Fat times for the middleman

Arranging a mortgage through an intermediary is increasingly popular because of the extra choice it offers. Yet doing so means the borrower must pay more, says Clifford German

In 1980, 72 per cent of borrowers went direct to a lender for their mortgage. Now the proportion is only 62 per cent - the rest go through an intermediary. According to a MORI poll, 12 per cent go to an independent financial adviser, 9 per cent take out a mortgage through an estate agent - presumably the one who sold the property, 5 per cent go to a mortgage broker and just under 4 per cent each get a mortgage through an accountant and a solicitor.

Younger people, including first time buyers and first time movers, are rather more likely to go through an intermediary than the older and presumably financially more experienced age-groups. Self-employed people were slightly more likely to have used an intermediary, presumably because they have experienced the reluctance of lenders to take on anyone with variable earnings.

One other understandable reason for going though an intermediary is to find someone who can bend the rules and get a larger loan than the main lenders would normally want to make, usually by going to a small little- known society anxious to maintain its market share by taking on slightly higher risk. That kind of business could include 100 per cent loans on older properties that mainstream lenders might reject or borrowers who needed a higher multiple of income than the standard three times the main income plus once the second income. But in the current housing market those are not risks prudent borrowers should be taking.

Intermediaries might be a good idea for borrowers who want something special, such as a flexible mortgage which allows repayments to be speeded up in good times and slowed down in bad, when the borrowers are out of work or having children. Financial advisers can also offer guidance on PEP and pension mortgages. Perhaps 5-10 per cent of borrowers could benefit from advice.

Too many borrowers seek advice because the sheer choice of mortgages - flat rate or variable, endowment, repayment, PEP or pension repayment plans - is confusing. But intermediaries are rarely in business for altruistic motives. They will either charge the borrowers a fee or expect a commission from the lender, which will be passed on in the interest rate charged to the borrower. How many people have been sold a mortgage with a discount or cash-back through an estate agent, I wonder?

There was a time when unscrupulous agents refused to sell a property unless the buyer took out a mortgage chosen by the agent. Hopefully those days will not return, but in the mean time accepting a mortgage through the estate agent is often a sign of ignorance or sheer laziness.