from more rigourous due diligence checks, prior to appointing a broker partner.
Look for a specialist who has detailed knowledge of a broad range of high street and specialist lenders. Test their knowledge by mystery shopping – if you ask “I want your best rate on a two year fixed rate buy to let mortgage” and you are given a rate, or choice of rates, with few or no questions asked, you know you are in the wrong place.
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