It looks likely that homebuyers in Scotland will soon face increased legal costs, as their own solicitor may no longer be allowed to act for their mortgage lender as well.
In a move which has surprised many, Solicitors in Scotland have voted in favour of the principle of forbidding the current practice whereby a Conveyancing Solicitor can act for both buyers and lenders. It is unlikely that Solicitors in England and Wales will seek to follow suit.
The proposed change has attracted criticism – the Council of Mortgage Lenders, which represents the majority of UK lenders, branded it “a measure which is so blatantly against consumer interests and will impose added costs and added scope for confusion and delay…”
Separate representation for buyers and lenders not needed in Conveyancing
In most situations a Solicitor cannot act for both parties, as that would create a conflict of interest. But in Conveyancing transactions, it has long been accepted that there is generally no conflict of interest, and acting for both buyer and lender achieves savings in time and money for clients.
While lenders require buyers to pay the additional legal costs in connection with the mortgage, many Solicitors do not make any extra charge when they act for both lender and borrower.
Mortgage lenders maintain panels of firms who are authorised to act for them to facilitate this. Historically, there was little difficulty in getting on a lender’s panel, but over the last few years, many lenders have reduced the size of their Solicitors’ panels, some drastically. This change was prompted by a call from the Financial Services Authority asking lenders to manage their panels more intensively, following an increased threat of fraud in the mortgage process.
These panel reductions mean that homebuyers may well find their preferred Solicitor’s firm is not now able to act for their lender. In this case they face the choice of either going to a firm which can act for their lender, but may charge more or be located in another part of the country, or using their own Solicitor for the Conveyancing and having to pay the lender’s legal costs as well.
Delays and increased costs when separate firms have to act
The Law Society of England and Wales has been campaigning to stop mortgage companies making too drastic cuts to their panels. Last year HSBC slashed its panel to just 43 firms, but backtracked after strong representations from the Law Society together with a large number of complaints from clients about delays caused by the firms acting for the bank.
If a buyer wants his or her own Solicitor to act but the lender insists upon employing a different firm, then much of the work will have to be duplicated. The buyer’s lawyer will need to check title and carry out all the usual searches and enquiries, but all the paperwork will then have to passed on to the firm being used by the lender, so that they can also check that everything is in order.
This duplication of effort can lead to delays, and also means that buyers could be faced with having to pay two lots of legal fees. However The Law Society of Scotland seems to think under their new regime that lenders will not pass on their legal fees to borrowers. Austin Lafferty, president of the Society, said:
"… we are fully aware of the potential for increased costs for buyers and increased paperwork for solicitors. However these costs are not the borrowers, they are costs associated with lenders satisfying themselves on their own lending risk - and it will be for the lenders to decide on whether they are prepared to pass on these costs to their customers.
Market forces will also play a role and undoubtedly determine a new fee structure so, while the borrower and lender will each pay for the work of their own solicitor, I do not foresee any astronomical price rises. "