According to the Financial Services Authority (the mild mannered referee for mortgage brokers not prone to dishing out red cards) it's cool for a broker to call himself/herself 'independent' provided:
1 He/she offers a 'fee-only' service; because this avoids any notion of back-handers implied by commissions and
2 He/she claim to represent the whole of the market.
Actually neither of these safeguards actually safeguard the consumer.
Firstly most consumers are not really concerned whether the broker is fee - or commissioned - based provided they get a mortgage and they don't have to pocket out any money upfront.
If you can't avoid a fee-based scenario be wary: staggering figures of up to 1.5% of the total mortgage have been quoted (albeit for sourcing 'difficult' or poor credit sources).
So aim well below that and steer clear of any broker wanting to charge you before completion.
Secondly the 'whole of the market' according to the FSA can be a selection or panel of lenders so long as this 'bundle' represents the open market and the broker scans the top deals every 8 weeks. (That's a long time in the UK mortgage business).
This means your supposedly independent UK mortgage broker is probably cherry picking from a limited - you might say 'cosy' - number of mortgage lenders, say 20, rather than shopping around the whole marketplace - where there are potentially 4,000 types of UK mortgage deals from over 100 UK mortgage lenders.
Now that's not to say they ain't getting you a good deal... and OK, maybe researching the whole market is too time-consuming, not cost-effective for them....
But let's be clear that it's just not as 'independent' as you or I might imagine.
Does it Matter?
Well yes it does. As consumers we want to feel we are getting access to the widest choice and options available for our biggest financial commitment ever.
Moreover the other real benefit of an 'independent' mortgage broker is that they should be able to tap into the secondary mortgage lenders (rather than the high street lenders) who will give mortgages if you have a poor or bad credit rating.
These days it's easy to clock up a bad credit rating in the UK (like a speed camera fine) but harder to clean the slate (6 years, longer than the 3-year speeding fine).
So secondary sources of mortgage for people with adverse credit are becoming more and more necessary.
Anyway a good 'independent' mortgage can sort this out for you - it's been known for registered bankrupts to get mortgages. So there's hope for us all.
So Let's Clarify
You can call yourself an 'independent' mortgage broker while not covering the whole of the market.'
But you can also offer the whole of the market, AND NOT be classified as 'independent'.
Isn't that great ! Tony Blair must be so proud of his new law.
This weird double think is because there are brokers out there who don't want to bother with the pretence of fees but are quite open about commissions (which is what the consumer generally prefers) because in effect brokers are paid on results and wouldn't dream of charging for a search.
Commission-based is also generally cheaper and such brokers may represent more of the market than those labelling themselves 'independent'.
L&C is a typical example, a UK-wide firm of mortgage brokers which operates with over three times the number of lenders used by so-called 'independent' brokers.
Asking the Right Questions
So as a consumer simply ignore the term 'independent' - until the FSA decides to get it's act together.
Instead, whether you choose a one-man/woman show (perhaps an ex-Building society branch manager) or plum for a larger UK mortgage brokers firm, with all the slick presentation you'd expect, ask these basic questions before committing:
'Are you a member of a network?'... If yes they're probably only able to access a limited number of mortgage lenders.
Clarify it with: 'Do you offer mortgages from a panel of lenders?'
Or if you like put it this way: 'Are you going to choose a mortgage for me as we speak across all available UK mortgage lenders?'
If you're not sure of their answer, here's a simple solution: Get another quote !
And while we're at it...
Don't accept any old mortgage just 'cos your desperate
Not all lenders are actually "acceptable'' to you.
They may wear suits and have straight faces but there are some dodgy people out there.
It would be very reassuring to know that your independent broker is prepared to say 'not suitable' about a particular lender even if the lender is prepared to give you a mortgage.
Who are we talking about? Well for instance lenders who regularly "sell on" their mortgage books so you are eventually perhaps left with a lender you haven't heard of, or worse still, lenders who are not interested in after sales but merely in receiving their interest repayments.
"Independent Mortgage Brokers" are NOT "Independent Financial Advisors".
Remember also that we're talking about "Independent Mortgage Brokers" NOT "Independent Financial Advisors". The latter not only source from "the market" but will or should throw in other advice simultaneously to arranging the mortgage.
For example they should advise you on the suitability of either existing or new insurance covers, possible pension linking and the fact that some lenders will only lend via intermediaries, so their offers would never be available via High Street, newspapers or, internet.
IFAs have been well policed by the FSA and its forerunners since 1988.
Finally; be careful out there my friend. This is your mortgage, not your broker's.
Only agree to take a mortgage that you feel is a good deal and which you have looked into reasonably carefully.