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Doing Your Homework On "Free Legal Fees"

The process of moving house can be a costly affair. Legal fees and survey fees can easily reach £2,000, and then you have to take into account estate agency fees, removal costs and the ever-irritating stamp duty. But now lenders are beginning to come up with "fees-paid" loans that could slash some of those bills and cut the hassle involved as well.

Legal fees and valuation costs have long been included by many lenders when they are encouraging you to switch providers. However, sometimes they recoup those fees by charging a slightly higher interest rate instead.

Now lenders are extending these services by paying legal fees and valuations to anyone when buying a home.

Yorkshire Building Society has launched some first time buyer offset loans which include free conveyancing and valuation.

Abbey is offering a competitive 5.49% 3-year fixed rate to all buyers and re-mortgagers with free conveyancing included.

Halifax has 2-year fixed rates available with free conveyancing or free valuation or £1000 cashback upon completion.

Lenders are able to make these type of offers thanks to the increased automation of conveyancing and valuations. A regular consumer might have to pay something in the order of £1400 for conveyancing and legal fees, but lenders might only pay £200 for the services.

This is because they can tap in to systems which use increasing levels of automation including download of information from the Land Registry and some local authorities. This can be achieved in seconds for a mere £25.

Customers are attracted to these deals – they work as a good selling point for lenders in a hugely competitive market where providers are doing everything they can to make their product seem the most alluring.

But the warning is, as ever: buyer beware. Consumers should always do their homework and check the numbers. Free this and free that can mean higher interest rates and therefore higher costs in long term.

Borrowers should check what is included in the apparently free legal fees. Other disbursements may still be charged. Land Registry fees may also be excluded from the free deal, and therefore still charged – that’s £250. And of course, there is the question of who these services are working for. Whose best interests do they have at heart. Is it you, the consumer, or the mortgage provider. These offers may appear to be “fee-free”, but they are not risk free. Check everything you are offered and read the small print.

Costs are able to be kept low because of high business volumes driven through. But does that mean you will get a good service? You are unlikely to get a personal service that you might get from a long term family solicitor.

But it is not just high business volumes keeping costs down. It is also the increased level of automation. While downloads make searches easier, there are “drive-by” valuations are also now commonplace, which reduces costs of valuations.

Indeed, prop research company Hometrack provides a £19 valuation from the comfort of its own offices. Backed by 15.5m pieces of information on property values, it is a simple case of typing the details of a property in, and getting a valuation out, accompanied by a confidence level. If that level of confidence is low, then they may choose to send out a drive-by surveyor to verify the valuation.

The Abbey deal mentioned above appears to be the best deal on the market currently. Portman are offering a 5.19% but there is an arrangement fee of 1.5%, so it works out to an APR of 5.69% over three years. NatWest also has a mortgage with a headline rate of 5.19%, but with an arrangement fee of £499.

A cost comparison over three years for a £200,000 mortgages suggests that the Abbey mortgage will cost £11,055. The same mortgage over the same period with NatWest would cost £11,659.

Abbey also has a five year rate fixed at 6.02% or 5.52% with an extended tie-in for a further eighteen months. It also has a two year rate fixed at 5.75% or 5.34% with an extended tie-in for a further eighteen months. Abbey also has a 5.76% tracker mortgage which is only 4.5% with an extended tie-in for a further eighteen months.

Halifax is offering a fixed rate of 6.29% with conveyancing included for an arrangement fee of £499. Or you can have only a free valuation with no arrangement fee. Or you can pay a £299 fee with an interest rate of 6.39% and £1000 cashback.

Yorkshire’s offering is a 6.25% rate for first time buyers, fixed for five years. You only need a 5% deposit, and fees are included. After that the rate becomes a tracker of base rate plus 0.75%.

There are so many variations on offer, borrowers have to consider what is important to them. With rising interest rates, and mortgage payments as a result, many people will opt to keep their costs low as they take out the mortgage.


Tom Smith
8th June 2007

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