In a conveyancing transaction, a conveyancer will generally act for both the lender and the purchaser. This is permitted because the lender and buyer have a common interest, to proceed to completion as quickly as possible whilst ensuring the title to the property represents satisfactory security for the mortgage advance/purchase price.
Contrary to what many people may believe however, not just any conveyancer can for a lender. All mortgage lenders maintain panels of approved conveyancers who they are willing to instruct to represent them when they are advancing money on the security of a property. Historically just about any law firm which practises conveyancing has been able to join the panel of any lender provided it has not behaved in such a manner so as to be struck off, but times are changing.
Lloyds Banking Group Decimates its Conveyancing Panel
Lloyds Banking Group, which includes Lloyds TSB, Halifax, Bank of Scotland and Birmingham Midshires, has recently made the decision to reduce the size of its panel based not on performance but solely on the number of conveyancing transactions carried out in a year by any given firm. Other major lenders are expected to quickly follow suit.
The reason for the action is to help combat fraud. Conveyancing transactions are often used as cover for money launderers and mortgage lenders are often targeted by fraudsters. Conveyancers which perform a minimal number of transactions, Lloyds reasons, are less likely to have sufficient anti-fraud measures in place and therefore more likely to be used by fraudsters.
Rise in Indemnity Insurance Premiums for Conveyancers
Before accepting an instruction from a client, a solicitor must have appropriate professional indemnity insurance in place which will cover the type of work he is being asked to carry out. When acting in a conveyancing transaction where there is a lender involved that insurance must extend to cover the lender as well as the purchaser.
It is this lender cover for which premiums has increased substantially in recent years, as a result of a sharp increase in claims by lenders against solicitors. The effect has been to price solicitors who only do a small number of conveyancing transactions out of the market.
What Does This Mean for the Public?
The net effect of the removal of smaller firms from lender panels and the increase in insurance premiums is that small, low volume firms, usually the high street firms, are unable to act for lenders. They could still theoretically act for buyers however given that a separate firm will need to be instructed by the lender and paid for by the buyer, this effectively prices smaller firms out of the market as the fee will be about double the amount which would be charged if the buyer were to instruct a solicitor who was able to act for both buyer and lender.
The smaller firms who are adversely affected argue, quite convincingly, that this will severely limit consumer choice and therefore limit access to justice. The firms that remain are largely the big “conveyancing factories”. Whilst these firms have their benefits, they are unpopular with many.
This October sees the introduction of the sections of the Legal Services Act 2007 which allow Alternative Business Structures (ABS) to practise law. This means we will very shortly have “Tesco Conveyancing”. One cannot help but would if the Lloyds decision was in some part due to lobbying by Tesco and others and not entirely for the protection of its shareholders.