While those looking to purchase a property will nearly always have to pay legal fees and instruct their own solicitor, those remortgaging are often given the option of ‘free legals’.
But these aren’t without their own pitfalls
- Legal fees are charged on every mortgage for purchase and every remortgage in order to cover the cost of conveyancing – the assessment of a property by a qualified solicitor
- This assessment covers a range of checks including ensuring that the title – the document that declares who owns the property, what it consists of and that it is correctly registered – is genuine and correct, that the valuation is accurate given the property’s condition, circumstances and any mitigating factors and also that there are no risks associated with the value of the property as a result of location
- Things such as Japanese Knotweed growing in your garden, being at higher than average risk of flooding or a raised risk of subsidence due to abandoned mine shafts underground for example are all examples that conveyancing would pick up and flag to the lender
- The reason they flag it to the lender rather than you, the buyer, is so they can decide whether or not to give you a mortgage
- This is the important bit: when you take advantage of ‘free’ legals as part of your mortgage offer, the lawyer isn’t working for you; they are working for the lender
Karen James from Ramsdens Solicitors said: ‘Remortgaging a property should be a relatively simple process of swapping one lender with another but we frequently find this is not the case.
‘The problem with free legals is that usually the borrower is not represented at all and is therefore given no advice on either the terms and conditions of the new mortgage or the wider implications of the proposed transaction.
‘The solicitor appointed by the lender will only be acting in the lender’s best interests.’
Often homeowners remortgage in order to raise capital to consolidate debts, to extend a lease or to raise funds for the purchase of a second home or buy-to-let property.
The transaction may involve transferring ownership of the property at the same time which could include adding a new partner’s name to the title.
Many borrowers looking to remortgage may be trying to avoid paying creditors as they are about to become bankrupt or trying to get their name off a title to avoid paying the supplemental stamp duty on a second property.
Be Wary Of Hidden Remortgage & Transfer Charges
The problem arises when, for example, the client is transferring the property at the same time as remortgaging. Many lenders will add an additional charge onto the legal fees to cater for this and it can be far more than taking independent legal advice in the first place.
However, most of the high street lenders now offer cashback as an alternative to free legals with more borrowers now taking up this option.
James added: ‘We are finding that some borrowers who are remortgaging for a second or third time are more discerning about their choice of legal representation.
‘Borrowers who have experienced free legals tell us they were treated like a number, there were considerable delays, the experience cost far more than they had expected, the quality of service was poor, in some instances early redemption penalties had needlessly been incurred and there was little or no communication from the lender’s solicitors.
‘I think the increase in the number of cashback offerings is as a direct result of borrowers demanding a better service, wanting to have their interests looked after and making the appointment of an independent solicitor of their choice who will have their personal interests at heart a condition of taking a deal.’
There are some instances when free legals might make sense however. If a borrower is simply doing a like-for-like replacement mortgage and there are no time constraints, then free legals may be the best route.
Equally, legal fees are usually charged in relation to the size of the loan so the larger the loan, the higher the fee.
Ray Boulger from mortgage broker John Charcol said: ‘If you need to remortgage quickly and are looking for control over the process then instructing your own solicitor can make sense.
‘But if time isn’t an issue and there are few complicating factors in the deal, opting for free legals makes a lot of sense if you’re taking a large mortgage.
‘Most lenders offer cashback of around £250 which isn’t going to cover the cost of legal fees and borrowers will usually end up subsidising this cost.’
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