Property Focus | At a crossroads

The conveyancing industry is at a crossroads. In a reduced market it is facing a number of challenges, ranging from access to work, rising input costs, and the impact of regulatory changes.

As a result, in the last year alone around 12 per cent of conveyancers decided it was too much to overcome and left the market. However, for those who remain these issues still need to be addressed if they are to be successful in the future.

Perhaps the single largest issue for the conveyancing industry at the moment is access to work. The fact that, at a time when lending volumes have reduced massively as a result of the ongoing financial instability, some of the largest lenders in the UK have drastically reduced the size of their panels in response to conveyancer-led mortgage fraud.

Evidence of the scale of this issue can be seen in the number of major lenders who have slashed the size of their panels. Indeed, one of the UK’s largest lenders made the headlines again in November as the victim of a new conveyancer-led mortgage fraud for a sum of around £100,000.

Recent research from SearchFlow shows more than half of conveyancing firms (51 per cent) believe these recent controversies have caused all lenders to worry more about fraud, and as such conveyancers are worried about the potential impact on their business levels next year. Looking forward to 2013, the feeling among conveyancers is clearly that a single, rationalised panel validation system would be the best solution for all parties.

The trend towards restricted panels is not necessarily a problem for SearchFlow; in fact in many ways it plays to our strengths as our investment in technology and tracking capabilities is exactly what lenders are looking for. However, we have been working hard to develop a solution specifically designed to tackle this issue for both sides of the industry by delivering a more sophisticated approach to validating panel memberships.

This new solution performs regular on-site checks of conveyancing firms as well as ongoing electronic data checks that constantly monitor firms and individuals on the database. It ensures lenders have up-to-date information about conveyancing firms which can then be used to select their respective panels. It enables lenders to properly hone and apply their own particular panel criteria in a way which maximises prudential control and regulatory compliance.

To put this issue into perspective, while more than a quarter (28 per cent) of conveyancers are currently saying lenders’ panel selection decisions are the main threat to their business in 2013, only 14 per cent of firms believe increased competition from alternative business structures (ABSs) is the greatest threat. The fact that lenders’ panel selection decisions is the main concern for conveyancers at present demonstrates just how serious the issue of panel management has become, as the recent legislative changes contained in the Legal Services Act – which introduced alternative business structures (ABSs) in 2012, allowing non-law firms to own and run legal firms such as conveyancers – was widely presumed to present the major threat to existing businesses at the beginning of the year.

The relative lack of concern around the introduction of ABSs is a reflection of the fact that take-up has been sluggish to date. Further research carried out among our clients found that one year on from their launch, just 21 per cent of conveyancing firms say they would possibly or are definitely considering becoming an ABS in the next 12 months, and almost half of conveyancers (48 per cent) said they would be making no changes to their business as a result of the changes.

Positive data

?With conveyancers feeling threatened by panel restrictions (and to a lesser degree from ABSs) it would be understandable if more firms had joined or were planning to join organisations designed to promote their collective interests. However, most firms prefer to operate in isolation, as in the last year around only 10 per cent of firms say they have joined such a body, with around another five per cent saying they are still currently considering it. This means the vast majority (85 per cent) said they hadn’t and were not thinking about it.

Firms need to make a strategic call about how they are going to proceed next year. If they decide to stay with conveyancing going forward they need to look at their own service offering to ensure they are delivering the best service possible, and they make their relationship with lenders work through greater process efficiencies and management. And they need to decide if they can do this alone, or whether collective action best serves their interests.

Looking at whether the industry deals with major issues individually or collectively, there is also a need for greater discussion of the development of panel versus non-panel introduced business. We feel this is polarising the industry as while a straw poll of conveyancers carried out by SearchFlow found 95 per cent said none of their business came via panel management companies, there are firms who specialise in this and are developing to take all of their business in this way.

Of course the overarching issue for the market remains the slowdown in housing market activity caused by the financial crisis. This has had a direct and proportionate effect on all related sectors of the property market. For the conveyancing industry this inevitably means the collapse in the number of mortgage transactions has had an impact on the number of searches being carried out.

However, in recent months there has been some positive news and activity looks like it will be higher year on year. This more positive data is at least partly as a result of the government’s attempts to ‘artificially’ boost activity in the property market.

Examples of these stimuli include the two year stamp duty moratorium which was announced in 2010 and ended in April this year, and had the unintended consequence of causing of rush of mortgage activity as people tried to creep in under the deadline.

Then at the end of summer came the launch of the Funding for Lending Scheme. This allows banks and building societies to sign up to a scheme allowing them to borrow from the Bank of England at cheaper than market rates if they pledge to lend the monies out again to borrowers. It looks like another positive scheme and more than 30 lenders have now signed up. While it is too early for it to have made a noticeable impact it bodes well for the beginning of 2013.

While these attempts to kick-start the market are laudable, the property industry is united in the belief that artificial stimulants alone won’t work and in order for long-term, sustainable confidence to return to the mortgage market then the economy needs to return to growth. This sentiment was most recently expressed at the Property Forum Dinner in October, which saw more than 150 business leaders from across the estate agency, lending, legal and property information industries come together to air ideas and opinion as to how the property industry as a whole should move forward. The success and impact of these schemes was keenly debated and it was agreed there is no one simple solution that will set the market on the path to sustainable, transparent growth, as the effects of any solutions will be cumulative and will take time to grow.

?Flooding?

One of the biggest things on the search agenda for the industry next year is flooding. The annual cost of damage from flooding in England and Wales has reached £1bn and this is set to increase further in years to come. More and more properties are being designated as being at significant risk of flooding in the UK as the Environment Agency predicts that in the next thirty years sea levels will rise by approximately 40cm.

Every year the government fails to increase spending on improving the condition of existing defences and building new defences that will offer ongoing protection from flooding caused by climate change means potentially catastrophic losses for homeowners. In the meantime, the government and ABI cannot agree on the moratorium regarding continue to insure properties at risk of flooding, and by the summer of next year when the agreement lapses it could have huge consequences for home-owners.

Looking at the potential impact of this the majority of conveyancers in the UK (57 per cent) agree that they expect to see a significant rise in flood searches in 2013. This is more than double those expecting to see more planning searches (28 per cent) and ahead of those predicting a rise in environmental searches (42 per cent).

The two big buzz words in the property industry at the moment are risk and compliance; keeping up with legislative changes and requirements is a challenge for everyone, and there is a huge demand for information on how people are affected.

For those firms who provide services to the market, the last few years have prompted them to look at more efficient ways of working. For SearchFlow, this has meant a significant investment in technology specifically designed to meet the evolving needs of the modern conveyancer. The technology now exists to allow conveyancers to enhance efficiencies and to provide their end clients with a transparent end-to-end service.

All of the issues facing the industry at the moment come down to servicing; if you are providing an efficient, transparent service it will set you apart from those still relying heavily on pricing. If and when the market begins to grow again the successful conveyancers will be the ones who have adapted to utilise the latest technologies, which allow them to compete on service, not price alone.