Extra costs threaten homebuyers: Sue Fieldman hears differing views on a move to make mortgage borrowers pay separate legal fees incurred by the lenders

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The Independent Online
THE LEGAL costs of buying a house will increase substantially if mortgage lenders accept a recommendation that homebuyers should not only have to pay their own solicitors' bills but their lenders' legal costs as well.

This could add at least pounds 100 to your conveyancing bill - a huge percentage when the average legal fee on a pounds 60,000 house is pounds 299.

A report to be published on Monday by the Law Society will propose that mortgage lenders should have separate legal representation.

At present your solicitor usually acts for the lender as well. It is no great problem. The bulk of the work is the same anyway. Both you and the lender want to know that you have good title to the property and that it will be saleable later.

Frequently your legal bill will not even have a separate amount for the legal costs of the mortgage. It is all lumped in together.

However, the lenders do ask the solicitors to make separate checks on their behalf. They want to know that you are not bankrupt and that you are the person you say you are.

Mortgage fraud was rife in the 1980s boom. The property slump has brought the problem home to the lenders with a vengeance.

As a result there has been a growing feeling among many lenders that if there was a separate solicitor acting for the lender there would be yet another check that their interests were really being looked after.

But neither the lenders nor the Law Society wants to be seen as the instigator of the rise in costs separate representation would bring.

A Law Society spokesman said: 'We are responding to the increasing demands being put on us by the lenders. It is all very easy for the lenders. They put the costs on the borrower anyway, and if there is a problem they sue the solicitor. It seems to us that they want to have their cake and eat it too.'

However, the lenders are nervous that consumers will hit the roof if their legal bills go up purely for the lender's benefit.

Few lenders will dismiss the idea of separate representation outright. They also conveniently forget that if you are buying a commercial property most lenders already insist on using their own solicitors.

Halifax Building Society is firmly against separate representation. A spokesman said it had no problems with the present system, and separate representation was not cost-effective.

Other lenders were loath to condemn the idea outright. A spokesman for Bristol and West Building Society said: 'We would prefer to have separate solicitors for the building society and the borrower, but we recognise it would increase costs to the borrower'.

Abbey National is hedging its bets. A spokesman said: 'We think the system at the moment is good, but that is not to say we are not open to other ideas to improve it.'

Alliance & Leicester is 'quite happy with the present position' but does have separate representation for commercial properties because of 'the greater risk of conflict of interest'.

Cheltenham & Gloucester Building Society is usually one of the most consumer-conscious of lenders, making great play of cutting costs. However, it is also hedging its bets. Its spokesman said: 'We have yet to consider the full implications of separate representation.

'There are disadvantages as it adds expenses and delays mortgage transactions. It has some advantages for the applicant in that representation by their lawyer is entirely independent'.

John Dawson, secretary of Skipton Building Society, sees separate representation as 'looking as if it is inevitable'. Skipton recently introduced a system of separate representation when the borrower's solicitor is a sole practitioner. Mr Dawson estimates that it adds pounds 100- pounds 150 to the borrower's legal bill.

National Counties Building Society and some other small lenders also have separate representation in some cases. A National Counties spokesman reckons that it costs about pounds 125 extra.

We have been down the separate representation road in the past. It was such a costly and time-wasting nightmare that everyone moved towards using the same solicitor for both borrower and lender. We are now going backwards.

Derek Bluston, a conveyancing partner with the solicitors Malkins, says: 'Mortgage fraud is not a problem these days, so separate representation is a dead duck. It is too expensive, too late and not worth bothering about.'

To get all borrowers to pay for the misdemeanours of one or two and a handful of solicitors is iniquitous. Separate representation is using a sledgehammer to crack a nut.

'I think consumer pressure will not let them get away with it,' adds Mr Bluston.

(Photograph omitted)

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