Why Not All Mortgage Brokers Are Equal

It is your broker's job to compare best mortgage quotes on your behalf. However, it is important to understand that - although they are obliged under the Financial Services Authority's regulations to procure the best deal for you - they only have to compare the quotes that are available to them.

There are two types of mortgage broker. Some that deal with the 'whole of market', meaning they will compare best mortgage quotes across the entire market to find the cheapest one for you. These are independent brokers and will very often be able to get you the best deal, simply because they are working with a bigger range of products.

Other mortgage brokers are 'tied', meaning that they only work with one bank, building society or mortgage lender. Others, called multi-tied brokers, may choose from a 'panel' of a limited number of lenders. In both cases - though obviously more so with the first - you can only be offered a fraction of the full range of options that are out there.

One further thing that is worth noting is that FSA regulation allows some multi-tied mortgage brokers to call themselves 'whole of market', provided that they periodically check to see whether there are any competitive new deals around. Make sure you know what they can actually offer, because many of the best deals may be missed as they are only around for a very short time.

Mortgage brokers: set fees or commission basis?

How you pay your mortgage broker will depend partly on what they are offering - and who they are arranging the mortgage with - but there are two main ways: set fees and commission. Tied brokers will often be paid by commission.

Some brokers will also offer a combination of the two. Fee-based mortgage brokers have become much more popular in recent years. The FSA regulations mean that brokers have to be able to justify the advice they give you. If they are paid by fee, you are charged a one-off amount for their time and work - sometimes an hourly rate but often simply a flat amount (perhaps a few hundred pounds, and certainly no more than 1% of the mortgage amount). This can usually be added to the mortgage itself. However, if they are paid by commission, you pay nothing up front and their fee comes from the mortgage company they arrange your deal with.

The attraction of fee-only brokers is that you know the advice they give you when they compare best mortgage quotes is impartial - they cannot recommend a more expensive mortgage just because the commission will pay them well. However, if you trust the FSA to do its job, you may find the commission option is cheaper overall; you do not want to be paying fees you don't have to.

One further option you may wish to explore is finding a mortgage broker who receives commission on the mortgage but will accept a flat fee instead. They may be prepared to offset the commission against the fee, significantly reducing what you pay. Indeed, this actually raises the opportunity of you being paid for arranging the mortgage, if the commission is larger than the brokers fee.