Should I use my mortgage lender's recommended solicitor?
Does your mortgage lender offer or recommend conveyancing services? If so, should you use their service, or find an independent conveyancing solicitor?
Conflict of interest
When a buyer or borrower instructs a conveyancing solicitor, they do so on the basis that the solicitor acts in their interests and advises them accordingly.
If a solicitor receives the majority of their work via lender referrals, the solicitor feels as though they are under commercial pressure from the lender, leading to a conflict of interest.
My lender is offering to pay my legal fees - is there a catch?
'Free legals' have been around for a few years as lenders look for ways to compete - other than just interest rates. Free conveyancing was conceived as a marketing product incentive.
Initially, free legals earned a 'thumbs up' from consumer champions. Now a few years have passed, however, the property industry has reflected and the consensus is not good.
The press has been awash with stories of home buyers and sellers who instead of enjoying the financial benefits of free conveyancing, have lost time and money.
Why the bad press?
Most of the problems relate to the serious delays that can happen when the lender’s appointed solicitor is overloaded with remortgage files.
For some borrowers, overloaded solicitors have led to lengthy delays, additional costs, and even transactions falling through.
Lenders' preferred solicitors tend to be set up as high volume 'conveyancing factories’. This may not seem such a bad thing, but when paired with the low level of fees received by the solicitor, providing an efficient service for consumers is often not economically viable.
The bottom line is that solicitors don't earn a lot from lender introduced work, so service levels are sometimes compromised
Solicitors still take the 'free legals' lender work as it is a reliable source of regular work that helps to pay the solicitors' bills, but the consumer ends up paying the price in the end.
Additional conveyancing fees are often tacked on. These hidden fees can quickly add up to more than a fixed fee service from an independent solicitor might cost.
See also:
Do mortgage brokers advise against free legals?
Increasingly, mortgage brokers recommend mortgage products that don’t include free conveyancing.
This isn’t out of loyalty to their clients. Brokers want to know they will be paid and the sooner the better. As a result, brokers typically recommend a course of action that is most likely to see the mortgage complete in the shortest time possible.
Free legals - pros and cons
Pros
- No need to shop around for a remortgage conveyancing solicitor
- Might, genuinely, be free
Cons
- The lender chooses your solicitor for you leading to a potential conflict of interest
- Solicitor may be overloaded leading to potential delays and poor service levels
- Some solicitors charge additional fees to compensate for low lender fees
- Potential delays can lead to aborted transactions, expired mortgage offers, penalty charges, delays before getting onto the lower % interest rate, etc.
- Under-qualified legal staff often used by firms to make the work profitable
- May not be free, additional fees often amount to more than an all-inclusive service from an independent solicitor
- Lender referral fees mean the solicitor earns even less - further undermining service levels
- Delays lead to a risk of your mortgage offer expiring. If your circumstances change, you may not be eligible to reapply. The mortgage deal might not be available when you do reapply.
- Cashback is a better alternative. Some lenders offer cashback to borrowers as a result of the delays being caused by free legals. Ask your lender whether they offer this.
So should I use my lender’s recommended conveyancing solicitor?
Now that cashback is an option, and given the risks, the arguments in favour of free conveyancing have all but evaporated.
Choosing an independent solicitor ensures you have a qualified professional, acting solely in your interests. Many solicitors offer a fully inclusive, no sale, no fee conveyancing service at highly competitive rates that may even give you some change from the cashback.
