Are free legal products a gimmick?
Most of the leading lender’s and building society’s offer a free legal basic service on remortgages – but why?
The mechanics
Firstly, the Conveyancers will not be undertaking their work for love so you ahve to take this in mind when it comes to free legal products. The cost will be factored into the Mortgage Lenders product pricing model. For example, the interest rate might be set higher to bear the cost. The amount that is factored in will inevitably be cheaper than an open market conveyancing price due to the volume the Lender will produce.
Sometimes, Mortgage Lenders offer two sets of products with identical interest rates providing either a ‘free-legal service’ or a ‘cashback’. It is arbitrary, but usually, the larger cashbacks are more attractive, as you may be able to source and pay for the conveyancing with some money to spare.
The sales benefit free legal products
As the money involved is negligible, it’s often better for the Lender to cover the cost and offer the mortgage applicant an additional feature, i.e. rather than a plain mortgage – a mortgage and free legals – to attract new business.
Furthermore, a large number of remortgage customers are simply looking to improve their current rate and can weigh up the benefit easier if they know they do not need to fund the legal cost.
The quality of the legal work
The Lenders would have carried out a full due diligence process on the Conveyancing firm. They would have a service level agreement and expect the work to meet their standards.
It is fair to say, the legal service will be limited to transferring the interest of one lender to another, and for this it likely to be fit for purpose. However, be mindful that there would be extra costs for additional any legal work needed such as a lease extension, remove a title holder etc.
From a systems perspective the Lender may have invested in two-way portal access to streamline their workloads with their staff only needed to understand the workings of one solicitor which could save time, however, the process is typically a “factory style conveyer belt” so unlikely to suit mortgage applicants with time pressures.
Free legal schemes are rarely offered on ‘purchases’ as greater depth of checks are highly recommended, for example, the Solicitor is likely to painstakingly ensure that the purchaser receives a ‘good title’ on the deeds, whereby the remortgage scheme may simply check Land Registry and ensure against the title being wrong. Therefore we would advise against using schemes on ‘purchases’.
If reading this article, you are still unsure of what represents the best mortgage product route for you, i.e. free legals, no free legals, cashback etc. I suggest you seek professional mortgage advice from a Mortgage Broker, such as Niche Advice who can research the whole market for you to make sure you get the best deal.
Niche Advice is a Mortgage Broker who arranges suitable mortgage products for customers including those with free legal services or cashback deals where appropriate. To find out our help could benefit you please complete the contact form on this website or call T: 020 7993 2044.
Author: Richard Stokes
Richard Stokes is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on on Mortgage and Insurance products.
Niche Advice is not tied to any bank, building society, estate agent or insurer and offers Independent Mortgage Advice and Insurance advice.