How Mortgage Brokers Get Paid: Broker vs Direct Comparison
How Mortgage Brokers Get Paid: Broker vs Direct Comparison
Choosing between a mortgage broker and going direct to a lender is one of the first financial decisions you’ll face when buying a property in the UK.
The route you take can affect the interest rate you secure, the fees you pay, and the time you spend navigating paperwork.
This guide explains exactly how brokers are remunerated, what the FCA expects them to disclose, and the real costs – both visible and hidden – of each route.
By the end you’ll have a clear, practical checklist to help you decide which option delivers the best value for your circumstances.
1.
Understanding the UK Mortgage Landscape
The UK mortgage market is heavily regulated by the Financial Conduct Authority (FCA).
Lenders must adhere to the Mortgage Conduct of Business (MCOB) rules, which set out how they must treat customers, provide illustrations, and assess affordability.
Brokers are also bound by these rules and must meet the “best‑interest” duty introduced under the FCA’s Mortgage Advice Review.
In simple terms, a broker acts as an intermediary who can access products from a range of lenders, while a direct application means you deal with a single lender yourself.
The difference in cost often comes down to how the broker is paid – either through commission from the lender, a fee you pay upfront or on completion, or a combination of both.
2.
How Brokers Are Paid
2.1 Procuration Fees (Commission from Lenders)
When a broker places a mortgage with a lender, the lender typically pays the broker a “procuration fee” – a percentage of the loan amount.
This commission is paid out of the lender’s own budget and is not a charge added to your mortgage.
In the UK, procuration fees generally range from 0.20% to 0.50% of the loan amount, though some lenders may pay a flat fee for certain product types.
- Example: On a £200,000 mortgage, a 0.35% procuration fee equals £700.
- Typical cap: Most lenders cap procuration fees at around £1,000–£1,500 for residential loans, but high‑value or specialist products may exceed this.
The broker is required to disclose the existence of this commission to you, but the amount is often not itemised in the same way as a fee you pay directly.
The FCA’s MCOB 4.4A.5 rule says the broker must tell you if they receive any payment from the lender and whether it could affect the recommendation they make.
2.2 Broker Fees Charged to You
Some brokers charge a fee for their service.
This can be a flat amount (e.g., £300–£500) or a percentage of the loan (typically 0.5%–1.0%).
The fee may be payable:
- Upfront – when you engage the broker.
- On completion – when the mortgage draws down.
- A hybrid – a small upfront retainer plus a completion fee.
If a broker charges a fee, they must give you a written Key Facts Illustration (KFI) that shows the total cost of the advice, including any lender commission, before you commit to the service.
2.3 Hybrid Models
Many brokers operate a “no‑fee” model, where they rely entirely on the procuration fee from the lender.
Others offer a “fee‑free” option for certain product ranges but levy a charge for more complex advice (e.g., adverse credit, self‑build).
Understanding which model a broker uses is essential because it influences the neutrality of the recommendation.
💡 Tip: Always ask for a written fee disclosure that separates the broker’s own charge from any lender commission.
This makes it easier to compare the true cost of using a broker versus going direct.
3.
Direct Lending: What You Need to Know
When you apply directly to a lender, you typically deal with the lender’s own sales or underwriting team.
The lender will not charge you an advice fee, but you will be responsible for:
- Researching the lender’s product range (which may be limited compared with a broker’s panel).
- Completing the application and affordability assessment without professional guidance.
- Negotiating any rate or product features on your own.
Direct lenders still pay commission to their own sales staff, but this is internal and does not affect the interest rate you are offered.
However, you may miss out on exclusive deals that brokers can access, especially from smaller building societies that do not market widely.
⚠️ Warning: Some lenders offer “direct‑only” rates that are not available through brokers.
While these may appear cheaper, they often come with less flexibility (e.g., higher early‑repayment charges) and you lose the benefit of an independent assessment of your affordability.
4.
The Real Cost of Using a Broker
4.1 Typical Fee Ranges (2023‑2024)
| Fee Type | Typical Range | Who Pays? |
|---|---|---|
| Procuration Fee (Lender commission) | 0.20% – 0.50% of loan | Lender → Broker |
| Broker Flat Fee | £300 – £1,000 | Client → Broker |
| Broker Percentage Fee | 0.5% – 1.0% of loan | Client → Broker |
| No‑Fee (Commission‑Only) Broker | Nil (commission only) | Lender → Broker |
4.2 Worked Example: £200,000 Mortgage
Assume you borrow £200,000 on a 25‑year repayment mortgage at an interest rate of 4.2% (monthly payment ≈ £1,080).
The total interest paid over the term is roughly £124,000. Scenario A – Using a broker who charges a 1% fee (£2,000) and receives a 0.35% procuration fee (£700) from the lender:
- Upfront fee you pay: £2,000
- Procuration fee received by broker (hidden from you): £700
- Total cost to you: £2,000
Scenario B – Using a no‑fee broker (commission‑only, 0.35% procuration fee):
- Upfront fee you pay: £0
- Procuration fee received by broker: £700
- Total cost to you: £0
Scenario C – Going direct to a lender with a rate of 4.0% (slightly lower than the broker‑arranged rate):
- Monthly payment ≈ £1,055
- Total interest ≈ £116,500
- No broker fee, no commission to a broker
While the direct rate appears cheaper on paper, you must weigh the potential saving in interest against the value of professional advice, especially if your circumstances are complex (e.g., adverse credit, self‑employment, or a limited deposit).
5.
FCA Rules and What You Must Be Told
The FCA’s MCOB rules require brokers to:
- Act in the customer’s best interests.
- Provide a suitability assessment that explains why a particular mortgage is appropriate for you.
- Disclose all fees, including any procuration fee, in a clear and comparable format (the KFI).
- Inform you of any conflicts of interest – for instance, if the broker receives a higher commission from a particular lender.
“The broker must act in the customer's best interests and disclose any conflicts of interest that could influence the recommendation.” — FCA Mortgage Conduct of Business (MCOB) guidance, 2023.
If a broker fails to disclose a procur