An independent personal service provision
A number of recent changes to the searches' market mean that it is set to become much more competitive and conveyancers will be able to make use of better personal search products, explains Janet Baker
It is estimated that conveyancers use personal searches in approximately 50 per cent of transactions. This has risen from around 7 per cent since 2000. Given that most lenders have only accepted personal searches at the conveyancer's risk, at least up until 1 June 2007 when the Lenders' Handbook was amended, that amounts to a lot of risk management decisions being made by conveyancers to take the risk of the search being wrong or incomplete.
In addition, in the event of an error conveyancers had to face the various remedies offered by the personal search companies whose terms and conditions were disparate in nature and whose complaint handling procedures varied from being workable to non-existent. The pay-off to date has been a faster and less expensive search.
Latest changes
Recently however, several developments taken together, bring the prospect of a much more competitive search market and a better search product from which conveyancers will derive much benefit. These are taken below, in no order of priority.
Changes to the Lenders' Handbook and the Search Code
The catalyst for these changes has undoubtedly been the gearing up for Home Information Packs (HIPs). Now that the Home Information Pack (No 2) Regulations 2007 have been published it looks likely that HIPs will happen a phased basis with four bedroom homes being included from 1 August.
The changes to personal searches can be found in Schedule 6 of the latest regulations. These set out requirements for a HIP compliant personal search and are the legislative inspiration for the Search Code. What are the lenders' attitudes to this? In introducing the changes to the Handbook, the Council of Mortgage Lenders states in its commentary on the changes which came in on 1 June:
'The search market has become more sophisticated in recent years. We have inserted an additional step in 5.2.6 which would allow lenders to accept personal searches on less onerous terms [than the pre-1 June provisions].
'For example, a lender may wish to state in Part 2 that the lender will accept personal searches if they are carried out subject to specified guidelines.'
These 'specified guidelines' refer to the Search Code recently launched by the Council of Property Search Organisations (CoPSO) (see www.propertycodes.org.uk).
The Code sets out minimum standards which search companies have to meet along with inspection and compliance monitoring, comprehensive insurance, training standards and an independent complaints scheme. The compliance monitoring will be carried out by the new Property Codes Compliance Board (PCCB).
CoPSO has been lobbying lenders in an attempt to secure lenders' acceptance of personal searches which comply with the Search Code unequivocally and the past few weeks has seen the publication of the lenders' Part 2 responses on personal searches.
CoPSO report that while some lenders have still to submit their Part 2s, already over 80 lenders have confirmed that they will accept personal searches including nine out of the largest 10 lenders who alone account for nearly 75 per cent of all mortgage lending in the UK. Over 30 of these lenders also require the search firm to be registered under the Search Code.
Clearer instructions
The introduction of the Search Code has prompted lenders to review their policies on personal searches and has led to some opting for acceptance where they had previously refused to do so, for example, Abbey National, Alliance & Leicester and Bristol & West.
Some lenders have also moved away from providing vague instructions in their Part 2s on whether they accept personal searches such as 'No, at the conveyancer's risk', which have in turn left conveyancers unclear on a lender's policy.
The approach now is towards clearer instructions both on acceptance and whether the search firm must be registered under the Code. Where the lender does not stipulate the Search Code, the conveyancer must check that the search firm is suitably qualified and has adequate professional indemnity cover.
As the PCCB independently monitors both these requirements, solicitors may consider saving themselves time and energy by also only choosing Search Code compliant firms, which are all listed on a central register maintained by the PCCB and displayed on its website.
Where the lender accepts the personal search if it complies with the Search Code, the question which remains for conveyancers is whether they should advise their buyer client to accept the search on the same terms.
To the extent that conveyancers mistrust a personal search because the search agent cannot get access to all relevant data, the changes which will result from the Department of Communities and Local Government's (DCLG's) current consultation (see below) may put these concerns to rest.
To the extent that the mistrust arises from the competence or otherwise of the search agent and/or the search compiler, the rigour of the Search Code and its monitoring will have to stand the test of time and both the Code and the PCCB are at present in their infancy.
The prospect of a remedy in an insurance solution is cold comfort to a buyer whose property is defective as a result of an error in the search.
'Delivering Property Searches: Good Practice Guidance for LocalAuthorities and Personal Searchers' (DCLG Consultation which closed on 26 June)
'Making the delivery of property searches quicker and cheaper is a key part of the government's strategy to reform the home buying and selling process.'
This consultation focuses on two recommendations from the Office of Fair Trading (OFT) market study into the search industry in 2005 namely open access to all information required for a local search and on terms which do not advantage a local authority's own search activities over those of competing search providers.
The guidance aims at making property searches cheaper and faster, bringing competition and guaranteeing access by personal search companies with a view to making private searches 'a more attractive proposition to consumers especially where a personal search company is able to provide a quicker or perhaps a cheaper service than the local authority'.
DCLG hopes to have this guidance in place imminently and is confident of ensuring access by personal search companies by April 2008. However, time will tell.
Chair of CoPSO Fiona Hoyle is bullish about the outcome of this consultation. She says: 'Over the next few weeks, local authorities will have to provide search firms with access to all the information required for a local search and so the use of insurance is a very short-term measure.
'The search industry is committed to providing comprehensive search reports not insurance policies and so implementing the reforms recommended by the OFT is long-awaited and extremely welcome.'
What are local authorities doing in response to the increasing competition offered by personal search companies?
Another recommendation of the 2005 OFT Review was that government should provide clear guidance on how local authorities should set prices for providing property information to consumers so that competition is not distorted.
Amendments to the Local Land Charges Act 1975 were put in place on 1 April 2007 by the Constitutional Reform Act 2005 and the power to set fees for local searches was devolved to local authorities on that date. We have seen, in some local authorities, a massive reduction in search fees.
Notable examples include Wakefield Council (£114 down to £40 with vouchers for free 'refreshers') and Brentwood (£209 down to £85). Other authorities have drastically cut their turnaround times.
Some local authorities have cut their costs
Housing minister Yvette Cooper reported to the House of Commons on 15 May.
She said: '25 local authorities have cut their costs because they know that for the first time the charges and length of time taken will be transparent to the consumer and to HIP providers. There will be much greater pressure to provide a good service.'
Many conveyancers are justifiably cynical about the likelihood of HIPs actually happening after the shambolic lead up over recent weeks but HIPs or no HIPs, the government is set on bringing competition to the property search industry. While at the same time the lenders are warming to Search Code compliant searches.
Maybe the black cloud of HIPs standing over the independent conveyancing profession has a silver lining?