Finding fair mortgage advice

Buying a house is an expensive project, and likely to be one of the biggest financial commitments you will ever make in your life.

It can also be a complicated project - especially when it comes to choosing and arranging your finances.

Seeking advice may seem like a daunting exercise in itself - but the mortgage market has undergone some big changes of late which benefit you, the advice-seeker.

Different advice types

Since June 2005, the whole landscape of how people access and pay for financial advice has changed.

The aim has been to make things more transparent for the consumer.

"There are three main ways to pay for advice - either paying a fee, or through commission, or a combination of the two"

There are three different types of adviser.

With a tied adviser, you are literally tied to one lender, so are not seeing the full choice available, while with a multi-tied adviser, you are simply seeing a limited range of mortgages.

An independent adviser, on the other hand, can scour the whole of the mortgage market range - without any financial ties to any one company.

Rather confusingly, you need to differentiate between a mortgage adviser that calls itself independent (IMA), a whole of market broker and a mortgage independent financial adviser (IFA).

The former offers independent, whole of market mortgage advice, but does not have to offer the same choice of advice on other product areas.

Only a mortgage IFA offers whole of market independent advice, not just on mortgages, but across the whole spectrum of product areas relevant to buying a home.

This is important given that over three-quarters of mortgage borrowers take out at least one insurance or investment product alongside their mortgage.

More than half take out life insurance, for example, while nearly a third take out another form of financial protection.

Payment for advice

When it comes to paying for mortgage advice, you should be aware that not all advisers charge in the same way.

You should discuss the payment options open to you when you sit down with your adviser and make sure you are happy from the start.

There are three main ways to pay for advice - either paying a fee, or through commission, or a combination of the two.

• Paying by fee - Whether you buy a product or not, you will pay the adviser a fee for their advice and services, either at an hourly rate, or through a fee for the whole job
• Paying by commission - With this option, you pay nothing up front, but pay indirectly instead, through the commission the adviser gets on the sale of the product from the product provider
• A combination - By opting for a combination, the adviser will rebate some or all of the commission back into the financial products, and either hand it back to you, or offset it against the fee.

Not all advisers will offer all three options and only an IFA has to offer you a fee payment option.

Tied and multi-tied advisers do not have to, but they may choose to. As with anything in life, getting a good deal is vital, so do not be afraid to haggle.

Under rules introduced last year, your mortgage adviser is obliged to present you with some specific information up front, in the form of "Key Facts" documents.

These are designed to ensure you fully understand the status of the adviser you are visiting and your payment options.

These documents must be read carefully and will help you to shop around and get the best type of mortgage advice.

Adviser qualifications

All financial advisers are required by the Financial Services Authority (FSA) to hold the Certificate in Financial Planning, or equivalent, before being allowed to provide financial advice.

Advisers with these benchmark qualifications are also obliged to keep up with relevant financial developments, and some choose to take additional qualifications, whether in general financial planning or specific product areas.

In the home-loan arena, mortgage-specific qualifications include the Certificate in Mortgage Advice and Practice (CeMAP) awarded by the Institute of Financial Services, and CF6 awarded by the Chartered Insurance Institute.

Advisers can also sit and pass subject-specific exams for areas of the market such as equity release.

Sound confusing? Ask your adviser about his or her qualifications.

It is worthwhile knowing that he or she has taken the time to take additional exams and is dedicated to providing the best advice possible.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

RELATED INTERNET LINKS
Independent Financial Adviser Promotion (IFAP)
Financial Services Authority (FSA)
The BBC is not responsible for the content of external internet sites