Recession, resilience, recovery: the year ahead for conveyancing
Sheila Kumar, CLC Chief Executive, considers the future of conveyancing in 2023
Conveyancers have had a turbulent time of late – from one extreme to the other.
Still recovering from the unprecedented levels of activity seen during the pandemic due to the Stamp Duty Land Tax (SDLT) holiday, conveyancers had their busiest year to date during 2021/22.
As analysis of HM Land Registry data by Search Acumen shows, such was the demand that around 600 law firms moved back into the market and the average practice saw a 60 per cent rise in transactions.
Unfortunately, they must now steel themselves for what may be quite a different position.
Recently, we took the unusual but necessary step of issuing a statement urging all practices to prepare themselves, as fears for the UK economy continue to grow.
“The CLC is recommending firms should stress test their businesses for resilience to a significant fall in work volumes,” it said.
We are not saying this will definitely happen, but the global economic situation is far too febrile for anyone to make very strong or certain predictions. As such, it is wise for businesses to test themselves against challenging scenarios so they can act decisively when a challenge comes.
Resilience and recovery
The good news is we’ve been here before in the 2007/08 global financial crisis, when conveyancing transactions fell by more than 40 per cent from one year to the next. Commentators are not expecting anything like that sort of drop, but uncertainty requires planning, and we know CLC firms like to be ahead of the curve, and they rightly expect their regulator to horizon scan, be aware of possible future pressures and guide accordingly.
The turnover of CLC-regulated firms largely recovered the year after the global financial crisis (we know from previous analysis firms regulated by us recovered their turnover faster than others). It has continued to grow, from £85m in 2009/10 to £277m – a more than three-fold increase – in 2020. The year to April 2021 – helped in part by the stamp duty holiday – saw turnover grow to £349m.
It has been an extraordinary decade and a half, with significant advancements including:
- Better technology
The pandemic and the different ways of working imposed accelerated firms’ adoption of technology by “five years in five months” according to a roundtable of experts hosted last year by the CLC.
Digital identity checks are now commonplace and widely regarded as being more secure, more convenient and cost effective. HM Land Registry’s ‘Safe Harbour’ scheme, for example, combines a number of technologies including biometric verification, such as facial recognition or fingerprint scanning, ‘liveness’ tests where technology is used to detect a presence on the other end of the device, and cryptographic checks, where only senders and recipients can view their messages. This reduces both human error and the risks associated with physical storage of documents.
The government has also confirmed plans for new legislation making virtual forms of ID accessible via a mobile phone app or website for instance, as trusted and secure as physical documents. The CLC is supporting the pilot project ‘Myidentity.org.uk’ which seeks to enable people, such as home-buyers, to verify their identity just once using three simple steps.
- Improvements to professional indemnity insurance (PII)
The PII market has been hardening for some time, particularly for conveyancers, but the process is improving. Our experience in the last renewal round was better than anticipated and no one failed to get coverage.
We also recently introduced changes to make the process easier in future, which we will continue to review. These include a requirement on insurers to extend cover for 90 days in the event a practice finds itself unable to renew by the deadline. Practices will also have to submit a PII proposal to at least one CLC-approved insurer by 1 May each year, with insurers required to issue quotes in response by no later than 1 June. Our second annual Risk Agenda, published in March 2022 explains the changes in full.
We urge any practice struggling to get cover to contact us at the earliest opportunity. We will also continue to work with brokers and insurers to improve availability of cover.
While separate cyber cover is not mandatory – something which is under review – we encourage practices to consider taking it out as protection against this emerging risk.
- More upfront information
Experts believe improvements in the provision of upfront information will also bring significant benefits to all parties involved in the buying and selling process, helping to shift market inertia.
Phase A – the first of three – was implemented over the summer and means all property listings must now include details of price, tenure and council tax band. The later phases will include information such as the area’s broadband speed, availability of renewable or alternative energy resources, and whether the property is at risk of flooding or subject to a restrictive covenant.
A similar scheme in Scotland has reduced the fall-through rate of transactions to 11 per cent, far below the current rate of 34 per cent in England and Wales.
This year’s CLC roundtable applauded the industry’s efforts so far, but take-up is patchy in places, and it was felt government backing to mandate reforms was essential to standardising processes across the board.
The intention was to help modernise the market to enable it to cope, which is arguably less urgent given the anticipated slump. However, the changes we, as part of the Home Buying and Selling Group, have long lobbied for will benefit all parties in the future and it would be short-sighted of us to take our foot off the accelerator now.
Survival of the fittest
The economic outlook for the UK is uncertain. The global economy is challenging and the pressures on UK businesses and citizens are well known.
All CLC-regulated practices should already have their own business continuity plans (BCP) in place. Indeed, a robust BCP is a requirement for any firm applying for authorisation from us for the first time. They should identify the risks and the resources they have to deal with them, such as what would happen in the event of a cyber-attack or if they were forced to suddenly close the firm.
We recommend such plans are live documents that represent what firms are doing at that time, reviewed regularly and at key points such as when there are significant changes to the firm or the market.
Contingency plans in the current climate could include cost savings, growing income from other services such as probate which are less affected by the economic cycle, or increasing the profit margin on existing services. There is a good argument fees were too low before lockdown anyway, our roundtable heard. Our transparency requirements set out how providers should present the different costs to potential clients. These are driven by a range of growing demands on conveyancers such as anti-money laundering and reflect new and emerging risks.
Owners and managers may also have reserves they could fall back on or other steps they deem effective and necessary.
We are keen to lend our support and will be asking our regulated practices what preparations they have made when we issue our annual regulatory return questionnaire in the coming weeks. In the meantime, any practice wishing to discuss concerns or resilience plans with us is asked to get in touch via their own named contact in the CLC’s regulatory supervision team.
Sheila Kumar is chief executive of the Council for Licensed Conveyancers (CLC): clc-uk.org