Complaints, compensation and fines could force lenders to improve free legals – Star Letter 20/12/2019
The results of our poll which found the majority of brokers wanted lenders to better manage free legal services led to a further discussion on the article: ‘Shocking’ free legal services cost money and must change, say brokers – poll result
Arron Bardoe got the ball rolling, as he said: “I have been banging the drum on this issue for years. The ‘free legal’ firms have no individual case ownership and callers are just directed to a pool of operators.
“We should not be hearing the ‘high volume of business’ excuse, as they should stop taking on cases when they reach capacity. Even then, some of those firms have had the ‘high levels of calls’ answer message in place for years, which is almost as annoying.
“If brokers want this to change, they need to push lenders for cashback alternatives. We never use free legals where such is available and, if two products are similarly priced, we always use the cashback option, as there is no point in getting an offer in a week if the free legals takes two months.
“Brokers should also remember that the lender is responsible for the service and any complaints – not the solicitor.
“If the borrower suffers financial loss or distress, the complaint has to be directed to the lender, as the solicitor does not act for the borrower. This is key as the Financial Conduct Authority (FCA) complaints process is quite robust.
“The Legal Ombudsman is not a patch on the Financial Ombudsman Service and besides, the solicitor has no service obligation to borrowers.
“When lenders start handling and paying compensation due to delays by their own solicitors, then it might prompt them to offer cashbacks,” he added.
Solicitors eyeing cashback
Robert Drury also weighed in, as he said: “I have recently spoken to a local firm of solicitors that I trust and in the new year will be looking at the option of the cashback deals out there as a very real alternative to the free legal debacle.
“Yes, the cashback may not fully cover the cost of the local solicitors but knowing that a client’s remortgage will be dealt with in a professional and timely manner is worth the additional cost.”
Poor funding means poor results
Paul Fielding threw his two pence in saying: “The problem we have here is that lenders pay these outfits so little per case, that it’s virtually impossible to properly staff their legal operation, as well as having non-solicitors doing the work.
“As levels of business can often inflate, depending on a number of factors, getting properly trained staff in position with short notice is again, almost impossible it would seem.
“I know from conversing with my clients about why things just don’t get done in a sensible timescale and without doubt they would happily – in most cases – accept a lender contribution to legal costs, utilising the services of either their own trusted firm or a firm that I use regularly for mortgage and equity release business.
“That way, we get a proper service and one where as advisers, we can assist in keeping control of matters, all to the client’s benefit.
“Lenders please listen – you know that if you don’t fund things properly, you can’t effectively run your own business properly, so don’t expect conveyancing teams to do so, as the same fundamentals apply.
He added: “Oh, and by the way, please make an effort to engage with brokers more readily, so that we can offer constructive advice on how we feel we may be able to assist the process to all our benefits from our end.
“So quit the ‘us and them’ stance toward brokers, you’ll find we will be useful to you in helping to get business completed, and not just for bringing the business in, only to see it then fall into that great black hole termed free legals.”
Future downsides of execution-only
The regulator’s admission that execution-only could have damaging consequences prompted a strong response to the article: FCA admits more execution-only could increase consumer harm
Very deceptive said: “There are very few clients including the financially astute ones, who appreciate a likely future event – such as wanting to move home, wishing to restructure their finances or to repay the mortgage early – should be considered before locking themselves in to most products.
“Given that early repayment charges are typically one, two or three years’ worth of interest, the financial shock to clients for making a quick but poor choice will affect many more customers because of execution-only.”
“There will be a direct correlation between the increase in execution-only and the increase in customers suffering these crippling penalties. It is simple probability which will be revealed in the years ahead.
“Some people may be forced to postpone moving home. Some will be severely restricted to just one lender at a time when they probably want to shop around to borrow much more but will instead be forced to port the existing deal to avoid a large financial loss. Others will find themselves unable to avoid incurring a massive financial hit.”
“If only our industry had a regulator to look out for mortgage applicants, especially vulnerable customers. Perhaps this should be part of the FCA’s remit?
“If the FCA was a car salesperson it would be telling you that the car with a worse safety record, like having poor brakes, is better value as it’s the cheapest.
“The rest of us realise that the journey of life has many hills to go up and down so having faulty brakes or none at all is just foolhardy. But the FCA will also offer it under execution-only to protect itself and ensure there is no legal recourse.
“We must have the only industry where the regulator is the biggest culprit.”
‘Shocking’ free legal services cost money and must change, say brokers – poll result
Free legals, the perk offered to remortgage borrowers to make switching to a new deal cheap and easy, are giving mortgage brokers a service headache and causing them reputational damage.
Just over 40 per cent of intermediaries responding to Mortgage Solutions’ latest poll said the change they wanted lenders to implement next year that would have the biggest impact on their clients was better management of the service given by free-legal conveyancers.
Brokers say the term ‘free-legals’ is a misnomer because the process takes so long it costs their client money when their mortgage deal expires and then ends up on a more expensive standard variable rate (SVR) until the remortgage completes. It also costs them more in man power than if the conveyancing work had been paid for.
Colin Chapman, director of Genesis Financial Services, said: “Are free legals really free? Technically yes, but not if you add up the time we spend chasing cases and trying to almost reinvent the wheel to get them over the line to avoid deadlines being missed.”
Chapman describe the free legals package as ‘shocking’. He said there was a lack of communication from the conveyancer, emails and calls went unanswered and firms denied receiving documents that had been securely sent to them but when challenged would ‘miraculously appear’.
He added: “Deadlines have been missed and clients revert to a standard variable rate for reasons that are totally avoidable. The most recent example is where a mortgage deed was rejected the day before completion after sitting in the conveyancer’s office for over six weeks, signed and ready to go.
“The package has to either change so that lenders offer cash back instead of free legals or solicitors need to staff their operations appropriately for the volume of cases they are telling the lender they can handle.”
Back of the queue
Richard Campo, managing director of Rose Capital Partners, has experienced free legal problems with his clients and his own mortgage.
Campo said that some of his cases have taken so long to complete that the lender had since dropped their rates. He added that requesting a new mortgage offer with a cheaper product then put the client at the back of the conveyancer’s queue again.
“This very same thing happened to me on my own remortgage last month,” said Campo.
“My mortgage offer was produced at the end of September. A new offer was needed, and produced on the same day of the change by Halifax, so we pushed for completion at the end of November.
“I had no update or even a response to calls, emails or secure messages from me and my team for over a week. That cost me nearly £1,000 as I hit the standard variable rate prompting a very embarrassing conversation with my wife to explain why the ‘expert’ got it wrong. The latter was more painful.”
Campo said he is calling his remortgage clients to warn them of the issues and begin the switching process earlier.
‘Unprecedented and unexpected volumes’
The lenders and legal firms picked out by brokers for offering poor service through free legal packages were NatWest, Virgin Money, Enact and Involegal.
NatWest admitted it had free legal service issues at The Mortgage and Protection Event in Manchester at the beginning of November.
A NatWest spokesperson said: “In recent weeks we have seen a high demand from customers, and are working with all of our partners to ensure that service levels are strong throughout the home buying process.”
Involegal said the contracts that conveyancers had with high street banks were based on the bank’s anticipated work volumes and were not based on a fixed number of cases which made it difficult to anticipate the level of staff that would be needed.
Matthew Tossell, chief executive of Involegal, said: “Like many other firms in the remortgage and conveyancing sector at the moment, we have received case volumes far in excess of a particular lender’s anticipated work volumes in a short space of time. This has put considerable strain on our ability to answer phone calls and emails within our normal service level standards.
“We took the proactive step of pausing instructions from our client over a month ago to ensure we could prioritise the processing of existing cases. However, this has inevitably impacted on our ability to communicate as effectively as we would like with the bank’s customers in the short term and we are sorry for any frustration this has caused.”
Tossell said the firm was “working around the clock” with the lender to deal with the “unprecedented and unexpected volumes” of remortgages in the market. It is also having discussions with banks around managing work volumes in the future.
A spokesperson for Virgin Money said: “We are always looking to improve service levels for customers and we work closely with partners to address any issues which occur. We’ll ensure the issues raised here form part of those discussions.”
Enact did not respond to requests for comment.
Lenders cut fees to entice borrowers in competitive fixed-rate market
Mortgage product fees fell by 2.4 per cent on average year-on-year. Average fees were £1,022 as of 1 December 2019, down from £1,047 at the same point last year.
Fees were removed completely on 41 per cent of fixed-rate deals.
As for other incentives, free valuations are included with 69 per cent of fixed rate products and free legals on 50 per cent.
“Lenders may well be cutting fixed rates to enticing lows, but not all borrowers will be drawn in by the initial rate alone. Indeed, there could be borrowers who want to save on the upfront cost of the deal, such as with product fees or paying out on other fundamentals,” said Rachel Springall, finance expert at Moneyfacts.
“Remortgage customers, in particular, may be considering a new deal if they are on a variable rate because of the fixed mortgage rate war. It is entirely possible that these same borrowers are looking to switch from their current lender. They may then wish to avoid paying hundreds of pounds in fees to secure a new mortgage deal in the run up to Christmas, whether it be a product fee, instructing a valuation or appointing a solicitor,” Springall added.
‘Dual pricing could send mortgage fraud through the roof’ – Star Letter 08/11/2019
The first of our top comments came from George Williamson, who responded to the article: TMPE2019: FCA encouraging lenders to dual price ‘really scares me’ – Duncombe
He said: “Given that circa 20 per cent of all general insurance claims are not paid in full because people are mis-buying through execution-only, the potential outcomes for mortgage consumers could be really terrible and mortgage fraud will go through the roof.”
Lenders cautious of alternative construction methods
The article: Government creates MMC champion in bid to accelerate uptake, also got a reaction as A K Narey said: “The possible fly in the ointment will be whether mainstream lenders are happy to advance funds against properties built in this way.
“Lenders as a whole tend to be wary of anything other than standard construction methods and if finance is difficult to obtain this initiative is unlikely to succeed in any meaningful way.”
Make cashback cover legal costs to tackle complaints
The article: TMPE2019: NatWest tackling free legals service issues also prompted some feedback from readers.
Firstly, Arron190 said: “As I bleat on repeatedly, NatWest should follow other lenders and offer cashback alternatives. Lenders should remember that they are responsible for complaints about their free legals and not the solicitor.”
Paul Adamson added: “This is not just a NatWest issue, I have seen exactly the same issues with many lenders offering free legals as part of their mortgage products.
“The solution; offer cashbacks instead to cover a proportion of the legal costs. I have been recommending solicitor firms to clients for years, yet time and time again I see the firm I recommend later failing customer service standards.
“Why? Because every time the solicitors have later signed up to lenders offering free legals and are unable to cope with the extra demand imposed upon them.”
“Undoubtedly the lenders pay them less than typical clients, so the number of staff taken on are fewer to ensure profit is maintained. In short, free legals ensure we all suffer in one way, shape or form,” he added.
TMPE2019: NatWest tackling free legals service issues
Speaking at Mortgage Solutions The Mortgage and Protection Event in Manchester, NatWest Intermediary Solutions corporate account manager David Hunter (pictured) said the lender was aware of the situation and taking action.
The issue was raised during the lender panel session by one broker who noted that the remortgage experience for many borrowers in general was “fantastic” but then the free legal services were very poor.
“What happens there with the firms you instruct for our clients?” he asked.
Hunter acknowledged there had been recent problems at NatWest but that it was addressing this.
“Certainly in the past couple of months in particular we’ve been generating huge volumes of business, mainly down to our success,” he said.
“If it’s NatWest you’re referring to there, we’re taking steps now to increase the capacity within that part of the process, so you’ll see some improvements over the next couple of weeks certainly.”
Conveyancing ‘weak link’ in new-build purchases – The British New Homes Mortgage Senate
Panellists bemoaned long, drawn-out conveyancing processes, slow response times and poor service.
One new-build specialist said: “I would rather have red hot needles poked through my finger nails than recommend customers use a free legal facility.”
She said buying or selling a home was already stressful, “so why make it worse for borrowers by recommending a service that does not deliver?”
A specialist lender on the panel said he read Trustpilot reviews after borrowers have used his firm to take out a mortgage. One of the most common gripes was the conveyancing process they had to go through.
Another new-build specialist for a high street bank said the bank had improved its new-build application to offer turnaround times and was now focused on the post-offer-to-completion stage.
He said the bank was conscious that questions at this stage needed to be answered swiftly and the bank was working with its technical team to improve. It aims to respond to questions from conveyancers within two days.
The service offered by conveyancing factories or solicitors instructed through a free legals scheme has been much criticised.
Speaking on Mortgage Solutions Television at the start of the year, LSL director of mortgage services David Copland said brokers who would rather recommend their clients pay for their conveyancing, even when there is a free legal option, said they find it difficult to get the decision agreed by their compliance team.
In a recent Mortgage Solutions report, Jane King, mortgage and equity release adviser, Ash Ridge Private Finance , said she was pleased some mortgage lenders had extended the term of their mortgage offers from 90 days to 180 days because the “terrible service,” received when borrowers chose free legals caused such delays.
One of the panellists at The British New Homes Mortgage Senate said if borrowers chose to use the same solicitor recommended through a lender’s free legals scheme, but paid for the conveyancing work instead, they would received a much better service.
‘Underhand’ free legal conveyancers adding on unnecessary charges – JLM
Broker and network JLM Mortgage Services has highlighted a practise which has seen increasing numbers of its remortgaging clients charged £10 for a copy of the title registration on the final remittance.
However, when challenged over these charges conveyancing firms are generally quick to remove them.
In an exclusive article for Mortgage Solutions, the firm called it unfair and morally reprehensible, asking: “If it was a genuine cost why would you remove it straight away?”
Should be clear opt-in
Speaking to Mortgage Solutions, JLM head of mortgage finance Sebastian Murphy (pictured) added: “The issue here is that these are promoted as fees free remortgage packages.
“The lender clearly doesn’t need this document nor does the client, therefore the solicitors or conveyancers are defaulting to charging it and hoping nobody challenges them.”
Murphy emphasised that customers remortgaging a property in which they already live would be unlikely to need a copy of the title registration.
“This should be a clear opt-in rather than opt-out, which means we’ll add it on and see if the client picks it up,” he said.
“It’s underhand, not clear and they know that most clients won’t even question it.
“It’s a strange state of affairs when a law firm charges for something you don’t actually require and then says it’s down to the client to tell them they don’t require it.”
Risk of regulatory action
Trade body The Conveyancing Association noted that services covered under fee-free deals would be decided between lenders and firms.
However, it warned that any firms not acting in the best interests of customers would be putting themselves at risk of regulatory action.
Conveyancing Association director of delivery Beth Rudolf said: “Any conveyancing firm is governed by similar principles to those of mortgage advisers, for example to only charge for work undertaken and to act in the best interests of the client.
“The regulators carry out inspections, so anyone breaching these principles would be putting themselves in a very precarious position.”
‘Morally reprehensible’ conveyancers must change the way they do business – JLM
Advisers might well be sanguine about a service which can often be appalling but is part of the territory of being an adviser.
This is especially so when dealing with a market which is heavily remortgage-focused and where the word ‘free’ tends to cut through rather effectively when a client is choosing their conveyancer.
What we are not willing to accept, however, is a situation where fees-free solicitors are trying to eke out money from a client for services which they do not need.
That, I’m afraid, has happened far too frequently in recent months and it’s a practise which deserves to be exposed for what it truly is – an attempt to prise money out of a client who may have little idea that they’re being charged for something they don’t even need.
Supposed to be free
It becomes even more outrageous when you question the conveyancer on the client’s behalf about these ‘extra fees’ and the firm in question quickly removes them from the completion statement of receipts and payments.
Take, for instance, the ‘copy of the title registration’ which is routinely added onto a statement, in the expectation that the client or adviser spots that they do not actually want or need this, and then contacts the conveyancer to have this removed.
This is, remember, part of what is supposed to be a ‘fees-free’ arrangement.
Every time we have seen this happening, we’ve pointed out to the client that they do not need such a ‘service’ and the conveyancer has been informed and taken it off the statement.
But how many times is this simply being overlooked? How much money are conveyancers making off clients with this kind of trick?
Less morally reprehensible option
Wouldn’t it be far fairer, and less morally reprehensible, for the conveyancer to have an ‘opt-in’ policy for such services, where the client can tell them they want such documentation, rather than the ‘opt out’ service they have currently?
Now, conveyancers might be working on wafer-thin margins, when it comes to their fees-free business, but that’s their choice.
And let’s remind everyone that this is supposed to be ‘free legals’ not ‘free legals but we’ll attempt to charge you in order to up our income on the case’.
Conveyancers might suggest that this is all detailed in their initial service letters to the clients, but it does not make it right.
Nail in free legal coffin
In our view, the way conveyancers go about their business needs to change and the fact that what we’ve described above is going on should perhaps also be a nail in the coffin for the use of ‘free legals’.
We would like to see all lenders offering an alternative cashback option anyway, which we could then advise the client to spend with a platform that can provide them with their own solicitors or representation for that cashback amount.
At the same time, it would make all our lives easier as:
- our clients would get proper representation,
- we’re far more likely to complete on time
- we can work with a business which is also working on behalf of our client(s).
It’s not rocket science but the sooner we get more lenders on board, the better.
Broker compliance teams hesitant to reject free legals – Copland
Speaking on Mortgage Solutions Television, LSL director of mortgage services David Copland said there had been issues with free legal services on remortgage products.
“Brokers find it difficult to justify through compliance department the reason they’ve decided not to go with the free legals, because there’s been really poor service, and therefore ask the client to actually put their hand in their pockets,” he said.
Copland also agreed there had been problems in the last 18 months with the volume of business going through some solicitors.
But he added that without a free legal option it made product transfers more attractive.
John Charcol product technical manager Nick Morrey noted that it was a difficult situation for brokers as they were unable to put any pressure on conveyancers when things went wrong on free legals.
He noted this was more likely to happen on cases which may have any sort of complexities to them.
Lenders and brokers should give clients conveyancing price and service data – Conveyancing Association
Conveyancing firms are no different from any other in that respect, and following the interjection of the competition regulator, our members have from December needed to transparently detail their pricing on their website.
This is clearly a good thing, and any provision of information which allows the customer to accurately compare the services of one firm with another is, you might say, well over due.
However – as it tends to always be in such cases – it can be more complicated than it looks on the service.
Thus, in the lead up to this change we have seen plenty of discussion and debate in the industry, not least because of the various different relationships at play.
For example, many firms secure large swathes of their business through introducer or referral agreements, and this creates difficulty in giving an accurate representation of pricing because it might differ depending where the business has been sourced from.
Consumers need the facts
But it is important the conveyancing industry moves into a position where there is transparency around costs.
This is especially so when, for many consumers using the service, what has often appeared to be the price at the outset, does not always end up being the price they have to pay at the finish.
The industry has also had to look at how it sells itself in terms of consumers’ ability to make a fair comparison of those services.
The government is quite rightly very keen on consumers being in possession of all the facts before making a decision, and of course the ability to read reviews and have an idea of the service on offer tends to be the norm across most industries now.
Some conveyancing firms are very good at this; others perhaps not so.
But, to my mind, it’s vitally important that we have transparency in this part of the market and genuine customers who have experienced a firm’s service standards are able to give their thoughts.
No reason not to provide data
To that end, we’ve been talking to our members about how best to deliver this type of information; not only to comply with the new price transparency rules, but to ensure access to information from former customers.
The association has presented a number of options to member firms about how we might work with service review-type websites and indeed a large number already work closely with sites such as Trust Pilot.
Indeed, at our last full-scale meeting of members we had a presentation from that very organisation.
There is also clearly a role here for advisers and indeed lenders.
If you are putting customers in contact with conveyancing firms I see no reason why you shouldn’t be providing this price and service information to them.
In the firing line
Indeed, given that you’re making a recommendation, I would have thought it was vital that you clearly understand the service levels of a firm that you are delivering clients to.
Would you want to be in the firing line if a firm’s service does not meet the standards expected if you’d made that recommendation?
The positive here is that you will now have more information to delve into about the aspects of the conveyancing firm’s service, and this should help deliver far better recommendation decisions.
No business should be immune from this type of transparency or scrutiny and we believe those member firms who continue to show the quality and value of their service will ultimately be the ones to benefit from these changes.