Tuesday 17 October 2006 10.19am
The IFA system in the UK is not good. Whilst the IFA is technically 'independent' in reality, they are not at all. As in all jobs, the IFA needs to be paid and they get their money from commission on products that they recommend. So, they will try to recommend products to you that give them the best commission and often, these are not the ones that are best for you.
For example, IFAs will rarely recommend products with low charges from the financial institution, as these charges pay their commission. The paradox is that the IFA therefore likes products with high charges and the consumer wants ones with low charges.
This is not he fault of the IFA, they are just acting logically. They will sprout the usual nonsense about them 'having to offer you the best deal' but it's rubbish, they rarely if ever advise you to go for a product that is best for you - this is why we have several million people with endowment mortgages; which were never good for anyone as they were 'front end loaded' which made them very attractive to sales people such as IFAs but bad in most, if not all, instances for consumers.
I am not an IFA but am very financially literate, and I make no money from my advice. This is advice, but like any matter, is subjective and based on my opinion:
1.) Always go for a repayment mortgage. The UK is one of the only countries in the world where the concept of an 'interest only' mortgage (or endowment etc.) mortgage is sold. Don't gamble with the biggest financial commitment you'll ever make. However, IFAs don't like repayment mortgages, as there are few fees to make for them, so they recommend other unit trust based repayment vehicles that they can make commission on.
2.) Mortgage basics - the lower the interest rate, the higher the charges. You need to compare total cost over a period of say 3 or 5 years. The APR rates on UK mortgages is a pointless and mis-leading comparator, as it compares the cost over the entire mortgage term and in the UK, if you have any sense, you move your mortgage regularly to get the best deal. Any lender can offer a '3% great deal' mortgage, but it will have a £900 arrangement fee, lock-ins for 17 years and compulsory insurance'. Certain web-sites will give you total cost figures, for easier comparisons.
3.) Go to some good sites like www.fool.co.uk and read their mortgage guides. Use moneyextra or moneysupermarket to look at best buy tables for mortgages.
4.) Current outlook/ expected rates? As a first time buyer or re-mortgager, you shouldn't pay that much over base rate (4.75%) for a 2/3 year mortgage.
If you let me know what your circumstances are, I will have a look around for you.
You really do not need an IFA to arrange a mortgage, they don't really do anything to add value for you. There is enough info' out there to do your own research these days