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The Office of Fair Trading has threatened to refer the results of two years' negotiations between the UK's major building societies and solicitors to standardise mortgage instructions to the Monopolies and Mergers Commission (MMC).
The Law Society and more than half the lending industry will now have to go back to the negotiating table on a deal they struck last October on Standard Mortgage Instructions (SMI).
The instructions set the exact work that conveyancing solicitors would undertake for mortgage companies and the amount they should charge.
It was submitted to the OFT last year and the Law Society planned to launch the deal to the profession in a series of roadshows this June.
But the OFT now says that the setting of scale fees in the SMI is anti-competitive and in a private session last week the Law Society council acknowledged it would have to go back to the lenders to renegotiate that aspect of the deal. Its roadshow plans have been shelved.
Richard Hegarty, chair of the society's property and commercial services committee, said: "Don't ask me to put a date on implementing the SMI. Once we have re-negotiated with the lenders, it has still got to go back to the OFT for its approval."
He said the OFT had indicated more than a year ago that it "understood the problem" of having to set fees. "It was only when we chased it up recently that it came up with this objection," he complained.
Professional negligence expert John Noble, who was involved in negotiations for the Law Society, said: "The OFT is threatening a referral to the MMC. The mortgage lenders are floating. A referral to the MMC would scupper the flotations because the City would not like it."
As well as the Abbey National, which is already a public company, the six lenders in the agreement include the Halifax, the Woolwich and the Alliance & Leicester building societies, all of which are in the process of floating. About 18 other lenders are keen to sign up.
Hegarty said that a solution that the OFT had indicated it was prepared to look upon favourably would be for fees not to be specified in the instruction terms themselves. Instead, lenders could set up focus groups which would assess reasonable fee levels. These would then be "disseminated to the profession and clients".
A spokeswoman for the Council of Mortgage Lenders said it hoped the OFT's objections could be resolved in the next couple of weeks.