The background

When you’re house hunting with an estate agent, they’ll often ask about your finances. They’ll refer you to their affiliated mortgage broker because they usually get a referral fee for the introduction. 

This transaction between estate agents and mortgage brokers is totally above board and businesses often team up to refer customers. Harmless, right?

The shady part

Things get shady when buyers are pressured or forced into using the estate agent’s affiliated broker without knowing about the referral fee. In other words, the customer is kept in the dark about the estate agent getting cash for the introduction, and believes that the referral is entirely for their own gain.

Research shows that about a quarter (23%) of people use a broker recommended by an estate agent and, worryingly, that 1 in 4 of these people felt they had to do so. 

Not only is it untrue that you have to use a certain mortgage broker to offer on a certain house, it’s actually illegal for estate agents to hide their referral fee. It’s illegal because if customers knew about the kickback they’d be more cynical and likely to shop around.

Here’s how it costs customers money

Mortgage brokers come in all shapes and sizes. Some brokers work with a few lenders (called panel brokers) and others cover the whole market (like us). 

Generally, brokers that use a small number of lenders recommend more expensive mortgages. The Financial Conduct Authority (FCA) says that the price difference could be around £400 in the first year (based on the middle price point in their research). 

On top of offering more expensive mortgages, some brokers charge fees. They average £450 and can be as high as 1% of the mortgage amount. 

This means that when estate agents pressure customers into using their affiliated panel broker who charges a fee, it could cost them about £850 more than if they shopped around. Yikes.

What the law says

Estate agents aren’t regulated by the Financial Conduct Authority (FCA) like brokers, but there are two sets of rules that they have to follow:

  • The Estate Agents Act 1979 (the Act)
  • The Consumer Protection from Unfair Trading Regulations 2008 (CPRs)

CPRs were written by the National Trading Standards Estate Agents Team (NTSEAT). They’re the enforcers, in charge of keeping estate agents in check. The NTSEAT has made it clear where they stand on mortgage broker referrals by estate agents. Here’s their most recent guidance:

“[When] neither the... referral fee nor the amount are disclosed by the estate agent… This has a strong potential to affect a consumer’s decision whether to purchase that service or to look elsewhere. The estate agent should declare the fact of the referral arrangement, and the fixed fee they will receive... They should also make it clear that the consumer can choose to source this service from another provider.”

The NTSEAT are so concerned that they’re putting pressure on the government to force estate agents to be transparent about referral fees or risk being shut down. Serious stuff. 

Here’s how to protect yourself

Estate agents play a huge role in helping people find home, and we love them for it. But remember, they aren’t financial advisors and you don’t have to use their affiliated broker. You’re also allowed to ask about their referral fees.

Like house hunting, you’ll find the best mortgage deal by shopping around. Our advice is to stay savvy and don’t be shy to push back – it’s your money on the line and your interests that matter most.

Other house hunting tips

Use our mortgage calculator to estimate your budget

Get an MIP to help with viewings

Want to make an offer? Get an AIP

Offer accepted? Get a mortgage