Home Truths: How to get the most from free legals

Everyone is watching the pennies nowadays. The ongoing cost-of-living crisis continues to put pressure on the finances of households across the country and any opportunity to save money is usually welcomed. Not always, however.

One potential saving that has historically sometimes proven to offer questionable value is the incentive of free legals on remortgages. The opportunity to save hundreds of pounds when refinancing is certainly attractive, especially for financially stretched customers who are restructuring their finances through debt consolidation. It can, however, sometimes be associated with poor service levels and protracted timescales, which can end up in a situation that costs money if it means a customer switches on to their lender’s SVR during the process.

It's important to remember that this is not always the case. Many free legals incentives provide genuine benefits to customers. So, if you are considering a free legals remortgage for your customers, how do you know which to choose?

One of the challenges with a free legals offering is that conveyancers are often paid less for these than other cases and so the free legals cases can be pushed to the back of the queue in favour of more profitable work. As a consequence, service levels slip and everything takes a lot longer. So, when you are researching the options for your customers, make sure you choose a lender that works proactively with its panel manager to monitor and manage the service levels of the conveyancers on the panel to ensure they are delivering a consistently good service.

Also, consider how the lender communicates the process with you and your customers. For example, at Pepper Money, our new enhanced free legals proposition is supported by consistent and cohesive communications to ensure that everybody knows what to expect from the process and that they are kept informed throughout.

Another big consideration is that not all free legals services include the option for debt consolidation as part of the offering, with this often coming at an extra cost.

Remortgaging for debt consolidation is certainly set to be an area of growing demand as households have increased their unsecured borrowing to help cover costs, at the same time as the cost of servicing this debt has increased.

The Money Charity has said that total outstanding credit card debt increased by nearly 8% in the year to May 2023, with credit card debt averaging £2,350 per household and £1,241 per adult. This means a credit card on the average interest rate would take 26 years and 2 months to repay if only the minimum payments were made each month.

With this in mind, it’s worth remembering that at Pepper Money, our free legals service includes debt consolidation, no matter how many debts are included and features improved service levels for both brokers and customers.

When it comes to choosing the right lender for your customers who are looking to consolidate debts with a remortgage, there are some things you need to consider. First, many lenders will include a maximum debt to income ratio as part of their affordability calculation, and this could limit your customer’s ability to raise enough capital to clear their debts. However, not all lenders take this approach, and, at Pepper Money, we have no predetermined level of debt.

Some lenders will also limit the LTV to which they allow debt consolidation, but again not all lenders. We allow debt consolidation up to maximum LTVs.

For most people, their mortgage is their single largest monthly outgoing, so ensuring they have the best mortgage for their circumstances will play an important role in helping customers to be well-placed to manage this difficult economic environment. A remortgage also provides an opportunity to restructure their borrowing through debt consolidation and a free legals package can help to reduce the cost of this process. Not all free legals offerings are the same, however, so make sure you choose the right lender to help your customers achieve their objectives.