No such thing as a free lunch!

You may have already met the financial adviser, it's common practice for many estate agents to have them at the front desk in the estate agency, or for the estate agent to insist that you have your income verified by their independent financial adviser when you make an offer on a property.

In fact, you may feel they're more interested in selling you a mortgage than a house - and you may well be right! – so as mortgages are very big business and one sale can represent an income for 20 people, take your time and research the market.  Look on the internet, read newspapers and magazines on the subject, take time, take advice, reconsider its contents and what the person giving the advice has to gain.  We, for example, want you to use us for a survey - click here for a quote.

Choosing a mortgage

Our main advice is take your time and research the market.  We find that telling them that your brother or sister or granny is an independent financial adviser and will do you a great deal, normally stops the estate agent’s IFA in their tracks!

Once upon a time

Let us explain a bit more about the estate agency world and the way it has changed over the years.  Once upon a time estate agents sold houses, and we got our mortgages from building societies and we asked the local chartered surveyor to carry out a survey.

By the way we are selling surveys - if you want a survey quote click here

But then the banks noticed the lucrative market of mortgages and then the insurance companies also noticed this lucrative market, and suddenly everyone was lending money for mortgages - it's a very profitable business if you get it right. Many would argue that this increase in the mortgages available led to the early 1970s house price boom as in this increasingly competitive market mortgages suddenly became available to everyone (well almost and the good news is the mortgage market is still very competitive).  Everybody was trying to get their share of mortgages, or more than their fair share!

This competition led in the 1970s to many lending institutes (we use this term rather than saying building societies, banks and insurance companies each time) buying up lots of estate agents, as when you went in to buy/sell your house, it was also the perfect time to sell you a mortgage (nowadays they will try to look at all your financial outgoings and try selling you all sorts of things).

So lots of lenders became estate agents but they didn't really have that much knowledge of estate agency and indeed many were not very good at estate agency, but it did enable them to be first in with the question, "Can we help you with a mortgage?" or "Can we get you a better rate?” etc".  Remember they're not just being helpful;  they are after your very lucrative mortgage business.

So there we have it;  independent financial advisers became part of the estate agency world - and they got a seat in most estate agents offices.  It goes without saying that the estate agency usually gets a cut of any deals that are done.

Why are the estate agents so keen to have your mortgage business?  Can you imagine doing one day’s work and being paid for it for the next 25 years?  This is exactly what happens when the independent financial adviser sells you a mortgage that takes 25 years to repay – it’s a big pay day for everyone involved.

When Independent is not.

Independent financial advisers.

Lets talk a little about the term independent, It is important to realise that many if not most of the independent financial advisers when giving mortgage advice, are not independent.  This may not come as a shock to some of you.  Many are usually tied to one company that sells mortgages, or they may be tied to a company that does deals with other companies that sell mortgages!  They may be able to access the entire markets, but have incentives to use specific companies.  Remember, if you’re not paying them then someone else is - the lender they are recommending. The better ones will advise you on this;  the not so good ones will gloss over it.

When Financial advisers sell out

independent financial advisers.

Lets talk a little about the term the financial advisers. Are they really financial advisers or are they simply sales people for mortgages and other financial products? If you paid the independent financial adviser a fee then you get independent financial advice;  if you didn't pay a fee don't expect independent financial advice.

We should learn from the past

We think it's important to look back and consider some issues that have made the news, and learn from these. Many of you will recall mis-selling of endowment mortgages. Customers were promised that the mortgage would be paid off and that they would have a nice sum of money to spend how they wished.  They were not advised of the risks, that the stock market, like any free market, can go up as well as down and many companies have had to give compensation for such salesmanship

More recently we noted both on TV and in the newspaper reports that mortgage advisers have encouraged people to overstate their salary in order to obtain mortgages above what they would get on their real income.  We wonder if this is why the late 1990s housing price boom has continued on and on.  Remember, typically people borrow at between two-and-a-half to three-and-a-half times their income, and while the low interest rates have made houses appear more affordable, we still have to pay back the money borrowed at the end of the day, one way or another. Have a look at how the housing market has fluctuated by either downloading the .pdf or the zipped Excel file below:

This extract from the excel file above shows the movement of the housing market in relation to the average earnings:

One of many

Most independent financial advisers (IFAs) are part of groups that own estate agents and surveying companies.  They obviously recommend their own surveyors, and go to great lengths to try to ensure that you use their surveyors, as they usually get a bonus.  IFAs often cite that only surveyors on their panels can be used.  This is a great way to stop you using your own surveyor.  A medal should really go to whoever thought of that - but if you insist or they lose the mortgage, they usually give in.