Dragon’s Den star James Caan has received a lot of press in the last 24 hours launching a multi million pound scheme for interest free loans to cover Stamp Duty and conveyancing fees for first time buyers.
The Times article Dragon Den star unveils £1bn boost for housing market explains that the £1 billion scheme, is being run by Look4AProperty.com, in conjunction with LMS, a property services firm, who will offer the loans through participating estate agents. The scheme is being backed by Hitachi Capital. Loans can be spread over two or three years – interest free – while a 10-month loan is available to cover the cost of a home information pack. The catch is that in order to qualify for the loan you must use the conveyancing services through conveyancing brokerage LMS.
Is this too good to be true. As with most offers the devil, or in this case the “ dragon “ is in the detail.
Too many cooks in the Den ?
Just to organise and qualify for finance a number of parties are going to have to be involved : Property Portal, Finance Company, Estate Agent, Conveyancing Brokerage and finally, the humble property solicitor. It feels a bit overcomplicated to me. Why not simply put the fees on the credit card or ask your conveyancing firm if they would consider taking fees in instalments interest free?
Beware of the false economy !
If the legal fees are, for example, £1, 500 as opposed to £500, which you can obtain on the web, then you are effectively paying £1, 000 extra for three years’ worth of interest on Stamp Duty and legal fees. This would be quite a high price to pay regardless of the “ interest free “ incentive .
Could the scheme hold up Conveyancing ?
I have not seen that the press have picked up on any property lawyer s’ views on this particular product. One immediate problem that springs to mind is that the lenders in the UK, under the CML handbook requirements, requires property solicitors and conveyancing lawyers to fully disclosure to the lender any monies that are being paid towards the purchase price or Stamp Duty of the property other than by the borrower. Lenders are now, more than ever, wise to the fact that people are trying to get round sensible deposit levels by taking out loans.
All property solicitors that would be appointed by LMS must comply with CML requirements (which the Law Society require to be complied with ) and therefore such disclosure could delay the conveyancing process as primary lender would have to approve the second loan (even if it is not to be protected by way of a Legal Charge at the Land Registry)
The primary lender well decide to reissue their mortgage offer, adjust the amount that they are lending or possibly even withdraw the mortgage offer altogether. The primary mortgage lender may well refuse to give consent to the loan particularly if the borrowers failed to disclose it to them at the time they applied for the principal mortgage. The lender usually then considers such incentives as a second loan or devaluation of the property and promptly decreases the amount they will lend - thus negating the benefit of the incentive.
How the loan will be secured? Most mortgage lenders have a term in their deed which prevents registration of further charges at the Land Registry. Will these secondary loans therefore remain unsecured?
It is not clear as to whether or not the Stamp Duty amount will be sitting on the solicitors’ account prior to completion or whether the solicitor will need to receive the money following completion. Currently the lenders’ requirement that the Stamp Duty must be available on the date of completion.
There is a potential for this scheme to delay conveyancing transactions. This may have been less of an issue when a buyer could dictate the pace of property transactions, as was the case a few months ago but the market is increasingly turning towards favouring sellers in that there are not so many properties on the market and therefore those sellers that do accept an offer are able to dictate terms.
Forced to use a conveyancing brokerage ?
One last question that has to be asked is whether or not one wants to have a conveyancing lawyer imposed upon them by the estate agent. The conveyancers will be appointed by LMS. LMS are not a conveyancing firm or solicitors practice but rather a conveyancing brokerage whose business depends on achieving the highest possible margin on buying in conveyancing and selling conveyancing to the public.
Look4AProperty.com, state on their web site that agents will have the befit of “ Fee earning - £500 + VAT commission for each loan you introduce”
One has to ask the question as to whether or not their agenda is to appoint the best conveyancing solicitors or the cheapest. In my opinion attempting to find a cheap property solicitor who is also a an exceptionally good conveyancer is like trying to mix oil with water.
If this particular initiative is going to result in a more cost effective solution for first time buyers without compromising on speed of the conveyancing process rather than maximising the risk of the transaction aborting then fantastic. Otherwise, it is a cheap gimmick that would ultimately prove to be a false economy for first time buyers.