Knowing The Mortgage Broker before invesiting the property

Knowing The Mortgage Broker before invesiting the property

Given the complexity of the buy-to-let (BTL) market a good
mortgage broker can be of considerable benefit in sourcing the
right product from the right lender. He will be up to date with the
latest lending criteria, will know the lenders who have a
drawdown facility or who will lend to limited companies and will
know the product range in the market and where to find the
maximum loan possible. The following points, however, should be
noted when dealing with a mortgage broker.

TIED, PANEL ORWHOLE OFMARKET
There are three categories of mortgage broker. The tied broker
can offer products of one lender only. This is the case for most
banks and building societies. Some brokers work from a panel of
lenders and will offer products from that panel only. Finally, there
are whole-of-market brokers who have access to all lenders in the
market. In each case the broker is obliged to declare his status at
the outset.
It goes without saying given the complexities of the BTL market,
that only the last category – the whole-of-market broker – should
be considered by a potential BTL borrower.

REGULATEDBROKERS
Since 1 November 2005 all brokers are directly regulated by the
Financial Services Authority (FSA) and work under a strict set of
rules and regulations.

REGULATED AND NON-REGULATEDMORTGAGES
While the brokers are regulated, however, the mortgages they
arrange can be regulated or non-regulated! Confused?
In their wisdom the FSA decided that not all mortgages should be
regulated and only regulated mortgages should offer the borrower
full protection if things go wrong. The broker and the lender must
decide at the outset whether the loan is regulated or not. Among
the guidelines provided to help them to decide, the following is the
most important:
Will 40% of the property be occupied by the borrower or his
or her immediate family? If the answer is no then the mortgage
is not regulated. It is obvious, therefore, that BTL mortgages
are not regulated.

The significance of this should not be underestimated. Neither the
lender nor the broker is obliged to follow the strict rules of
disclosure regarding such matters as fees, redemption penalties,
advertising content and so forth. Nor will you be asked, for
example, to state why you wish to choose an interest only
mortgage or to confirm that you are aware of the associated risks.
You may not receive the full, detailed key features illustration
(KFI) provided for residential borrowers. You are, in effect,
entering into a commercial transaction and you are deemed to be
capable of looking after yourself!

ADVISED AND NON-ADVISED
Most brokers (tied, panel or whole of market) give advice on the
appropriate product for your needs, based on a full analysis of the
information you provide. You will encounter brokers, however, who
act solely on a non-advised basis. They do not ask you to provide
detailed information about your circumstances and do not offer any
advice. They simply provide the product you ask for. They are
obliged to inform you that you are buying a product on a nonadvised
or execution-only basis. It goes without saying that you have
no protection whatever in these circumstances if things go wrong.

BROKERS ANDPACKAGERS
A further complication when dealing with a broker is the fact that
some brokers use packagers when sourcing a mortgage. A
packager packages mortgages for lenders. In other words they deal
with all the initial admin such as application forms, valuations,
credit checks and so on, and then pass the packaged mortgage to
the lender for an underwriting decision.
While some lenders see this as a useful way of attracting volume
business (and reducing their costs), there are three major problems
with this arrangement, from the point of view of the borrower:
- Interminable delays! Every lender has certain requirements in
terms of paperwork, proof of income, proof of address, etc. In
many cases, however, they will at least consider the case while
waiting for all the paperwork to turn up. If there is a problem
(unrelated to paperwork still to come) you will know about it
straightaway. When a packager is used, you will not. The
reason is simply that nothing is passed to the lender until
absolutely every piece of paperwork is in. Only then will you
know if there is a problem!
- Brokers who use packagers are at a serious disadvantage: they
cannot talk directly to the lender. They must communicate with
the packager alone and hope that they, in turn, will pass on
immediately their queries to the lender. In practice they will
not. The reason is simply that your case is one of hundreds the
packager is dealing with. The packager has a schedule for
communications with your particular lender. That may be
Tuesday afternoon! In that case your broker’s inquiry could
well reach the lender on Tuesday afternoon, whatever the
packager has told him! To describe this as inefficient would be
a serious understatement.
- There is also the obvious handicap of never being able to talk
directly to the underwriter who will make the final decision on
the case. Underwriters can be persuaded to change their minds
and are open to suggestions. In practice it is impossible to
negotiate in this way through a packager.