Mortgage advisors have found themselves under fire for the poor standard of service they are offering consumers.

A new report from consumer magazine Which? has revealed that only three of the 39 mortgage advisors they visited gave adequate advice to first-time buyers.

“Bad mortgage advice can cost you thousands of pounds or – even worse – your home,” warns Malcolm Coles, editor of Which? magazine.

“Some of the bad advice we received was down to inexperience and poor training, or advisers being more concerned about selling protection insurance that pays big commissions than giving mortgage advice.”

Given the high sums involved, it’s vital that buyers have access to the all the information they need to make the best decisions for them.

But with thousands of products on offer, this may seem a daunting task for first-time buyers.

WHERE TO BEGIN

The internet and newspapers are a good place to start looking at the range of services on offer.

“It can’t do any harm to have an idea of the kind of products that appeal to you and the internet does help you shop around.

“The national press also regularly carries useful tips and hints for first-time buyers, so it’s worth keeping abreast of what’s on the market.”

Ray Boulger, an Independent Financial Adviser with Charcol, agrees it’s a good idea to do your own research before seeing an advisor

“It makes you feel more confident and enables you to ask the right questions.”

But Hollingworth is keen to point out the additional benefits of a one-to-one consultation with a mortgage advisor or broker.

“If you go on a website you can get an idea of what’s out there, but that doesn’t necessarily mean that it’s a comprehensive analysis of what will meet your needs.

“While giving useful information, websites can’t offer advice to meet your individual needs in the same way as a broker can.”

MEETING A BROKER

So, how can you distinguish the level of service you’ll receive from the variety of brokers on-hand to offer their expertise?

Although the Mortgage Code currently states that a broker should tell you what you need to know, Hollingworth suggests making sure you ask the following questions.

WHAT’S THE CHOICE?

“Firstly, find out whether they are fully independent, offering deals from a restricted panel of lenders or only offering from their own product range.”

The wider the product range covered, the more likely you are to find the right product for your requirements.

IS ADVICE TAILORED?

“You should also ask whether you’ll only receive information on available products or whether you’ll actually be getting advice and recommendations tailored to your needs,” he says.

“It’s the difference between simply telling you what’s on offer and advising you on what meets your individual requirements.”

WHAT ABOUT FEES?

Boulger suggests that for impartial advice, you often get what you pay for.

“Many brokers who don’t charge a fee will not recommend certain lenders because they’re not receiving the appropriate fee from them.”

So, although free advice can save you money upfront on consultation fees, it may mean the advice you get is less impartial than it should be.

“Paying a relatively modest fee can easily save you significantly more in terms of getting you the right mortgage product, so people do need to look at the overall picture.”

WHAT’S IN THE QUOTE

Boulger also advises consumers to beware of brokers who put together an initial quote which “includes everything but the kitchen sink”. This may encourage you to sign up for add-ons that may not suit your needs, while they collect the commission.

“The right way to look at the client’s requirements is to initially discuss the mortgage alone, then discuss the possible add-ons, such as payment protection, contents insurance, health insurance or life insurance.

“All of those things need to be looked at individually to find out whether they are appropriate to the buyer’s needs,” advises Boulger.

IS THERE A CATCH?

You also need to find out what redemption penalties you will incur, should you decide to switch mortgages in the future.

“You could end up being locked in for longer than you realise,” points out Hollingworth. “You could get drawn in by a low rate initially, but it could still be the wrong type of product long-term, if it hasn’t been properly explained.”


MORTGAGES – THE BASICS

Mortgages should be straightforward – you borrow money to buy a property and pay it back after a certain period of time. The big decision to make is how you’ll repay the capital you borrow and how you’ll pay the interest on it.

REPAYMENT MORTGAGES

Each monthly payment pays off a little of the total debt, as well as interest on the loan. At the end of the term the mortgage is cleared.

ENDOWMENT MORTGAGES

An endowment policy is used to provide life insurance and save funds to repay the loan at the end of the term.

INDIVIDUAL SAVINGS ACCOUNT (ISA)

These mortgages work like endowments, but use an Individual Savings Account as the loan repayment method.

PENSION MORTGAGES

Pensions (both private and company) provide tax-free cash on retirement, so at the end of the mortgage term the loan is paid out of your tax-free lump sum.

VARIABLE RATES

This means you pay the going rate on your loan – so interest rate changes will affect your rate.

FIXED RATES

Exactly what it says. The interest rate is fixed for an agreed period. Ideal for budgeting – but you won’t benefit if rates fall, and could face penalties if you try to quit.

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