The Law Society of Scotland has called on lender HSBC to suspend its new conveyancing panel system, which it claims will cause chaos for hundreds of property transactions north of the border.

The Society said only ‘a handful’ of law firms in Scotland are among the 43 firms on the new panel, which was launched last month.

In addition it said that the mortgage documentation issued by HSBC is ‘not fit for purpose’ as it is based on English conveyancing law and requires solicitors for both the buyer and seller to grant undertakings which may be difficult if not impossible to honour.

Ross MacKay, convener of the Society’s property law committee, said the new set up is ‘causing major headaches’ for HSBC mortgage customers and could lead to house sales being delayed or cancelled, and buyers suffering substantial penalties.

The Society says buyers’ solicitors are also being asked to carry out a lot of additional work, much of which would be avoided if the were acting directly for the lender.

Over the past two weeks, the Society says it has been inundated with calls from concerned buyers and their solicitors. ‘We pointed out that this new system was wrong in principle and a month on it is becoming clear that it is also wrong in practice,’ MacKay said.

‘It is failing homebuyers who have chosen an HSBC mortgage. There is a risk that house sales will fall through and buyers will be left homeless and sellers without payment,’ he said.

Mackay said: ‘We are therefore calling on the bank to immediately suspend the new system until there has been a full review and consultation with us to ensure that the paperwork is legally correct and workable and that the system does not penalise buyers and their agents.’

An HSBC spokesman said the lender is 'in discussion with a number of other firms' to join the initial four.

'We consider that a panel of this size is manageable and enables HSBC to carry out appropriate checks and due diligence on its suppliers. The Financial Services Authority recently conducted a thematic review of lenders’ systems and controls to detect and prevent mortgage fraud. It commented specifically on the need for lenders to know their suppliers and we consider that the introduction of a limited panel enables us to better comply with the guidance issued by the FSA.

'HSBC strongly believes that its conveyancing documentation is fit for purpose and has been drafted for use in Scotland. However, we are keen to relieve the Law Society of Scotland of its concerns and we have offered to work with them to agree documentation which both parties are comfortable with. We are continuing to complete mortgage transactions as normal, however if customers do have any questions we would encourage them to speak with their HSBC mortgage manager.'