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Scots buying and selling homes in the future face higher fees and a more tortuous legal process unless plans by the Law Society of Scotland are withdrawn, experts say.
The society next week ends its consultation on the introduction of mandatory separate legal representation for borrowers and lenders. That would mean two sets of solicitors would always be required in any transaction.
The move is designed to prevent any conflict of interest and allow people to obtain “truly independent” legal advice from a solicitor of their choosing, according to the society’s property law committee convener Ross MacKay.
He argues: “The severe economic downturn, increasingly complex transactions, increasing risk of mortgage fraud, and the additional pressures from lenders, mean that it is clearly no longer in the public interest to continue acting for both a lender and a purchaser in a secured lending transaction.”
Mr McKay stresses that the practice is already widespread across the industry. But critics say the measure could add hundreds of pounds to legal bills, and sometimes prolong the transaction by weeks.
“This is a rearguard action being fought across the industry to keep this dwindling market alive for solicitors,” saidAndy Knee, director of property services firm LMS, said this week.
“If lenders are represented separately from customers in every transaction, there has to be two solicitors on the purchase side and one on the sales side. It is going to increase costs and make transactions more troublesome, because two sets of solicitors on the purchase side have to approve the documentation. What it will do is keep lots of very small solicitor firms in business.”
The Council of Mortgage Lenders in Scotland has branded the move “self-protectionist”.
Bob Marshall, senior property partner at Aberdein Considine, a Scotland-wide legal firm, said: “Lenders tend to use a panel of solicitors they know and trust.
“It is becoming much harder for smaller solicitors to get on those panels, so this move is bound to be supported by those firms, because they have a better chance of representing the client instead, and staying in this market.”
Mr Marshall said potential for hold-ups could be more “theoretical” than real, and delays may only occur in a “tiny percentage” of cases.
The Law Society of Scotland is adamant that separate representation will not necessarily hike costs for the customer.
Mr MacKay said: “It will be for the lenders to decide if they are going to pass on additional costs to their customers on top of the administration fees already charged.”
Mr Marshall commented: “It remains to be seen how much the extra cost will be. It could be a couple of hundred pounds or several hundred pounds, but whether clients pay that will be down to commercial pressure on lenders.
“If lenders are keen to get business, offering free legal and valuation fees would be an incentive. But not all will take that attitude, and that could be a problem if they happen to offer a very competitive mortgage deal otherwise.”
House purchase lending is 23% up on a year ago, driven by a 47% rise in high loan to value lending to its highest level since September 2008, according to UK figures published yesterday by e.surv.
It says lower rates, easing criteria, and wider choice of mortgages, are the key to the upturn.
Nevertheless, borrowers can be “shocked” to find how much valuation and legal fees push up the true cost of a mortgage as they go through the process, says Charlotte Nelson at Moneyfacts.co.uk.
A recent test of prospective homebuyers, carried out by consumer group Which?, found only a quarter correctly identified the cheapest and most expensive deals out of a group of similar mortgages due to confusion over extra charges.
Ms Nelson said: “Many deals offer borrowers incentives such as free or refunded valuation and legal fees. Although these are designed to entice customers, it can work to the borrower’s advantage as it can keep their initial cost down.”
She highlights English building societies as worth considering for cost-conscious borrowers, with many deals available north of the Border.
Glasgow Credit Union this week unveiled a 95% loan to value mortgage aimed at “second-steppers” trying to move on from their first home but hampered by falling values.
“Although the property market is recovering the average selling price in the Glasgow area is £119,000, £2500 less than the same time last year,” says Scotland’s biggest credit union. The 5.25% three-year fixed rate with £499 fee discounts solicitor and survey fees to members.
This article was originally published in the Herald in July 2013.