David Hollingworth, associate director at London & Country, said that incentives can be a particularly useful motivator when it comes to remortgaging. He said: “There will be some borrowers who only have a relatively small amount left on their mortgage, and are put off remortgaging because of the switching costs. But low or fee-free deals, with free valuations, basically neutralise those costs.”
He added that it’s important for borrowers to have a range of options to choose from, and that brokers have an important role to play in helping guide them through those options.
“The range of choices open to borrowers is great, as brokers can tailor the recommendation to the individual client’s needs. If you say big fees are universally bad, then you remove choices that are bound to work for someone. When clients look to a broker for help, it’s not just finding the right lender, but which of their many products will be right for the borrower,” he concluded.
Richard Major, senior mortgage consultant at Professional Mortgage Services, noted that his firm’s average case size was relatively high, which meant that offers like free legals were a big draw.
He added: “This is particularly the case if the LTV isn’t critical – the fact the borrower isn’t paying out £1,500 to £2,000 for a valuation is a big incentive. It’s a similar story with arrangement fees, as the difference if you can get a lower rate for paying a big fee is well worth it for many of our clients.”
However, James Mole, head of mortgages at Gingko Independent, suggested that incentives can actually make the mortgage market more complex than it needs to be, arguing that it makes it harder for a typical customer to compare deals when different incentives are so wide ranging.
He continued: “I feel that the industry should move away from incentives like free legal or cash back and pass on the saving in the rate instead. All incentives do is encourage them to use a broker who can cut through the noise to find the best overall products for them. And as ever, sometimes cheapest doesn’t mean the right thing for the borrower. Most prefer the cheapest overall package over the period, but sometimes consumers do feel very put out by paying extra fees even if the overall deal works out cheaper over the term.”
There is a danger that free incentives can lead to service issues though. Mortgage Solutions previously highlighted that conveyancer Breezeplus had to increase staffing levels by 40% in order to deal with service issues, which included out of date redemption forms and missing completion dates by many weeks. The firm conducts free-legal conveyancing services for some of the UK’s biggest mortgage lenders, including TSB, Santander and Nationwide.
Hollingworth said that this is an area where lenders can become victims of their own success – if there is a lot of interest coming in for a deal, and it is all funneling towards one conveyancer, then “inevitably there can be some consequence on service times”.
He added: “We are starting to see more lenders give the option, where they can use the nominated solicitor or can go for cashback. That gives brokers and their clients more control, and can help avoid those service issues.”
Major said: “We usually suggest our clients take the cashback and use their own solicitor – it’s difficult to rely on conveyancers like Breezeplus, the service is terrible and you can’t get hold of them.”