Brave new world: the property market post-credit crunch

At the beginning of the credit crunch, I remember being at a roundtable lunch at the House of Commons, with the then Housing Minister and other stakeholders involved in the residential property chain.

There was an impassioned plea for the government to do something to unlock the wholesale finance market, otherwise there would be such a shortage of funds, and lenders’ ability to lend in the residential mortgage market would be quite severely curtailed.

Business uncertainty

We have all suffered a five-year challenge, which has, in reality, decimated any concept we might have had regarding the running of a business; one which has suffered a massive loss of gross turnover, and being challenged with interest rates which, on the one side have made it cheaper to borrow, but on the other, has cut off a traditional source of income - especially for conveyancing lawyers - that of interest from residual client account funds.

We no doubt have had to suffer the uncertainty of whether there will be any future for our businesses, losing valued and talented staff at all levels, and having our bankers reassess their commitment to the legal sector, compounded by the failure of some high-profile law firms, and whether there will be any return of the market, and if there is, whether it will be sustained or just a blip, fuelling even more uncertainty.

There’s no lawyer I’ve spoken to over the past five years who has been too cocky about the current situation affecting firms as a whole. Take the question of referral fees, where even litigation lawyers have had to come to terms with the banning of referral fees in PI cases, and the earthquake that has been the Jackson reforms. Conveyancers remain entitled to referral fees, but the context in which they are viewed has
definitely changed.

I make few apologies for writing in a gloomy fashion, as I think it’s vitally important to put any views I express into a context of a period of practice that is as bad as any that has been experienced for over 60 years.

So where are we now, what has changed, and what of the immediate future?

Well, three things are certain. First, in some respects we have come to terms with working in an incredibly challenging environment. Any business decisions we make are predicated on a pessimistic, ‘worst case’ backdrop. I’m not saying that we are comfortable, or happy about this, just that it is taken as a given.

Second, the media is talking up a recovery. In 2008 you might remember that the BBC commentator, Robert Peston, was famous for forecasting a disastrous economic downturn, which was in reality picked up by all other media outlets, which then translated to actuality.

For the past few months we have been greeted with very encouraging economic figures, which are way in excess of forecasts from earlier in
the year.

Third, money is coming back into the system making mortgages more available and first time buyers are returning, and in greater numbers.

The most important thing, though, is that there seems to be a spring in the step of the estate agents and, anecdotally, most of the
conveyancing solicitors that I speak to say that
they are incredibly busy.

Regional variations

Three questions arise from this, though. Is there a regional variation? Is it going to last? Have the recent schemes that the government has announced played any part in all of this?

So, does it all depend on what part of the country you are? The obvious answer is that it is bound to have some effect. Speaking to London agents, they have said for some time that there has been a plethora of cash buyers coming in from as far as China and Brazil, as well as the usual Europeans and Americans.

Everyone knows that house price inflation in
the ‘better’ London districts has been
phenomenal, even during the dark days. This must have had some impact as the sellers generally have to move somewhere.

However, other boroughs outside of the south east have suffered negative or minimal growth during the same period. My experience over the years has been that there have always been uneven house price inflation changes in central London, the south east, and the rest of the country, but that the ‘ripple effect’ does affect all in due course.

That will hearten conveyancers in the North, West, and Midlands, I hope. So I think that over
the next ten years we will see some realignment
of prices.

Are we really seeing a recovery that will last? What will the new ‘normal’ look like? Just before the 2008 crash, property transactions numbered approximately 1-1.2m pa. The first year after, the number dropped to around the 550,000 mark, and the next three years saw a modest increase, hitting around the 600,000 mark.

It is hoped that this year might see growth to around 800,000 transactions - closer to where it was before.

The Land Registry is a good barometer of all of this, for obvious reasons. The disastrous fall off of numbers in 2008/9 left the Registry in a sorry state, having to rationalise its offices and people, and having to deal with a huge financial loss.

In my view, it has clearly taken advantage of its new ‘lean mean’ shape, and is even suggesting a new fee order to be implemented, which might even see lower fees. This would reflect listening
to client concerns about costs and our own
desire to ensure disbursements are fair and reasonable, which I hope indicates something positive, at least.

Cautious confidence

Who can properly predict what the ’new’ world will look like? Much remains unclear, but I feel continued property growth will so much depend on availability of finance, a reasonable relationship between the cost of buying compared to the cost of renting, and the influx of a meaningful first-time buyer market.

The government’s Help to Buy mortgage scheme does seem to have kick started the signed-up builders back into growth and I see this as another crucial step to alleviate lenders’ concerns about lending to the property market against their ever-pressing liquidity concerns.

The mortgage guarantee scheme will assist even more buyers in the second-hand sector, which again will make a significant contribution to expanding the market place.

I recognise, however, that conveyancers are extremely nervous about all of this. I’ve noticed that firms are prepared to be extremely busy,
as they might be now, but are very reluctant to actually take on more people and expand
their residential conveyancing departments,
as experience has taught them to be
extremely cautious.

I would urge them to balance that caution
with sensible investment in people - if they can make it - and hope the conveyancing recovery benefits equally the High Street and larger firms of solicitors. SJ