Hands off our ha’penny

It’s time for UK lenders to keep their hand on their ha’penny and get their mitts off ours. Scots law gives lenders a blank cheque to hit customers with almost limitless fees, costs and legal expenses if they miss a payment.

And I reckon this creates a perverse financial and strategic incentive on lenders and their advisors to take homeowners to court for repossession often unnecessarily. An incentive which is not as apparent furth of Scotland.

The costs of being taken to court for repossession are typically £2,000 to £3,000 – which is the last thing a household struggling to pay their mortgage and prevent homelessness needs. And conveniently this ‘debt’ is slapped onto their mortgage and secured on their home. Nice.

Yet in other civil court cases a creditor’s expenses are fixed by the statutory instrument which regulates what solicitors can be paid for in civil proceedings. However, these normal protections – set out in the Act of Sederunt (Fees of Solicitors in the Sheriff Court) statutory instrument - do not apply for mortgage repossession cases in Scotland in practice.

This is because standard condition 12 of schedule 3 to the Conveyancing & Fedual Reform (Scotland) Act 1970, imports into every Scottish mortgage contract the requirement for a debtor to meet all of the banks reasonable costs on default.

Yet customers have no real control or protection over these costs. And this part of the 1970 Act has never been updated to take on board the existence of the Mortgage Rights (Scotland) Act 2001.

If a homeowner uses the 2001 Mortgage Rights Act to prevent their repossession and gets a case dismissed they would ordinarily only be liable for undefended scale costs of £252 + vat and outlays, or if they had a legal aid certificate the sheriff could modify expenses to nil.

But even if expenses are awarded by the court at that modest sum or are modified to nil under the 1986 Legal Aid (Scotland) Act, lenders in Scotland can still add on all costs and fees – as they see fit – from the 1970 Act provision.

This is a devolved issue and Govan Law Centre is calling on the Scottish Government to act urgently to remove this lacuna in the law, and provide Scottish homeowners with the same protection against potentially limitless or unfair legal expenses that other civil litigants enjoy.

I believe there are reasonable prospects to attract a majority in the Scottish Parliament to come behind this issue in order to create consistency and fairness in our system of civil legal expenses. Change - whether that be introducing a fixed fee and subjecting standard condition 12 to s.18 of the 1986 Act and the court’s discretion - would also ensure that our sheriffs who exercise their discretion on expenses with fairness and consideration were not usurped by an unjust, blanket rule.