But while the concept of ‘free legals’ in the mortgage market can seem attractive, is it time we questioned whether these deals really are in customers’ best interests, particularly with the new Consumer Duty regulation looming? And, as the mortgage market gears up for a busy year for remortgaging, are conveyancing firms that work on bulk free legals cases ready to handle the workload?
Free legals – not always the best choice?
Free legals have been part and parcel of the mortgage market for the best part of 30 years and they certainly do have their benefits.
For customers looking to remortgage, they remove the financial burden of having to pay for a conveyancer and the chance of hidden legal fees cropping up in the mortgage journey. But do customers really know what they are getting into when they choose products that include these offers?
Despite the financial benefits, free legals do have important limitations.
The process itself and the service offered can be flawed, with conveyancers often given a bulk of remortgage cases by a lender. With the conveyancers struggling amid a burgeoning workload, this can create a bottleneck in mortgage applications for customers and, as we know from the issues caused by delayed applications during the pandemic, this brings with it a whole host of challenges for customers.
There are alternative choices though, in particular cashback. Not only does this continue to help customers avoid or reduce legal fees associated with remortgaging, it also gives brokers and their clients a facility with which to employ a conveyancer they know and trust.
Brokers can put the cost towards a firm they believe can handle workloads to ensure a streamlined, speedy process, while being able to give their clients a clearer idea of the service they should expect.
However, the choice isn’t always so straightforward.
One step brokers should take is to question the amount of cashback lenders are offering. While conveyancing costs have increased significantly in recent months, cashback levels have often failed to keep up, so it’s important to check whether the cashback offered will be enough to cover the chosen conveyancing firm’s legal fees.
With current cashback levels also slightly under the market rate, this can encourage clients to take the free legals route – in most cases, where free legals are being chosen, it’s because cashback amounts are simply insufficient.
Remortgaging boom
Getting the decision between free legals and cashback right now is an even more pressing issue when we consider that 2023 is set to see a focus on remortgaging.
Rates that rose dramatically after the mini Budget are now coming down, providing an opportunity for some customers who held off in recent months to fix onto a new rate. At the same time, UK Finance expects a remortgage boom this year, with £33bn worth of remortgage lending to take place.
We must recognise the challenges that this surge in remortgaging business could pose for service levels now. Not just for conveyancers but lenders too and try to minimise the impact of this increased workload. For brokers and their clients, picking the right conveyancer will be critical.
There are always simple things to think about. For example, if considering a particular conveyancer, are they recommended by other brokers? Is the conveyancer being considered on the lender’s panel? For those looking at the free legals option, do reviews show how they fared with higher workloads during the pandemic?
These are all questions that brokers should be asking themselves.
Fair value and outcomes
Brokers will also need to consider which option is best for their client against the backdrop of the impending Consumer Duty.
This sets higher and clearer standards of consumer protection, ensuring better outcomes for customers, so brokers will need to identify whether free legals or cashback provide the fairest value for their customers, and therefore which advice is right for the client.
Communication too is a critical part of the Duty, meaning brokers will need to explain each option clearly to the customer to ensure they understand which is the right course to take.
Free legals have long been commonplace for many years now, but experience shows us that they do have limitations. With another busy year ahead, now is the time to start pondering how we can address these challenges to deliver the best level of service possible.
