If you’re looking to apply for a mortgage, you might consider using a mortgage broker. But what is a mortgage broker and do you really need one?

In a nutshell, a mortgage broker is an adviser that helps you get a mortgage. They will search the mortgage market to help you find the right product from thousands of deals.

Using a broker gives you a mortgage expert on your side. Brokers need to pass professional qualifications to give advice and they’re regulated by the Financial Conduct Authority.

They’ll also give you a realistic idea of how much you can borrow and therefore your purchasing power. And they’ll help get your finances ‘mortgage ready’ to give you the best chance of getting your application approved before finding you the best mortgage rates.

Will using a mortgage broker get me a better deal?

A broker will find you the best and cheapest mortgage that meets your needs.

It’s important to remember there isn’t one best mortgage. The lowest rate might not be accessible to you or come with high fees you don’t want to pay.

‘Using a broker who knows the market and is used to helping hundreds of people with their mortgages every day significantly increases the chances of you securing a mortgage at a good rate because of their expertise, experience and in-depth knowledge of the market,’ explains David Beard, founder of Lendingexpert.co.uk.

‘Brokers can also speed up the process for you, and they’ll know which lenders are more likely to accept your application, taking a lot of the stress out of applying.’

Image credit: Future PLC/ Alun Callender

What’s the difference between a mortgage broker and direct lender?

A direct lender, such as a bank or building society, offers their own mortgages.

They can give you advice on their products, but they won’t tell you if a competitor’s mortgage could suit you better.

A broker works for you. They’ll do a detailed ‘fact find’ to get all the information they need. Then they’ll shop around, searching the mortgage market on your behalf.

Most importantly, they have inside knowledge of how lenders work. They know which are super smooth on service or running slow, and they stay up to date with constantly changing lending criteria.

They’ll find the best mortgage that you’re actually eligible for, so you don’t waste time on applications that get rejected and send you back to square one. Find out how much you could borrow with our mortgage calculator.

Are mortgage brokers independent or will they only offer mortgages from certain lenders?

Some are independent and can arrange a mortgage from any UK mortgage lender. This type of broker is called ‘whole-of-market’.

Others have access to a panel of lenders that represents the mortgage market, without including every single lender.

They are all bound by regulations so you can trust their advice and go to the Financial Ombudsman Service if you’re not happy.

Be sure to check whether your broker is whole-of-market or how many lenders they have access to before proceeding.

How much does a mortgage broker cost?

Advice from a broker ranges from completely free to thousands of pounds. How you’re charged will depend on the broker.

All mortgage brokers make money by earning a commission from the lender for introducing business to them.

However, some brokers won’t charge the customer any extra, so you’ll get the advice for free, while others will charge you a fee. This will be either a fixed fee or a percentage of the amount you borrow – for example, 0.5% on a £200,000 mortgage would be £1,000.

‘When arranging an appointment with a broker, you can ask what the broker fee is and at what stage it is payable,’ says Karen Noye, mortgage expert at Quilter.

‘A typical charge would be in the region of £495 but this could be different depending upon the advice required or complexity of a case. You wouldn’t normally expect to pay anything for the initial consultation.’

Image credit: Future PLC/ Colin Poole

How do I find a good mortgage broker? What should I look out for?

Word of mouth recommendations are a great start, so speak to friends and family first. Then check out online reviews.

Your estate agent might work closely with a broker and recommend them, but you’re not obliged to use their preferred partner.

When comparing brokers, as well as finding out whether they are whole-of-market and what their fee will be, it’s worth asking the following key questions:

• What is included in the service you offer? For example, will you apply for the mortgage on my behalf, deal with the admin and chase lenders?
• How quickly does your average mortgage application take?
• What do I need to get ready in advance (eg. documentation) to speed up the process?
• How do you prefer to communicate – email, text, phone call, in person?

‘If you find a broker who only communicates via email, but you’d prefer to meet in person, you might want to consider a different one,’ says Beard. ‘Understanding how your broker will communicate with you will help keep the process efficient and stress-free depending on your communication style.’

Some brokers have specialisms, such as helping the self-employed or those with credit blips, which could be invaluable if you have specific needs.

Pros and cons of using a mortgage broker

Pros

• You could access better deals than going direct to a lender
• Using a mortgage broker could save you time and stress
• A mortgage broker will help you find deals you’re eligible for

Cons

• There may be a fee for the service
• Not all brokers search the whole market

Do I need a mortgage broker?

You don’t need a mortgage broker, but they’re a great idea unless you’re confident about choosing the right product from the thousands on offer.

With a mortgage broker, you get a mortgage market expert on your side, helping you find the best deal, filling in the forms, chasing the lender and solicitor on your behalf, and holding your hand through the whole homebuying process.

This can be particularly useful for first-time buyers, self employed mortgage applicants and those with credit issues.

With thanks to Rachel Wait for her contributions to this article.

The post What is a mortgage broker and should you use one? appeared first on Ideal Home.

You could dramatically reduce your biggest monthly outgoing by moving to a cheaper mortgage deal, but it’s vital to factor in the impact of early repayment charges on the savings you make.

Switching to a different lender to benefit from the best mortgage rate or repaying your mortgage before your current deal ends may trigger an early repayment charge, or ERC, which can amount to thousands of pounds.

What are early repayment charges?

An early repayment charge is a penalty for ending your mortgage deal before its tie-in period expires. For example, if you’ve signed up to a five-year fixed rate, and you want to move to a cheaper deal a few years later, chances are, you’ll have to pay an ERC.

You might also have to pay an ERC if you’re paying off a chunk of your mortgage early, or if you’re fortunate enough, your entire balance.

The reason that lenders charge an ERC is because when they lend you money, they’re expecting to make a certain amount of interest from the deal. By repaying your mortgage early, they end up out of pocket.

Jane King, mortgage adviser at Ash-Ridge Private Finance, says: ‘When a lender provides a mortgage they factor in a profit margin. If the mortgage is redeemed early then some of that profit is lost. Therefore, the early repayment charge allows the lender to recoup some or all of this margin.’

The charge can be significant. For example, if there’s £150,000 left on your mortgage balance you’d pay an eye-watering £4,500 to leave a deal early with a 3% ERC.

Do all mortgages have early repayment charges?

Image credit: Future PLC/Lizzie Orme

No. An ERC doesn’t always apply. Whether you might face this fee depends on the type of mortgage you have. You won’t have to pay an ERC if you’re on your lender’s standard variable rate (SVR), and you want to move away from this. You’ll usually only be charged a small admin fee of, say, a few hundred pounds.

Some tracker and fixed rates mortgages also don’t carry an ERC. ‘But the rates are usually a little higher, particularly in the case of a fixed rate without an ERC,’ says David Hollingworth, associate director of broker L&C.

A mortgage broker can help you to find mortgage deals that have no, or low, ERCs, if they’re a concern for you. ‘Finding a deal without an ERC gives borrowers more flexibility. It’s suitable for those in receipt of a bonus, for example, or expecting an inheritance who might repay their mortgage early,’ says Harris.

What is a typical repayment charge?

ERCs vary dramatically, and usually range from 1% to 5% of your remaining mortgage balance. While a 1% ERC might not sound a lot, it can still amount to a fair sum – £2,000 on a mortgage balance of £200,000, for example.

The percentage charge for an ERC may gradually reduce on some deals from, for example, 5% in year one of a five-year fix to 1% the final year. In this scenario, if you had £150,000 outstanding on your mortgage, you’d pay an ERC of £7,500 in year one, which would gradually reduce to £1,500 in the final year of the deal.

How can I avoid an ERC?

Most lenders offer some leeway for borrowers to make overpayments of up to 10% of their mortgage balance without paying an ERC.

Image credit: Future Plc/Colin Poole

Chris Sykes, from mortgage broker Private Finance, says: “Different lenders allow different amounts from 0% to 50% of the balance to be repaid early, but 10% per year is the norm. Most lenders want to give borrowers an element of flexibility while not overextending this privilege to make a loan unprofitable to them.

“At the end of the day the lender wants to get paid back their funds and offering an overpayment allowance allows their risk to reduce faster on a loan over time as it increases the equity in a property.”

You may also avoid an ERC by choosing a shorter deal. This way, if your circumstances change such as selling up after a divorce or to move for work, you’ll hopefully be out of the tie-in period.

Bear in mind, though, that it’s always a good idea to do the sums to see if it’s worth paying an ERC. It may be worth paying a penalty to ultimately save more money on your mortgage repayments over the long term if you’re on an expensive standard variable rate (SVR). You’ll usually slip onto your lender’s SVR when your current mortgage deal ends, and the rate can hugely increase your monthly repayments. In this case, the interest you’re paying may outweigh the ERC, making it more sensible to pay the fee to switch rates.

What about when I remortgage or move house, do I have to pay an ERC?

Possibly, yes, if you’re not careful. If you’re remortgaging, check that your new deal doesn’t kick in until the end of your current deal to avoid paying an ERC. If you’re on your lender’s SVR, though, you won’t pay an ERC to remortgage.

As part of your moving house checklist, you might pay an ERC if you’re moving to a cheaper property. You’ll probably want to use the money released from the sale of your old home to reduce the size of your mortgage. But this may trigger an early repayment charge.

However, you might have a flexible mortgage that you can take with you when you move house. This is known as porting your mortgage, and most lenders allow you to avoid an ERC this way, provided you’re not repaying a large chunk of your mortgage in the process.

But if you’re borrowing more to move house, you’ll need to go through the mortgage affordability assessment process, and you may not be able to port your mortgage. If you cannot borrow enough, you may face an ERC if you have to take a mortgage from another lender.

‘It may be sensible to think about how long you are likely to be in a property or if you’re likely to move when considering the ERC period. Also think about whether you’re likely to need additional borrowing during the mortgage period,’ says Sykes.

The post Early repayment charges: what are they and how can you avoid them? appeared first on Ideal Home.

So you’ve decided you’re going to start your own interior design business. Congratulations! But have you thought about putting together a business plan for your new venture? 

Writing down what you’re trying to achieve, the services you’ll offer, and other important factors will help you streamline your business strategy, keep you focused on your goals, and (perhaps most importantly) make sure your idea makes sense.

It’s a good idea to create a business plan before investing money in your new business; that way, you’ll have a better understanding of how it’ll make money and whether it’s likely to be profitable.

Throughout this guide, I’m going to explain the importance of having a business plan for your interior design business and take you through what information to include.

Here’s to a well-planned and successful interior design business!

Why do I Need an Interior Design Business Plan?

There are various benefits of putting together an interior design business plan before going ahead with your new venture, but it really boils down to two factors:

1. Helping you understand your business
2. Helping you explain your business to others

Helping you Understand your Business

Before you do anything, you need to get your thoughts in order to ensure you have a viable business idea. Writing things down usually helps them make sense, and it’s no different with a business plan.

Your interior design business plan will help you:

• Summarise your business idea:  What you’re trying to achieve, what services you’ll offer, how you’ll operate etc.
• Identify goals and potential problems: Set out goals and how you’ll achieve them, and identify any risks and how to overcome them.
• Plan your business operations: From sales and marketing to onboarding staff.
• Get your finances in order: Estimate your revenue, business expenses, and any financing you’ll require to get your business off the ground.
• Pinpoint your priorities and identify any gaps in the business 

Helping you Explain your Business to Other People

A business plan can also help you convince other people to back your business. This includes:

• Financial assistance: If you’re planning on getting financial backing from investors or securing a bank loan for your interior design business, you’ll need to present a well-formed business plan.
• Employees and suppliers: Potential employees and suppliers are unlikely to work with a business if they don’t know what it does. A business plan will help you explain this so you can onboard staff and suppliers before getting started.
• Explaining your business: Writing down a business summary will help you better explain your business to other people, so next time you’re asked what your business does (or will do), you won’t fumble over your words.

Interior Design Business Plan Top Tips

Before writing your business plan, keep the following points in mind:

Write it for an Outsider

Write your business plan as if the person who’s reading it knows nothing about you, your business or the interior design industry. This will likely be the case when it comes to getting investment.

Keep it Concise

Don’t go into too much unnecessary detail. Keep it to the point and focus on the sections listed below. After all, you want people to read it!

Be Realistic

Avoid skimming over potential risks and problems, and be honest and realistic about finances. Being over-optimistic might get you the loan you’re after, but it could lead to problems in the future.

Know your Market

Make sure to include market research, details on competitors, where your business fits into the interior design market and what makes it different to what’s already out there.

What to Include in your Interior Design Business Plan

When it comes to writing your business plan, try to use the following structure: 

Section 1:

Executive summary

Section 2:

Elevator pitch

Section 3:

About the business owner

Section 4:

Products and services

Section 5:

Business structure

Section 6:

The market: Customers, competitors and market overview

Section 7: 

Sales and marketing strategy

Section 8:

Business operations

Section 9:

Business expenses

Section 10: 

Financial forecasts 

Let’s go into a bit more detail on each section:

1. Executive Summary

An executive summary is essentially a summary of your interior design business plan, so it’s best to write this section last. It should include key points, so if someone were to only read this section, they’d still have an understanding of your business and what you’re trying to achieve.

Your executive summary should include:

• Business name and type of business (e.g. sole trader or LTD company)

• A summary of the services you’ll offer and/or products you intend to sell

• Mission statement: What is the aim of your business? (e.g. become the number one interior design service in your area)

• Goals and objectives: It’s good to include short, mid, and long-term goals. (e.g. generate [amount] of profit in the first year)

• Financial summary: Financial goals and any secured or required funding 

• Keys to success: How will you achieve your objectives? (e.g. provide high-quality services and first-class communication)

2. Elevator Pitch

An elevator pitch is a short summary of your business. It’s what you’ll tell people when they ask what your business does. Writing down an elevator pitch will help ensure you have a clear idea of your business direction and enable you to give a concise, well-formed description when you explain your business to others.

It should include:

• What your business does
• Who your target audience is
• Your unique selling point (USP): What sets you apart from competitors?

3. About the Business Owner

Add a bit about yourself, why you want to start an interior design business, and any experience you have in the industry. Things to cover include:

• Who are you? 
• Why do you want to start this business?
• What experience do you have?
• Relevant qualifications and training
• Relevant hobbies and interests

4. Services you’ll Offer

How is your business going to make its money? Explain the different interior design services your business will offer and whether you’ll also sell any physical products. 

Note down:

• A list of services you’ll offer as an interior designer
• Any products you’ll sell
• Plans for future products and services

5. Business Structure

Will you work as a sole trader and hire contractors to help, or will you hire employees? Do you have a network of suppliers in place to help you carry out your projects? Include information on your employees, contractors, suppliers, and their roles in this section:

• Whether you’ll hire full-time employees or outsource to contractors
• Job roles and responsibilities
• List of suppliers needed to help fulfil projects

6. Market Summary

The market summary section of your business plan should include information about the current market and market trends, your target audience, and competitors. This section will not only help outsiders understand your target market, but it’ll also help you understand how best to advertise your products and services.

Your market summary can be split into a few sections:

Target customers

• Target customer profile: Who are your target customers?
• Who are you selling to? (e.g. businesses or individuals, residential or commercial)
• Why do they/will they buy from you?
• Any already confirmed orders 

Competitors

• Who are your competitors?
• What’s your USP? What makes your business different? 
• SWOT analysis: Strengths, Weaknesses, Opportunities and Threats 

Market research

• Size of market
• Market trends
• Field research
  (Ask prospective customers what they think about your business idea)

7. Sales and Marketing Strategy

How will you reach your target customers, and what channels will you sell your products through? What price point will you sell your services at? The sales and marketing strategy section should cover:

• Sources of income: How will you sell your products and services?
  (E.g. online services, products, commercial and residential projects)
• Marketing channels: How will you advertise your products and services?

 (E.g. word of mouth, social media, direct mail, trade shows)

• Pricing strategy: What price point and why?
• Are you likely to get repeat customers or retainer clients?

8. Business Operations

This section covers the day-to-day running of your business, what’s involved in each interior design project or the production of any products you sell, where your business will operate, what equipment and insurance you’ll need, etc.

• Production/projects: How long will it take, how much will it cost you?
• Payment: How will customers pay?
  (e.g. upfront, deposit, payment plan)
• List of suppliers: Who are your suppliers?
• Business premises: Where will your business operate from?
• Equipment needed: What equipment do you need for your business to operate?
• Licenses and insurance: What licenses and insurance do you need for your business to operate?

9. Business expenses

There are various expenses involved in running a business, so you’ll need to list these. Your expenses will include things like:

• Business premises
• Equipment
• Employee/contractor wages
• Merchandise production
• Fuel 
• Marketing
• Loan repayments

10.  Financial Forecasts 

Financial forecasts can be tricky if you’re just starting out, but try to put together a realistic calculation for the next three to five years. Essentially, you need to prove that your business will survive and become profitable. If you’re a small business or startup, speaking to an adviser at your bank may help with forecasting.

Your financial forecasts should include:

• Historical sales figures from the last three to five years (if applicable)
• Sales forecast: How much money you expect the business to take
• Profit forecast:  How much profit you expect the business to make
• Monthly cash flow and business bank balance
• Balance sheet: Your business’ assets, liabilities and stockholders’ equity (smaller businesses may not require this

As you can see, a lot goes into starting your own interior design business. And while creating a business plan might seem like a long process, it’ll definitely help you in the long run.