Using a broker

There is a further alternative to going direct to a bank and building society – using a broker. Brokers ideally provide professional and impartial mortgage advice, and their expertise is likely to cut down the amount of time you spend searching for a finance package. The National Association of Commercial Finance Brokers provides an on-line search engine which can be used to locate a broker in your area specialising in buy to let or commercial finance.

It's important for small businesses to get the right kind of finance at the best price. Many commercial brokers work in specific business sectors, and will be better able to understand your needs, appreciate the risks of your venture and find you a deal accordingly. A broker could be especially valuable for borrowers with adverse credit histories or other unusual circumstances.

But won't it cost me extra money?

Brokers act as intermediaries between you as the buyer and potential lenders. Unlike an individual, a broker can access mortgage networks and use purchasing power to negotiate deals with lenders. You will have to pay for this specialized knowledge, but you may decide that the following benefits make it worthwhile:

• Brokers have access to multiple lending sources
• A broker is financially liable if the advice given is later shown to be defective

Brokers make their money either by charging you a direct fee for their advice, as in the case of Independent Financial Advisers, or by working on a commission basis. Commission applies both to those brokers who advise on the whole available market, and those who are representatives of a particular company.

The precise cost of using a broker will depend on whether they are paid commission and/or charge you a fee directly. Commission of 0.25% to 0.5% of the value of the mortgage is paid to brokers by the mortgage lender – up to 1% for those with adverse credit histories. As an example, a broker would be paid between £375 and £1,500 on a £150,000 mortgage. This commission is paid by the lender not by you. Other brokers will charge you a fee directly instead of receiving commission. This fee will be up to 1.5% of the mortgage value – in the case of a £150,000 mortgage, that fee would be £2250.

These figures provide a guideline – the cost of employing a broker to arrange your commercial or buy to let finance will vary depending on the complexity of the arrangements, the value of the property and your particular circumstances.

Further potential costs...

You may also pay a mortgage booking/arrangement fee, payable to the lender to reserve the mortgage funds. This fee is variable but usually between £100 and £500. It's payable even if the mortgage does not proceed. Secondly, a valuation fee to assess that the property's worth is sufficient to secure the mortgage. Again, this is a variable cost.

You will also need to factor in the cost of insurance, fees for transfer of funds, early repayment charge if you repay your mortgage early, estate agency fees for marketing, stamp duty, legal fees, survey fees.

Is there an industry watchdog for finance providers?

Since 2005 individuals and firms offering mortgage advice have to be authorised and regulated by the Financial Services Authority (FSA). However, commercial and buy to let finance is not regulated by the FSA to the same degree as residential mortgage lending, so controls on product promotion and advertising are less stringent. You can check whether a broker or lender is authorised by the FSA by visiting the on-line register or calling the FSA consumer helpline on 0845 606 1234.

Do I need an Independent Financial Advisor?

Although the DTI does close down the worst offenders, it's prudent to seek the advice of an Independent Financial Advisor (IFA) before you invest in property as their advice does come with some guarantee. To find an IFA in your area, see www.unbiased.co.uk, a website run by the industry body responsible for promoting independent financial advice in the UK. If you decide against enlisting the help of an IFA you should, at the very least, ask your finance provide and/or broker the following questions:

• What qualifications do you have? - Two particular qualifications give a good indication of professionalism - the Certificate in Mortgage Advice and Practice (CeMap®)m, provided by the Institute of Financial Services, and the Mortgage Advice Qualification (MAQ) which is administered by the Chartered Insurance Institute.
• Are you affiliated to any industry bodies?
• Are you independent?
• Are you giving me advice or information? - Only companies authorised by the FSA are permitted to give advice about mortgages and must follow FSA rules when they do. Buying with advice means that the products and services offered are tailored to your needs and puts you in a stronger position if they prove to be unsuitable and you need to claim compensation for any loss. If you don't take advice and the mortgage s out to be unsuitable, you will have less grounds for making a complaint.
• Can you give me a written list of all the fees I will have to pay? - This document may also be referred to as a the key facts illustration (KFI). The broker must give you a KFI before you commit yourself to the loan.

Perhaps the two most important question to ask a broker are:

• Are you whole of market? - i.e. Do they look at all available products rather than being tied to one provider.
• Do you charge a fee? - Ideally, the answers you are looking for are yes and no respectively – that way you pay no fee and get best advice on all the available products on the market.

Further advice

Non-profit organisations like Business Link and, in Wales, Business Eye can offer advice for business start-ups, including commercial finance, and put you in touch with local providers.

You may also find these other Property Pro guides useful when considering commercial or buy to let finance.

• Solicitor
• Chartered surveyor