The news today has been dominated by new guidelines which are to be applied by mortgage lenders from today onwards. There have been many headlines about a so called “lifestyle questionnaire” which will include enquiries into matters such as the amount the borrowers spend on things such as haircuts (sadly no longer a major expense for me) or holidays. The general tone of the coverage in the media has been rather critical of lenders, but this is tempered by the recollection of the years leading up to the crash, in which there was a virtual free-for-all when it came to borrowing against property. Lawyers are still dealing with the backwash of this tsunami and are likely to continue to have to do so for some years to come. At one time in 2007, Limavady was reported to have experienced the highest growth in property prices in the whole of the United Kingdom. This was never going to be sustainable, but the checks which lenders now seek to apply would have played a major role in reigning in some of the worst examples of lending. By allowing the matter to become a virtual feeding frenzy, first time buyers were also crowded out.
Now, several years after the horses have bolted, the stable door is being closed. I have heard it suggested that as most of the big lenders are already operating strict guidelines and the imposition of a minimum standard across the entire market, the new framework is designed to bring smaller lenders into line: I even heard one commentator use the expression “cowboy” lenders on the radio this morning. There has been an enormous change in the financial services sector since I started practice 27 years ago, as building societies have converted into banks, and merged. In those days there were no lenders’ panels and a multiplicity of local branches of long forgotten building societies like Gateway, Cheltenham and Gloucester, or Londonderry Provident.
Nowadays, with the development of the internet, it is possible to arrange loans without any direct contact with your lender. Unfortunately, there have been instances in the past where this remote approach has made mortgage fraud easier to perpetrate. As a result, lenders are increasingly putting safeguards in place which are both prudent and necessary. However, in many cases, the solicitor is expected to be the “gatekeeper” for the lender. To give one example, in recent years, the solicitor has been expected to satisfy himself that the borrower has adequate insurance in place before drawing down funds. There are many other areas in which solicitors have had to operate well outside their traditional role in order to comply with lenders’ requirements, and whilst it is possibly going too far to say that there are occasions when solicitors carry out work which they consider to be unnecessary to certify title, because of a “box ticking exercise”, there are certainly times when it comes close.
At the same time, lenders are drastically cutting back on the panels of solicitors that they allow to work for them. For instance, sole practitioners are unable to act for certain lenders, which has had a serious impact in Northern Ireland, where there are very many small legal firms. Likewise, panels are being pruned, whereby firms are removed by some lenders if they have not done a minimum number of transactions. This can only have a negative impact on smaller firms, and smaller areas. Towns such as Limavady may only have a very few transactions with a particular lender, meaning that only solicitors from larger neighbouring towns remain on the panel- something that may suit the lender, but will only inconvenience the borrower, who has to first find a new lawyer on the panel, and then travel to his office. A trend has originated in England, where only a very small number of large firms will be allowed to carry out business for certain lenders. In practice, these will be major firms located in major cities. A comparable scenario would be where one of the biggest lenders in Northern Ireland might only allow clients to use a solicitor based in Belfast. This is obviously much more convenient for the lender and patently has financial benefits for that firm of solicitors. It is not, though, going to benefit the client, who will either have to travel at considerable inconvenience and expense, or worse, might be expected to sign very important legal documentation sent out to him in the post, with perhaps only telephone contact with the solicitor.
It is not always the case that small is best, but I am strongly of the view that your relationship with your solicitor should be like that which you have with your doctor. It should be someone who you know and whose advice you consequently will heed. Apart from anything else, local solicitors are likely to be more familiar with the general history of title to land in those areas where they do most of their work, and because of their local knowledge may be able to anticipate some problems more quickly than a solicitor less familiar with the area in question.
The lesson for a borrower – particularly a first time borrower – is surely to take as much care in picking a mortgage as choosing a house, and then select a solicitor who will take the time to go through things with you in detail.
- 14 Apr, 2014
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