It is ill-founded to suggest that the market is on the precipice of catastrophe: the latest Land Registry data shows house prices are still on the rise, with transactions also soaring in July.
Significantly, the Bank of England also revealed last week that mortgage approvals climbed in July – an indicator that future borrowing is not set to fall off a cliff.
Yet, one cannot deny the reality of the situation. The cost of living is on the rise, inflation is sky-high at 10.1%, interest rates have seen the biggest hike since 1995 and may yet reach 6%, and the BCC has claimed that the UK is already in the middle of a recession.
To that tune, some are justifiably speculating that the market will face a downturn – sooner or later. This will inevitably impact conveyancers. How can they prepare, and what should they expect?
What conveyancers and firms can do to prepare
Today’s Conveyancer posed a number of questions to some of the industry’s most experienced and notable voices. Here’s what they said.
How should conveyancers prepare for a downturn in the market?
David Jabbari, CEO, Muve:
“One of the most striking features of the conveyancing market is how much addressable market share there is to pursue: the top five firms have barely 5% of the residential conveyancing market between them. So even in a recession, if your marketing and pricing strategy is sound, the work will be there.
The challenge in the upcoming downturn is that inflationary pressures on wages, and the impact of monetary policy on house buyers’ costs, will increase firms’ and buyers’ costs at a time when firms may need to be keener on price to maintain demand. This will favour firms who have got proper control of their cost base.”
Lloyd Davies, Managing Director of Convey Law and Chairman of the Conveyancing Foundation:
“I would think that a slowdown would be a relief to many conveyancers and business owners after a very busy and disruptive few years. A downturn in instructions will allow conveyancers to catch up and for transaction timelines to decrease back to where they were previously – having moved from 16 weeks to 20 weeks, we believe, over the course of this year.
I think we will see a move back to seasonality again next year, with the housing market still very strong and growing – hopefully we won’t see too many ridiculous interest rate rises, which will put a dampener on the market and increase inflation.”
Natalie Moore, Managing Director of Aconveyancing:
“Business owners should use the time to reflect on their business – it’s an opportunity to consider the structure and practices at the firm, the culture, staff training and retention. What’s working and what’s not working. It’s a good time to review internal policies and procedures. Take the time to plan ahead, because things will always pick up again and what a great position to be in when they do.
Conveyancers can use this as an opportunity to focus on housekeeping – review all files, matter balances and upskill through training and development. Consider any opportunities outside of their existing role – networking, marketing and onboarding.
Overall I would say don’t rush, don’t panic. As hard as this sounds to actually put into practice, it’s the biggest learning I took from both the previous economic downturn and the pandemic. There’s a fine line between keeping up to date with news and being reactive as a result of media scaremongering. Follow industry news sources. And, most importantly – don’t lower fees. This is the biggest learning we have from the previous recession. We’ve taken so long to recover as an industry, let’s keep fees collectively stable, to support us all in the long-run.”
Roger Wilson, former Partner at Shoosmihs and Conveyancing Services Director at Connells Group:
“Most important is to remain positive and focused – during each previous downturn, including the massive one at the end of the ‘80’s, I managed to increase our market share. Estate agents were all the more appreciative of extra effort to get cases over the line, and vendors, anxious not to lose their purchaser, became more responsive and willing to break chains. Builders offered more part exchanges and one person’s misery became another’s quick purchase opportunity with more repossessions on offer.”
How does a downturn affect conveyancers’ working relationships with surveyors, lenders, and agents?
David Jabbari:
“Clearly, in a situation of declining instruction levels, referrers (whether agents or mortgage brokers) increase their power over conveyancers. Conveyancers will need to go that extra mile to prove that they are worthy of being recipients of a declining pool of referrals. We are likely to see less of the high-handed posturing by conveyancers which was fuelled by the SDLT frenzy, and the ability to turn away instructions. Conveyancers will need to show the tangible ways that they add value to agents’ businesses.”
Lloyd Davies:
“There will undoubtedly be an impact in relationships if supply and demand shifts slightly again. I believe that conveyancer–introducer relationships have improved over the last few years and that has certainly been the case of our findings through the Be Kind We Care initiative. All professionals understand that we are looking to achieve the same goals and work to the best standards, and long may this continue.”
Natalie Moore:
“If we do see a downturn, conveyancers have the opportunity to develop better working relationships with local contacts. We should use the time to make new connections or rebuild any previous relationships that may have dropped off over time. The overall package model is very attractive to many time-poor clients, so it’s a good time to work better with third parties to deliver a more streamlined service.”
Roger Wilson:
“One important task, so easily overlooked in busy times, is to assess the average cost of each transaction handled by the team and ensure they are are actually making a profit on each – ‘no point being busy fools’, as our Connells Group CEO would say. Then manage the team to ensure that they stick to your guns on pricing.
In a falling market, It is too easy to be tempted into reducing prices, to try and win a quoting war on a new case… funny how those often turn into the clients from hell!
Make sure you are also charging a decent leasehold supplement – the work is always more complex and time-consuming, and more fool the competitor who undercuts you. Finally, always charge an additional fee for acting for the lender… the lender expects you to charge for that work.”
What decisions may be taken by firms to ensure the profitability of conveyancing during such a period?
David Jabbari:
“We know that conveyancing is under-priced, but we may face obstacles to boost unit profitability simply by higher pricing in this period. That leaves only cost control or greater efficiency. Efficiency measures – high or low tech – have delivered disappointing results, and the fact that transaction times have moved out considerably in the last six months proves that external market factors play the greater role in conveyancing lifecycles. So, this suggests that control of costs will be the key to maintaining profitability in a tighter market.”
Lloyd Davies:
“Shorter timelines will allow for increased cashflow in the short term. Conveyancing firms have been steadily increasing their base fees over the last few years with supply of conveyancing services in demand from introducing sources and they will need to be careful that those increased fees are maintained, especially if volumes are not as high as they have been.”
Natalie Moore
“The single most important piece of advice I would give is not to lower fees. This is our biggest learning from 08/09. It did so much damage to the industry at the time and we are only just recovering. If your profitability is suffering, look to other opportunities / cross selling / services first. Other departments (for us, it’s Wills & Probate), or you may want to focus your attentions on a niche area of the sector, such as New Build.
This is also a good opportunity for business owners to review outgoings. Are there any savings to be made without affecting staff? Consider services that are no longer needed or are being overcharged for.”
Roger Wilson:
“A less frenetic period gives you the opportunity to build on these relationships by going the extra mile. One can only hope that by being less busy, lenders and surveyors are more available to answer phones and respond… local authority turnaround times are likely to improve too.
Conveyancers are an increasingly rare commodity and my gut feeling is that the good players, who ensure the cases they take are profitable, will weather the storm, even if they not so busy. The internet-based ‘pile it high, do it cheap’ crowd are most at risk. The profession must hold its nerve on fees and not fall into the price cutting trap of previous downturns.”
What conveyancers should expect from surveyors
Chris Bramham, Managing Director of Metropolis Surveyors, gave his thoughts on how conveyancing has changed during previous downturns from the surveyors’ perspective, as well as what conveyancers should expect to change on the surveyors’ side during such a period:
“I think the issue is one where we need to consider the impact on delays in relation to values. That is to say that in a fast-moving market, where a delay for whatever reason can push the need for a re-valuation of the property if it goes outside the lenders requirements. Whether this is 90 days or a different figure dependant on lender. There could be a need to bear in mind the market could have moved and therefore affect the value. We have seen a number of requests for an up-to-date valuation or price check where the purchase has suffered a time delay. In reality, the majority of these see no change, but in a fast downward moving market this could happen.
In addition, the population of surveyors has diminished over the years, so getting availability in a demanding market can create further delays in appointing a surveyor. What we have learned over the last 14 years is that valuation is more of a science than an art now, and the intelligence we get on sales, comparable evidence and overall area knowledge is far more robust, so it is likely that any fall would be from a more accurate position than it would have been in the last crash. Prices were almost certainly fuelled by a demand for property on the back of less prudent lending. The work involved in providing a basic valuation is far more complex and difficult than it was in the past, so the due diligence now does reflect a far more accurate picture of what prices and valuations are.”
What conveyancers should expect from estate agents
Matthew Baldock, Director, Charles David Casson, encouraged estate agents and conveyancers to see a period of hardship within the market as an opportunity to work together to continue to get completions over the line.
How does a downturn in the market impact the working relationship between estate agents and conveyancers?
“If transactions fall, then forward-thinking estate agents and conveyancers will adopt a ‘we’re all in this together’ mentality and realise that every completion matters even more. Sadly, this won’t apply to all and, as agents have hired heavily over the last two years, if we do see less transactions then corporate agents in particular will be under immense pressure to still hit completion targets. I’d urge them to realise the conveyancers involved can only do so much.”
In your experience, do you find that the effects of a downturn can make delays and other difficulties within transactions worse, or do you think the lessened demand could actually benefit transactions in any way?
“A substantial fall in prices such as in the banking crisis (which I don’t think we’ll see) can lead to more transactions under stressful circumstances, which I’m sure is the last thing conveyancers need. But if transactions do fall, a smaller workload that conveyancers can work with less stress and so be more efficient (nobody is efficient with high stress levels no matter what you think) and the search companies, mortgage lenders etc will not be as busy, so cases can go through quicker.”
What conveyancers should expect from lenders
For evidence of how lenders may react to a downturn in the market, it makes sense to look back to the downturn of all downturns: the financial crash of 2008.
Prior to the crash, nearly 11% of mortgages were written at a loan-to-value (LTV) ratio of 90% or higher, according to the Financial Services Authority. Yet, by the end of 2009, just 1.5% of new mortgages had such an LTV.
“The whole 2008 crisis was a lack of liquidity in the market,” according to Colliers International head of residential, Andrew White. With a lack of affordability already established, it is conceivable that a lack of credit supply from lenders could contribute to transactions falling.
Yet, mortgage arrears could also rise – as they did by two-thirds to 216,400 in the period 2008-2009 – which could lead to more forced sellers, thus propping up transactions, something recently alluded to by Andy Sommerville, Director of Search Acumen:
“Homeowners may be at increasing risk of overextending themselves financially having purchased a larger home since the pandemic, adding more potential sellers to the market.
As more supply should balance out house prices, this may not translate to fewer transactions, as greater choice allows for more potential buyers to enter the market. It is entirely possible that we see an extended period of strong transactional activity despite economic headwinds.”
However, with downvaluations already affecting one in 30 homes, a downward trend in house prices would only exacerbate this, adding to delays and fall-throughs – something already worsened by the “limited in the extreme” communication between conveyancers and lenders.
A Santander spokesperson gave their thoughts on what conveyancers should expect from lenders during a downturn in the market:
In your experience, how has the conveyancing process changed from the lenders’ perspective during previous downturns in the market?
The downturn experienced during the Global Financial Crisis did not impact the UK in a holistic way, rather it hit regions of the UK very differently. We saw a large impact in Northern Ireland whereas areas such as the South East and London recovered activity relatively quickly. If we do see a market contraction in the future, and that’s not a certainty, then it will be vital that there is expertise across the industry that can gauge the impact on the individual regions of the UK and adapt processes in a joined up way to ensure we are serving homebuyers despite an evolving economic environment.
What should conveyancers expect to change from the lenders’ side during such a period?
If we see a reduction in volumes, conveyancers may naturally see better efficiency and quicker responses from lenders to their queries. Digitisation also remains a significant lender focus, driven by the FCA’s forthcoming Consumer Duty, and this can further lead to simplification, greater transparency and less friction. This along with conveyancers’ participation in similar recent digital initiatives from the Land Registry should help tackle delay. If we do see a less-volume heavy period, it may be a good time to pause and reflect on how things can be done better. Lenders collaborating with other lenders to see where rules can be simplified or made consistent would be a good place to start in assisting conveyancers in doing their job.
How could any changes to the market impact the working relationship between lenders and conveyancers?
We have seen a volume-heavy summer, buoyed by post-lockdown demand and many homeowners trying to lock in deals ahead of further base rate increases, which has put a strain on lender and conveyancer capacities. To add to this, many parts of the home buying process, including conveyancing, are experiencing resourcing issues at present, which is causing delays throughout the transaction process as staffing numbers are diminished. This is frustrating for all involved, especially at a time when activity is so high. As an industry going forward, we will need to ensure we are plugging the gaps and investing in skill training so that the new generation of conveyancers, brokers, and mortgage advisers are able to be effective in serving home buyers, that have increasingly diverse set of financial circumstances.
Should conveyancers expect an increase in fraud and money-laundering?
In the recession of 2008/09, mortgage fraud increased by 71%.* Today’s Conveyancer spoke with Gregor Angus, Senior Business Development Manager at Amiqus, to gauge his thoughts on what conveyancers should be on the lookout for with regards to fraudulent activity during a downturn:
“The sad fact is that organised crime gangs and fraudsters will cease on any opportunity they can exploit for their own benefit.
Any substantial downturn in the property market comes with it the risk of roles being made redundant, or firms trying to do the same amount of transactions with less people. That includes AML/KYC checks, and if these are being done manually, there is a risk that stretched staff could be manipulated by fraudsters to cut corners.
What can be done? Well, apart from keeping experienced staff through the tough times, an emphasis should be placed on regular training, standard processes across the whole firm, using technology to help ensure scalable procedures (upwards and downwards) with minimal human input, and having all the relevant checks and balances in place by way of internal audit.”
*Figures reported in the US (Federal Bureau of Investigation)
