SOLICITORS in Scotland have been accused of “scaremongering” over home sale missives and putting unfair pressure on borrowers.
Mortgage experts say some solicitor estate agents are deliberately overlooking the impact of new mortgage rules that were introduced last month and which mean it now takes longer to process applications.
The claim centres on the pressure being put on borrowers to allow solicitors to push through the missives (the letters between solicitors covering the details of the offer).
The accusation comes just weeks after new mortgage market rules took effect. Under the mortgage market review (MMR), which came into force at the end of April after five years in the planning, lenders (rather than intermediaries) must take full responsibility for borrower affordability.
That involves greater scrutiny of paperwork as lenders examine each borrower’s income and expenditure, while they must also conduct stress tests to ensure customers would be able to repay loans at higher interest rates.
Experts believe the MMR will act as a brake on the housing market by adding to processing times and driving up the number of mortgage applications being rejected. Alison Mitchell, mortgage expert at Edinburgh IFA Robson Macintosh, said some solicitors are making life even harder for borrowers by ignoring the demands of the MMR.
“They are seriously putting clients at risk by scaremongering in order to sign missives within ten days of the offer, when the fastest time to offer is 17 working days at the moment,” she said.
“I have been totally gobsmacked by the way in which lawyers have no idea what is happening in the market since the MMR took effect.”
One first-time buyer seen by Mitchell was told by his solicitor estate agent that the property would be remarketed unless he signed missives straight away.
“Solicitors need to back off and work with advisers and brokers because they are meant to be acting in the borrower’s best interest,” said Mitchell. “How allowing missives to be signed without the means to buy the property is in the borrower’s best interest is beyond me.”
She called on solicitors to take account of the overhaul in the market since the financial crisis and help make the process less fraught.
“Properties are selling again and many solicitors are acting like they did prior to 2008,” said Mitchell. “Although the market is moving now, the processes have changed beyond recognition.”
Mark Dyason, director of Edinburgh Mortgage Advice, agreed, adding that buyers and sellers are invariably left disappointed. “We end up with solicitor estate agents pushing to get sales moved on in a timescale they have promised their clients yet lenders are unable to get anywhere near matching that promise,” he said.
“The process has more steps, it’s more paperwork-driven than in decades and above all will be time-consuming. Anyone who promises you anything else could cause you and your purchase or sale undue stress.”
The biggest lenders aren’t even looking at submitted applications until they have been with them for five days, according to Dyason.
“While the Scottish system of concluding missives has strength in making the sale secure far sooner than south of the Border, that doesn’t mean it is the Monday after your closing date,” he said. “But unless your solicitor takes this into account it could jeopardise your sale.”
There are also early signs that some brokers and borrowers are “gaming” the new mortgage rules by applying for buy-to-let loans on their own homes. These mortgages aren’t covered by the new affordability rules as buy-to-let isn’t regulated.
More than half of brokers have seen people attempt to take out buy-to-let loans on residential properties, a trade magazine survey found, and one leading lender has already banned a broker since the MMR took effect for submitting applications for buy-to-let deals on main residences.