Remortgage 'free legals' - Is there a catch?
Once you have chosen a lender and mortgage product you will need to instruct a conveyancing solicitor.
Conveniently, many lender’s offer 'free legals' which will save borrowers time and money. Or will it?
Free legals - the controversy
Free legals have been around for a few years as lenders look for ways, other than just % interest rate, to compete. Free legals were therefore conceived as a marketing ‘product incentive’.
Some consumer champions were quick to put their thumbs up in approval. Now that a few years have passed, however, the property industry has been able to reflect. The consensus is not good.
The press has been awash with stories of home buyers and sellers who, rather than enjoying the financial benefits of free legals, 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 buyers, overloaded solicitors has lead to lengthy delays, additional costs and even transactions falling through.
Lenders' preferred solicitors tend to be high volume ‘conveyancing factories’ setup to process drive transactions through. 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.
Additional conveyancing fees are often tacked on, and these can quickly add up to more than a fixed fee service from an independent solicitor might cost in total.
Conflict of interest
When a buyer or borrower instructs a 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 referral, it is difficult to see how there would not be commercial pressure leading to a conflict of interest.
Mortgage Brokers advise against free legals.
Increasingly, mortgage brokers recommend mortgage products that don’t include free legals.
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 they will recommend a course of action that is most likely to see the mortgage complete, and in the shortest time possible.
Free legals - Pros and Cons
- No need to shop around for a remortgage conveyancing solicitor
- Might, genuinely, be free
- Lender chooses the solicitor, not you, leading to a potential conflict of interest
- Overloaded solicitors - leading to potential delays and poor service levels
- Hidden fees - 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 even be free - additional fees often amount to more than an all-inclusive service from an independent solicitor
- Referral fees - lender referral fees mean the solicitor earns even less - further undermining service levels
- Risk of mortgage offer expiring - delays could risk your mortgage offer expiring. If your circumstances change, you may not be eligible to reapply. The mortgage deal may also not still be available when you do reapply.
- Cashback now a better alternative - Some lenders are now offering '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 Legals’ 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 fixed fees service at highly competitive rates that may even give you some change from the cashback.