It is quite common to see lenders offer a “free survey” and “free legals” but what does this mean and how does this work?
First, what are lenders referring to when they say this?
“Survey” – there are two key issues that a lender needs to know about a property: its condition and its value.
“Legals” – there are several issues that a lender has to consider when lending you money against the security of your property. The three main ones are: a check that the title deed is “clean” with no restrictions, covenants or obligations; a check that there are no unacceptable town planning issues with the property, and finally to have the previous lender/owner removed from the deeds, to have any mortgage existing mortgages redeemed and all replaced with the new lenders details.
For the average standard residential property, the routine fee for the lender’s surveyor to make a visit is about £500, although this fee is calculated by looking at the expected the value of the property as declared in the mortgage application. The normal legal bill will be about £1100 for remortgage, which will include the solicitors’ work and disbursements, the latter being what they have to pay to third parties when making enquiries e.g. Land Registry and Local Authority. It is more expensive for a purchase because there is additional work for the solicitor to do to do and there are also extra costs, for example Stamp Duty Land Tax.
So, this is very generous of a lender to offer this. Why and how can they do this?
Well the “why” is very simple. Although it is a nice marketing trick, which I suspect is the main reason, there are nonetheless many people who just cannot stretch to pay those costs for themselves and are happy to have them paid, accepting whatever the consequences may be in terms of product fees which are added to the loan or interest rates (see below).
So, it sounds very generous but actually doesn’t cost them very much at all. For you it is about £1600, for them possibly around £200. So, whereas you can be cynical about how generous it is or isn’t – it is still free.
There are always “buts” and here are some important points that must be taken into consideration:
- Lenders product fee
There is almost always a fee that a lender charges for a particular mortgage product/interest rate, although there are some lenders with products without fees. Whether there is or is not a product fee, whatever is charged when you pay for the survey and legals is likely to be smaller than if they offer the package
- Lenders product range
It is not uncommon to see a different range of (lower) interest rates when you pay for survey and legals than when they do
- Cash backs to “pay/contribute towards” survey and legals
These are frequently quite small when compared with the true costs and again maybe reflected in a different, usually more expensive product range than if no cashback is offered.
- If a lender is choosing to have the legal work done, rather than simply buy insurances, then, in our experience, normal lender practise is to go to large firms of solicitors that supply cheap en masse services for mortgage work. Our experience of this has yielded 2 important sticking points:
Firstly, to reduce costs, such firms offer internet portals and emails as the only means of contact and there is no-one you can actually speak to if there is a problem or if there are special circumstances.
Secondly, simple mortgage work tends to be delegated to less well qualified staff, whose work, once they have done their bit, has to be checked by a more qualified person. Both these sticking points can cause delays, are time wasting for both borrower and broker, and are very frustrating
As a result of this list of “buts”, we have two observations
- To evaluate the worth to you of these free packages, you must look at your loan size and check whether any savings in taking a free survey and legals package are offset by paying higher product fees or having a higher interest rate. A decent mortgage broker will be happy to help you with this as a matter of course.
- Having evaluated the cost issues arising from differences in product fees and interest rates, it is our advice to avoid “bucket shops” if you can, and either take a cashback offer or elect for a product where you pay for your own legals
The last point to make is “peace of mind”. I have explained above how the lenders are able to offer free packages, which can amount to taking a couple of short cuts. If you would like to have a proper survey done and full comprehensive legal work done, then you are always at liberty to pay for your own professional services.