Extra costs of free legal packages on Mortgages
Free legals are common on remortgages and rare on purchases. Where there is free legals the Mortgage Lender appoints a Solicitor of their choice to act on your behalf. The free legals concept is a sound idea and has been around since the nineties.
The premise of free legals is it allows you to change mortgage lenders without going through the hassle of finding a solicitor and entices you to think purely of the new rate benefit by removing a cost barrier to switch.
So good so far; but be warned free legals is not always a pain free experience it seems.
The most common grip about free legals is service and there will be many a tale to find on the internet. I’m not going to dwell on this here other than say its factory conveyer belt designed to primarily deal with the switch conveyance only. Instead the focus in this free legals article is about the extra costs that can arise to the horror of an unsuspecting customer.
This is free legals article is written from my first hand perspective as a Mortgage Broker. I want to be clear here I’m not a Solicitor or a having a go at them – they would have been given a finite amount of money from the mortgage lender to make the transaction work – and therefore outside of the basic conveyance has to be passed on as a cost to the mortgage customer otherwise they would be out of pocket.
The hidden extras of free legals
Hidden is a strong, inflammatory word that reeks of deception and underhandedness. And, Naivety is a lack of experience, wisdom or judgement. The truth about free legals lies somewhere between those two parallels. It is true that a Solicitor will make money on the extras but also that the mortgage customer may be unaware and disappointed.
Let’s paint a picture:
Scenario 1: You live in a privately owned terraced freehold house made out bricks and titles in Manchester with conventional energy consumption. The property is owned solely in your name and you want to keep it that way. The area is not under development or near to any environmental issues. The chances are the free legals on your mortgage product will work a treat and is unlikely to attract additional costs.
This time let’s change things around again:
Scenario 2: You live a flat that was bought a couple of years ago under the Help to Buy Scheme. The walls are cladded and you have a solar panel assisted heating. It’s situated in a valley in South Wales and there is another development under construction nearby. The plot is near to where there used to be mining activity. You are in love and want to add your fiancé to the title deeds as part of the remortgage.
There’s lots going on here from a legal perspective. First of all there is a third party, in this case, the Help to Buy Agency so the existing agreement will need to be checked for restrictions, and they will need to be notified and agree to the remortgage. Being a flat the lease will need scrutiny and the solar panels might not be owned and have a separate lease agreement that would need to be reviewed. The cladding may have a Risk Assessment report to run through. Investigation of any impact of the new development being built nearby considered. A mining report may be needed. On top of that adding your fiancé may require a HMRC submission and pay Stamp Duty Land Tax. The change to the title and will mean retrieving the current Land Registry record, and the verification and registration of a new name on Land Registry. It could also result in an additional transfer of funds fee for the excess over the straight mortgage balance switch. And, VAT to consider.
Okay, this may be an extreme example but you get the point and time is money to Solicitors. This lot could easily set you back £500 to £700 in charges. So what was to be a free legal service could in fact see the rate benefit disappear or at least be eroded.
So to draw together a conclusion the more straight-forward the transaction the better a free legal service fits and less extra charges will apply. If there are multiple factors to consider then selecting your own solicitor is probably worth considering as the process this may not sit well on the “one-size fits all conveyer belt” of free legal services.
If cost is a consideration and you want to use your own solicitor a cashback mortgage product might be a more suitable alternative.