The world of mortgages is constantly evolving, and with the increasing demand for mortgages, the constantly changing lending criteria, and an ever-growing range of products available, the role of mortgage brokers has become more important than ever.
So if you’re thinking about starting a business as a mortgage broker, you can be pretty confident there’ll be plenty of demand for your services.
However, it’s not all plain sailing. Starting a mortgage broker business requires careful planning, research, and knowledge of the industry's regulatory and legal requirements.
In this comprehensive guide, we'll take you through the essential steps for how to start a mortgage broker business in the UK, providing you with the solid knowledge and confidence to take the first steps.
Definition of a mortgage brokerage business
A mortgage brokerage business acts as an intermediary between borrowers and lenders, assisting individuals and businesses in obtaining mortgage loans. Mortgage brokers help clients navigate the complex mortgage market, identify suitable loan options, and secure financing that best suits their needs. They play a crucial role in simplifying the mortgage application process and ensuring borrowers get the best possible terms and rates.
Most mortgage brokers are also able to advise on the insurance products that protect people’s finances and ensure they can clear their debts if their circumstances or health change - products such as life insurance, income protection, and critical illness cover.
What role do mortgage brokers play in the industry?
Mortgage brokers act as a bridge between borrowers and lenders. They have access to a wide range of mortgage products from various lenders, including high street banks and building societies, as well as mortgage lenders that don’t deal direct with the public.role of mortgage brokers
A mortgage broker’s main role is to assess the financial situation and needs of their clients, and then match them with the most suitable mortgage or remortgage deal. When doing this, a broker will take into account factors such as the client’s income, their credit report, the size of their deposit, and what other regular financial commitments they already have.
Mortgage brokers then guide borrowers through the application process, including gathering necessary documents, submitting the application, and negotiating with lenders on behalf of their clients.
What qualifications do mortgage brokers need?
To become a mortgage broker in the UK, you need to meet certain qualifications. While a specific degree is not mandatory, having a background in finance, economics, or a related field can be advantageous.
The most crucial qualification is to be authorised by the Financial Conduct Authority (FCA). This involves completing an approved training course, such as the Certificate in Mortgage Advice and Practice (CeMAP), and passing the required exams.
Once you have passed your exams, you will need to be supervised and have your work overseen for a period of time until you achieve what is known as competent adviser status (CAS).
Even after this, mortgage brokers must still take steps to keep up to date with industry regulations and undergo continuing professional development.
4 Step Plan to Start Your Mortgage Business
Research and Planning
Whenever you start a new business, thorough research and planning are essential. And it’s no different when you’re starting your own mortgage brokerage business.
Conduct market research
If you’re planning on servicing your own local area then you should conduct market research to gain insights into the local real estate market, competition, and potential customers. Analyse your competitors to identify their strengths and weaknesses, allowing you to differentiate your business effectively.
Identify your target market
Instead of just working locally, you might decide from your research that it’s better to focus on a specific mortgage niche and work UK-wide doing everything remotely.
Whichever option you choose, it’s vital that you come up with a clear marketing strategy if you want to make sure you’re never short of leads and clients for your mortgage brokerage business (lack of leads is the biggest issue I hear mortgage brokers complaining about).
Create a business plan
As well as a marketing strategy, you should also write a comprehensive business plan which sets out your goals, strategies, financial projections, and marketing plans.
Don’t worry if you’ve never written a business plan before. There are plenty of free guides and templates available online that will help you.
Determine your budget and funding process
And remember to draw up a budget and decide how you are going to fund the mortgage brokerage business during the first year. Think about your own personal finances too. Because lenders won't pay you until a mortgage completes, it could be several months before your new business has any income - even if you get your first client tomorrow. Do you and/or your spouse/partner have enough savings to see you through several months of potentially zero income?
Legal and Regulatory Requirements
To operate as a mortgage broker in the UK, you need to fulfil certain legal and regulatory requirements.
Obtain necessary licences and certifications
As mentioned earlier, you will need a mortgage broker licence from the Financial Conduct Authority (FCA) and, to get this, you will need to pass your CeMAP exams and then apply to the FCA for authorisation.
Register your business
You’ll need to decide whether you’re going to operate as self-employed (either as a sole trader or in a partnership with someone else) or whether you are going to set your mortgage broker business up as a limited company.
Each option has its pros and cons, so it's crucial to assess your circumstances and get some professional advice before making a decision.
Operating as a self-employed sole trader is the simplest and most straightforward structure. As a sole trader, you have full control over your business, and you are personally responsible for all aspects of its operations.
Here are some key points to consider:
- Simplicity: Registering as a sole trader is relatively easy and involves minimal administrative work. You'll need to inform HM Revenue and Customs (HMRC) that you're self-employed and keep accurate records of your income and expenses for tax purposes.
- Personal Liability: As a sole trader, you and your business are considered one entity. This means you have unlimited personal liability for the business's debts and obligations. If your mortgage broker business faces financial difficulties, your personal assets may be at risk.
- Tax Considerations: As a sole trader, you'll be taxed on your business's profits as part of your personal income. You'll need to complete an annual self-assessment tax return and pay income tax and National Insurance contributions on your earnings.
A limited company, on the other hand, is a separate legal entity. You’ll be an owner (shareholder) and director of the company, but the company’s money and other assets are distinct from yours. Here are some factors to consider when choosing a limited company structure for your mortgage broker business:
- Limited Liability: One of the significant advantages of a limited company is limited liability protection. The company is a separate legal entity, which means your personal assets are generally protected if the business encounters financial difficulties.
- Tax Efficiency: Limited companies often offer more tax planning opportunities compared to being a sole trader. You can potentially reduce your tax liability by managing your income through a combination of salary and dividends, taking advantage of tax allowances, and implementing efficient expense management strategies.
- Credibility and Perception: Operating as a limited company can enhance your professional image and credibility in the industry. It may give potential clients, lenders, and business partners a sense of confidence and assurance by making you appear like a “bigger” business.
- Administrative Requirements: Forming a limited company involves more administrative responsibilities and legal obligations. You'll need to register your company with Companies House, file annual accounts and confirmation statements, maintain statutory records, and comply with company law regulations.
- Increased Costs: Running a limited company typically incurs additional costs, such as accountancy fees for managing complex financial and tax matters, incorporation fees, and ongoing statutory filing fees.
It's definitely a good idea to talk to an accountant to assess the financial implications, legal obligations, and long-term goals before deciding on the most suitable structure for your mortgage broker business. They can provide personalised guidance based on your specific circumstances and help you make an informed choice.
Once you’ve decided on the right business structure for your mortgage broker business, remember to register it with Companies House and/or HMRC as required.
Obtain insurance coverage
There are various insurances you may need for your mortgage broker business. For example:
- Professional Indemnity Insurance: This type of insurance (usually known as PI insurance) provides coverage for errors or negligence in the professional services provided by you as a mortgage broker. It helps protect against financial loss or legal claims arising from mistakes or inadequate advice. If you join a network (see below) you will almost certainly be covered by their PI insurance so won't need your own.
- Public Liability Insurance: Public liability insurance covers your mortgage broker business against claims made by third parties if they are injured or their property is damaged due to something you do or as a result of something that happens to them on your premises.
- Cyber Liability Insurance: This type of policy offers protection in the event of data breaches, hacking, or other cyber incidents that may lead to the loss or theft of your clients’ data.
- Employer’s Liability Insurance: This kind of insurance is a legal requirement if you have employees. It covers you for claims made by employees for work-related injuries, illnesses, or accidents.
- Business Interruption Insurance: Business interruption insurance helps cover the financial losses incurred if your business operations are interrupted or suspended due to unforeseen events, such as fire, flood, or other disasters.
If in doubt, talk to your mortgage network (if you join one) or a suitably qualified business insurance broker.
Understand compliance and regulatory requirements
As a mortgage broker, your business will be subject to a higher degree of regulation than most. As well as making sure you comply with all the requirements of the Financial Services Act, you’ll also be subject to the data protection laws and the regulations surrounding anti-money laundering.
Because you’re handling clients’ personal data, you’ll need to register with the Information Commissioner’s Office.
Any advertising you run will need to comply with the FCA’s rules on financial promotions.
There are various documents, such as suitability reports, that have to be given to every client you work with. And these have to be compliant.
It’s because of all these compliance requirements that a lot of mortgage brokers choose to join a mortgage network.
When starting a mortgage broker business, you have the option to either join a network as an Appointed Representative (AR) or become a directly authorised (DA) firm. Each approach has its pros and cons.
Joining a network means becoming part of a larger organisation that provides support, resources, insurance, and oversight to its ARs. Network membership offers several benefits, especially for new brokers. You can leverage the network's established reputation, access a broader range of mortgage products and lenders, and benefit from their training and mentoring programs. Joining a network also provides compliance support, helping you navigate the complex regulatory landscape. Networks typically charge you a monthly fee plus a percentage of all the fees and commissions you earn.
On the other hand, being directly authorised means obtaining your own authorisation from the Financial Conduct Authority (FCA) to operate as an independent mortgage broker. This option provides you with more autonomy and control over your business. You can choose your own processes, products, and lenders without any restrictions imposed by a network. Being directly authorised also allows you to keep the full commission earned from your transactions. However, you will have to pay fees to the FCA each year and cover the costs of your own PI insurance.
If you're new to the industry and lack experience, joining a network can provide valuable support, training, and guidance while you establish yourself in the market.
However, if you have prior experience in the mortgage industry and feel confident in your ability to operate independently, being directly authorised can be a better option. It allows you to have complete control over your business operations, including branding, marketing, and lender relationships. Being directly authorised may involve more administrative work and compliance responsibilities, but it offers the potential for higher income and the freedom to shape your mortgage brokerage company according to your vision.
It's crucial to carefully evaluate the terms and conditions of any network you consider joining. Consider factors such as fees, contractual obligations, and the level of support and services provided. If you choose to be directly authorised, familiarise yourself with the FCA's regulations and compliance requirements to ensure you meet all the necessary obligations and consider engaging an external compliance consultant to help you stay on the right side of the regulator.
Open a business bank account
If you go down the limited company route, your mortgage brokerage company will definitely need its own separate business bank account. Most banks will offer free banking to new businesses for 12-18 months, after which fees will apply. But shop around, as there are a number of newer challenger banks that offer business bank accounts that are free for life.
If you’re a sole trader you can, in theory, use your existing bank account for your business transactions too. But it’s much better to set up a separate business bank account and will make your life much simpler when it comes to preparing your accounts and doing your tax return.
Building Your Business
Success as a mortgage broker hinges on more than just obtaining the necessary qualifications and licenses. Building a strong brand and establishing a solid presence in the market are vital for long-term growth and sustainability. Here are the key steps that UK mortgage brokers need to take to create a powerful brand and attract clients.
Choose a name and register a domain
The first step in building your brand is choosing a compelling name that reflects your business and resonates with your target audience. Consider a name that is memorable, professional, and easy to pronounce.
Once you have selected a name, register a domain name that matches or closely aligns with your business name.
Build a website and social media presence
A strong online presence is crucial in today's digital age, and having a dedicated website can help potential clients find and learn more about your services.
Invest in creating a visually appealing and informative website that showcases your expertise, services, and client testimonials. Ensure that your website is optimised for search engines to improve its visibility and attract organic traffic.
In addition to a website, establish a presence on relevant social media platforms, such as LinkedIn, Facebook, and Twitter. Consistently engage with your audience, share valuable content, and respond promptly to enquiries and comments to build trust and credibility.
To help people find you easily and to reinforce your brand, try to use a consistent name or handle across all your different social media accounts.
Develop a brand and marketing strategy
Crafting a strong brand identity is essential for differentiating yourself from competitors and resonating with your target market. Try to use strong colours that aren’t used by other businesses in your local area. Then make sure that all your marketing uses these colours and has a consistent feel - so as, over time, your brand becomes instantly recognisable in your local area.
Establish relationships with industry professionals
Building relationships with other industry professionals can be mutually beneficial and help expand your network. Connect with estate agents, accountants, and solicitors who can refer clients to you who are looking for mortgage loans.
Attend industry events, join professional associations, and participate in local networking groups such as BNI that will help you build relationships, expand your reach, and establish credibility. Nurture these relationships by offering value, staying connected, and referring business whenever possible.
Work out your service offerings
To attract more clients, you should clearly define your niche, establish your unique selling points, and create a value proposition that will convince prospects that you offer reliable services which will address the problems they face.
Ensure that your services align with the needs of your target market and continuously evaluate and adapt them to stay competitive.
Develop a referral network
A strong referral network can significantly boost your business. Cultivate relationships with satisfied clients, industry professionals, and other businesses that serve a similar clientele. Encourage clients to refer their friends, family, and colleagues to you by providing exceptional service and incentives. Consider establishing partnerships with complementary businesses, such as estate agents or financial advisers, to exchange referrals.
Identifying new business opportunities
One of the key aspects of building a successful mortgage broker business is identifying new business opportunities. This involves staying informed about the latest market trends, economic conditions, and potential customer segments. By keeping a close eye on the market, you can identify emerging opportunities and tailor your services to meet the changing needs of borrowers. Stay updated on government policies and initiatives related to the housing market, as these can create new opportunities for mortgage brokers.
Establishing an office space to work from
These days, starting a mortgage broker business doesn't necessarily require you to have a physical office location that people can visit. Working from home can help you get your business off the ground without the worry of having to find money for office space rent every month.
However, if you do work from home, try to set aside a dedicated workspace in a separate room (or maybe a garden office) so as you can keep a better work/life balance.
Work Through Challenges
Running a mortgage broker business comes with its challenges, and being prepared to tackle them is crucial. Here are some of the issues you may have to contend with.
Competition in the industry
The mortgage broker industry is highly competitive, with around 40,000 advisers all offering a very similar range of products. To overcome this, it is crucial to differentiate your services and create a strong value proposition. Invest in building a strong brand, offering specialised expertise, and providing exceptional customer service.
What to do during economic and market fluctuations
Economic and market fluctuations can significantly impact the mortgage industry, making it essential for mortgage brokers to be prepared. During economic downturns or slowdowns in the property market, the demand for mortgages may decrease. This is where brokers who have diversified into areas like insurance, commercial mortgages, or business protection are more likely to flourish.
Maintaining client relationships and expectations
Maintaining strong client relationships and managing their expectations is vital for long-term success in the mortgage broker business. Make sure you invest in a good CRM system that will allow you to keep clients informed throughout their dealings with you and keep in regular contact with them after their mortgage has completed.
Balance growth and risk
As a mortgage broker, balancing growth and risk is a delicate task. While it is important to strive for business expansion, it must be done with careful consideration of potential risks. Rapid growth can strain resources and compromise the quality of service. To maintain a healthy balance, focus on sustainable growth by setting realistic goals and ensuring adequate staffing and infrastructure.
Benefits of working as a mortgage broker
Working as a mortgage broker offers several benefits. First, it provides the opportunity to help individuals and businesses achieve their homeownership dreams or property investment goals. As a self-employed mortgage broker, you have the flexibility to work independently and set your own schedule. Additionally, the income potential can be rewarding, especially if you take advantage of the opportunities to sell protection products alongside each mortgage you arrange.
Starting a mortgage broker business in the UK requires careful planning, knowledge of the industry, and adherence to legal and regulatory requirements. By following the steps outlined in this guide, you can lay a solid foundation for your mortgage broker business.
One thing newly self-employed mortgage brokers always tell me is that they struggle to generate enough leads. But here at The PPC Machine we can help even the most newly established mortgage broker businesses generate consistent leads. If you’d like some free advice on the best way to do that, click here to book a strategy call.