Am I likely to need/gain anything from using a mortgage broker?

[TheCyclingProgrammer]

Sorry if this isn't the best sub-forum to post this in, but I have a relatively straightforward query.

Having decided to continue running my business and not return to full time work, we are now looking at buying a house later this. Deposit will be funded from existing savings plus an extra dividend at the beginning of the next tax year (just to defer the tax payment a bit longer) as company has pretty good reserves (I will still be leaving a 6 month war chest in the company).

As we don't want to stretch ourselves too much (and I don't want to eat away all of my war chest), we are looking at a £40k deposit on a house in the region of £210-240k (£250k is our hard limit because of stamp duty but £240k is my soft limit, I really don't want to exceed this).

On average this will give us around an 83% LTV.

Best fixed deals I've seen are with my current bank, First Direct; 5 years fixed at 3.9%. Based on my research, given our LTV, current tracker deals aren't that much better so I'd prefer to take the certainty of a 5 year fixed (with the intention to make regular overpayments).

Long term intention is to take a 5 year fixed, make an average of £5k a year in overpayments and increase our equity in the house to around 35%, greatly increasing our chances of getting an affordable deal at the end of the 5 years, even if interest rates have gone up a few percent.

I've had an informal chat with First Direct and they seem to feel they would be able to lend, pending a proper credit check, if I want to get an agreement in principle. They would calculate affordability based on average of last three years net company profit + my directors salary. It seems quite a few lenders take this approach for small business owners.

So, on the basis of the above, is it worth me going through a broker? Am I likely to get a better deal? It seems like they would be a last resort if for some reason I'm struggling to get an AIP.

EDIT: Forgot to mention, I've been in business since 2009 so have 5 years worth of accounts.

[ContrataxLtd]

Best fixed deals I've seen are with my current bank, First Direct;

I've had an informal chat with First Direct and they seem to feel they would be able to lend, pending a proper credit check, if I want to get an agreement in principle. They would calculate affordability based on average of last three years net company profit + my directors salary. It seems quite a few lenders take this approach for small business owners.

So, on the basis of the above, is it worth me going through a broker? Am I likely to get a better deal? It seems like they would be a last resort if for some reason I'm struggling to get an AIP.

I'm sure one of the regular mortgage brokers who post on here will give their opinion shortly as to whether or not you could get a better deal than the above.

My personal experience of this is that First Direct are excellent to deal with directly (I use them for both personal banking and my current mortgage) and having gone through a couple of deal changes with them they have been excellent on all occasions. So much so that I stayed with them last change even though I could have got a slightly better rate elsewhere!

Martin
Contratax Ltd

[TheCyclingProgrammer]

I'm sure one of the regular mortgage brokers who post on here will give their opinion shortly as to whether or not you could get a better deal than the above.

My personal experience of this is that First Direct are excellent to deal with directly (I use them for both personal banking and my current mortgage) and having gone through a couple of deal changes with them they have been excellent on all occasions. So much so that I stayed with them last change even though I could have got a slightly better rate elsewhere!

Martin
Contratax Ltd

Thanks for that. Out of interest, were you able to negotiate any incentives or improvements to your deal as the result of you staying loyal?

My experience with First Direct mirrors yours, although I only have a current account with them right now.

[Kanye]

Ask first direct whats the best they can do, then ask a mortgage broker if he can potentially beat the rate and deal.

Even a small improvement in interest rate can add up to £thousands so why not.

The broker advice is free and as your are a contractor it is definetly worth talking to a specialist broker.

[No2politics]

I would check money saving expert for the top deals. When I got mine a year a go 5 year fix from post office beat anything the broker could offer.

I would also download the spreadsheet from the same website which allows you to compare two mortgage deals. Remember, the larger the mortgage amount the more important the interst rate is, and less important the fee is

[SteelyDan]

I'm with FD - have been for years, and have an Offset mortgage with them.

Am not up on current rates etc., but maybe the thing to watch out for are the fees in relation to any of that fixed rate over 'x' years stuff.
Whether a broker can get you a better deal, I have no idea as I've never used one.

If you do go with FD, rather than aiming to pay off additional amounts religiously, or putting yourself in a position where you feel compelled to do so, why not just keep bunging that money (or spare divs) into your savings which you would have linked to the Offset mortgage?

This way you have the flexibility of drawing it down as and when/if you ever need to (house improvements/car whatever)...just via a quick phone call to the FD dudes. And why would you want to leave your 'warchest' in the business a/c? It's doing nothing there, when it could be offsetting your mortgage interest...

[TheCyclingProgrammer]

I've looked into offset mortgages. Not many on offer unless you've got at least a 20-25% deposit really.

Might be a good option after a fixed rate deal and we have much more equity though.

The First Direct 5 year fixed at 3.9% was few free btw.

Warchest stays in the company account or I'd have to pay higher rate tax on it. Silly to do that if I don't need to; the point is that it stays there to cover my regular dividends up to the higher rate if I need it. Savings account a waste if time at the moment.

[Power Mortgages Ltd]

There are a few lenders out there, First Direct, HSBC, Post Office, Coop Bank etc. who do not offer their mortgages through brokers, they are direct lenders only. These lenders tend to employ a slightly more cautious approach to their lending (smaller income multiples, tend to need 3 years accounts rather than 1-2 years and credit scoring normally has to be tip top). Because they are slightly more cautious with their criteria the mortgages they do agree tend to be very low risk, they cherry pick the 'safe' business and consequently tend to offer very competitive rates in return.

They are however, not always the best rates available. Having had a quick look and obviously this will depend upon eligibility, there is a 5 year fixed rate out there at the moment which is 3.75% with a £999 fee.

The lender offering the 3.75% 5 year fixed rate offers a free basic valuation too though so if FD charge a valuation fee then that would need to be considered as a free valuation could save you anywhere between £200 and £400.

To answer your question though, if you can arrange a mortgage yourself directly and the rate is competitive then you obviously don't have to use a broker.

There are many advantages of using a broker though:

* They can obviously search through the whole of the market to check for the best rates
* They know lenders criteria so know if you would be eligible to get a mortgage with a certain lender or not. This tends to be quite a significant point because unless your circumstances are straight forward then you may not fit criteria with every lender
* Finally they obviously take care of the whole process for you from start to finish, dealing with the lender, the surveyor and the solicitor etc. This could save you having to potentially make a number of trips into a branch to see a lender directly too.

If you have the first two points covered which it sounds like you may do then it is really only the final point you will need to consider. If you are happy to transact the whole process yourself then you have no need for a broker. If you want someone to take care of the process for you then a broker may be more beneficial as it will involve less of your time.

Hope that helps?

[TheCyclingProgrammer]

Lots of useful comments so far, thanks.

I've got myself set up with a spreadsheet so I can start doing meaningful comparisons of 5 and 2 year fixed deals, notably the costs over the first 2 years inc. interest and up front fees. So far I've found a slightly better deal than First Direct, from The Post Office.

My main dilemma right now is whether to take a 2 or 5 year fix. I was originally sold on a 5 year fix because of the certainty but am starting to think a 2 year fix might be the better option...with a good 2 year deal in the region of 2.8% at 83% LTV, and regular overpayments (we can easily afford about £400pm) we could get our LTV down to 75% over two years. Assuming rates do not change, or go above 1% (which doesn't seem like a terrible gamble), we would then find ourselves in a position to get a new fixed deal at equivalent or possibly even better rates.

If the base rate stays the same for the next few years, we might find we can get a new 2 year fix at around 2-2.4% based on today's deals. 2 years at 2.8% + 2 years at say 2.4% is obviously a lot more desirable than 5 years at 4%, even when considering extra booking or remortgage fees. Even if rates go up a bit, or we decide to go for security and take a longer fix after the first 2 years, it should save us some money.

I confess I haven't really looked at trackers much but at a glance they don't seem that much better than fixed at our LTV level.

Lots of things to consider!

[mudskipper]

Personally, I wouldn't feel inclined gamble on rates not going up. There is only one way they can go atm.

Clearing out the other day, I found my first mortgage offer (from 1990). 14.5% interest - we were paying >£750 a month on a £63K mortgage interest only!