Change in repossession law could impact on mortgage fees for firms

Published on Thursday 2 September 2010 11:40

BUSINESSES looking for commercial mortgages could face higher fees after a change in the law will make it harder for lenders to repossess property without a court case, a senior lawyer has warned.

Banks will have to go to court to repossess any commercial property that includes a residential housing element - such as flats above shops or hotels with staff accommodation - under rules coming into force at the end of the month.

Previously, lenders could have changed the locks and re-sold a property without the need to go to court unless the action was defended.

Darina Kerr, a partner at "big five" Scottish law firm Dundas & Wilson, said: "This is great news for defaulting borrowers who the lender would like to remove, but will add a whole new layer of time and expense for lenders.

"Given repossessions are becoming more frequent as more borrowers fail to meet loan obligations, lenders will need to adapt to the new regime."

Kerr said the industry was awaiting news of whether sheriff courts would be given extra resources to cope with the increased work load.

But she warned that, without careful planning, the extra cases would increase waiting times at already busy courts in Edinburgh and Glasgow.

Kennedy Foster, policy consultant for the Council of Mortgage Lenders in Scotland, said that his members had already been preparing for the introduction of the Home Owner and Debtor Protection Act.

He said: "Having to go to court will not only add to the costs for lenders but also for borrowers too, who will still be charged interest on their loans while a case is going through the courts.

"Only time will tell how well the courts will cope with the extra workload."