Photo by Wilson Finch Properties
What a fast-paced year it’s been – I can hardly believe this is the last update for 2024! Over the past few weeks, I’ve had numerous conversations with clients about cost comparisons between lenders and brokers, so I thought it would be useful to address this in today’s update. What should you really be comparing when comparing mortgage quotes? As always, it’s not just about the cost!
Let’s start with costs…
In a market with such a wide range of lender fees, it can be tricky to understand how to compare the true cost over the life of the mortgage. The way I approach it is to look at the cost over the term of the fixed rate, but also assess whether the increase in the lender fee justifies the potential savings. For example, if you’re paying an additional £2,000 in arrangement fees to save £1,000 in interest, it’s probably not worth it.
It’s also important to consider that if you’re increasing the loan-to-value (LTV) above 75% by adding the lender fee to the loan, you’ll be paying interest on that fee for the full term of the mortgage, not just the fixed period.
Don’t forget to factor in the additional costs too – independent legal advice, extra legal requirements for a debenture, and valuation fees all add up. For smaller loans, these extras can mean that the “cheapest” option isn’t necessarily the lowest rate when you account for all costs. So, always make sure you’re comparing the true cost of each option.
Choosing the right product…
It’s crucial to start by selecting the right lender, as you don’t want to waste time or money on multiple applications that could go awry. Each lender has different criteria – from valuation methodologies to where your deposit comes from, whether you’ve refinanced within the last six months, or even the presence of kitchenettes in HMO rooms! The list goes on, and sometimes the requirements can be quite specific.
As your broker, my job is to find the best lender for your needs, which may not always be the cheapest option. It’s possible you could be comparing a product that isn’t even feasible for your circumstances. If your broker provides quotes without thoroughly checking these details, make sure you cover all the bases before paying for a valuation. Wasting time with multiple lenders will only slow things down, potentially causing you to miss out on a property purchase or delay repaying investor finance. This can have a knock-on effect on your next project.
Having the right team on your side…
We take great pride in being part of your power team – and we really mean that. From offering advice on whether a property is viable, to structuring your finance, liaising with solicitors, handling Land Registry matters, and even updating Companies House if necessary, we’re more than just a mortgage broker.
Do you want (or need) someone like that on your team? We free up your time so you can focus on what you enjoy and what generates income for you! Of course, this level of service does come at a cost – some brokers don’t charge a fee but will only help you secure a mortgage offer and leave you to manage the rest. In my view, building a strong relationship with your broker is key to building a successful business. Investing in this relationship will pay off – you’ll certainly get more from us!
A broker who understands the importance of speed and getting deals done quickly can save you both time and money.
Debentures and personal guarantees…
When comparing costs, it’s also worth considering lender requirements around debentures and personal guarantees. Not all lenders require them, and it can save you money and time if you choose one that’s more flexible.
Paying for legal advice on every case and every applicant can add up, so opting for a lender who doesn’t require legal advice for every transaction can be a cost-saving move. Similarly, multiple debentures mean more legal work on subsequent property purchases, which can have a knock-on effect on your costs. Personal guarantees can also add up, especially if you’re providing one for 100% of the loan on each property. Again, some lenders don’t require personal guarantees as standard, so it’s worth exploring your options, especially if the costs are otherwise similar.
Make sure to discuss these elements with your broker to fully understand their implications and the options available to you.
Final thoughts…
I understand that costs are rising, and it’s important to look after the pennies. However, it’s essential to save them in the right places! Hopefully, this update has helped clarify some of the key factors you should consider when comparing mortgage products.
If you’d like to discuss anything in more detail, please feel free to book a call here.
About the Author:
Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.