How the bad PR of free legals paved the way for cashback incentives

" Service levels of some firms left so much to be desired that it became a major issue in the press, and lenders were forced (in some cases) to stop offering ‘free legals’ at all."

Take, for instance, the mortgage market. You can track the specific reasons behind why a part of the market is doing well, or why it’s not; for instance, you can see the foundations for the improvement in advisers' levels of business in the MMR and its fallout, you can see the fall in buy-to-let purchasing due to the Government and regulatory measures that have been introduced in the last few years, you can see an increase in the number of new-build homes with the introduction of the Help to Buy scheme, and the list goes on.

These did not suddenly happen without a catalyst and those who prescribe to such viewpoints tend to be always chasing their tail, rather than looking at the next set of measures which are likely to shape the mortgage market over the months and years ahead.

I recently saw some figures from Moneyfacts which looked at the number of cashback incentives lenders are now offering with their mortgage products, when compared to the same offering both six months and a year ago. Again, it wasn’t a great surprise to me to see an increase not just because of an inherent borrower demand for such products, but also – in all likelihood – because more advisers are recommending cashbacks in order to cover legal costs, rather than put the client in the unlit passageway of ‘free legals’.

Lenders too it would seem are recognising the potential ‘bad PR’ they can receive when clients opt for ‘free legals’ and get a service that is so far from being ‘top of the class’ that they immediately want their papers remarked. Take the summer of 2017 when the ‘free legal’ service levels of some firms left so much to be desired that it became a major issue in the press, and lenders were forced (in some cases) to stop offering ‘free legals’ at all.

That type of ‘burn’ takes a long time to heal, and advisers too are recognising that while the ‘free’ part of ‘free legals’ can be quite alluring to the client, it’s far better for all concerned, if there’s cashback available, to actually take it and secure the client quality legal representation themselves. After all, the solicitor in a ‘free legal’ case is not representing the borrower but the lender.

The statistics themselves are quite revealing – for instance, in November this year 1,459 mortgage products came with a cashback option, compared to 1,315 in May this year, and 1,249 in November 2017. The increase is similar in the buy-to-let space where cashback was offered with 444 products in November, compared to 339 a year ago.

In the residential space, some would have you believe this is primarily due to first-timers wanting some extra cash to help with home furnishings and the like, and it may well be that this accounts for some of the increase, but I would perhaps suggest that a better reason for taking the cashback is to ensure they have a quality conveyancer who can get them through to exchange/completion within the necessary timescales.

And of course the same goes in the remortgage space, where many brokers will have tales to tell which involve their clients on ‘free legals’ missing out on their completion dates and having to pay an SVR rate while they wait to move across to their new deal. That can’t be right and is another good reason for the advisory profession to be pushing the cashback option in order to pay for the legals.

Overall, therefore, this is a positive place to be – we hope more lenders recognise the value in providing cashback products, and while we don’t expect to see a fall in the number of ‘free legal’ offerings, what we would like to see is a commitment to choice. Hopefully, with advisers taking more control of the conveyancing recommendation, we will be in a spot where clients increasingly use the cashback available in order to secure the legal representation they need and deserve.