Property predictions

Last year, my firm and others in London and the South East saw an increase in residential conveyancing work as more new buyers come into the market. Many of them were helped by ‘the bank of Mum and Dad’ with their deposit, as 95 or even 100 per cent mortgages are a thing of the past and, in any case, prices of average properties are now out of reach of anyone on an average salary who does not have a hefty deposit. According to the press, the Help to Buy scheme is assisting some buyers but is rarely encountered among our client base. Plenty of people are still buying properties to let as they consider a rental income a much better alternative to investing their funds at very low interest rates.

Development

Our developer clients are building again after a difficult few years when land values were uncertain and funding was difficult. We have also seen an increase in enquiries for advice concerning options and promotion agreements whereby clients with agricultural or brownfield land are working towards securing planning consent to develop for residential use.

As a result of the relaxation in permitted development rights, there have been many cases whereby developers are converting office accommodation to residential, due to the potentially better returns. If the current temporary relaxation is continued then even more flats will be created from former office buildings in 2015.

Leasehold legislation

There was a welcome change in the law in May when the Leasehold Reform (Amendment) Act was passed to enable a notice of claim for enfranchisement to be signed on behalf of a flat owner rather than by the owner personally. The change was introduced 20 years after the original legislation came into force and now enables, for example, attorneys of elderly people to extend flat leases. We are seeing more buyers prepared to buy flats subject to short leases by accepting an assignment of a notice of claim from the seller and then negotiating the premium to be paid after purchase, rather than rely on the seller to do so. Both of these developments should have the effect of releasing more flats into the market.

Landbanks

In December 2013 I attended the Westminster Social Policy Forum on the future of the housing market chaired by Mark Pawsey MP. Speakers in a position to influence government policy gave their view on the housing market and what could be done to deal with the shortage of housing nationally to buy or rent, with particular emphasis on London and other hot spots.

The Forum touched on the issue of landbanks. Whereas it was accepted that all the major developers must have banks of land, there was no appetite to return to a policy of attempting to tax development land to encourage it to be brought forward and developed more quickly. This was tried in the 1970s and was a failure, although it gave a significant amount of work to lawyers advising their clients.

Housing shortage

There were a number of problems aired and a few solutions put forward at the Forum. The suggestion most likely to offer real progress in increasing the number of new homes from the current 115,000 in 2013 to the 220,000 or more necessary was to build new towns where the housing is needed – perhaps in Buckinghamshire or Oxfordshire. The chancellor’s 2014 Autumn Statement confirmed that Bicester has now been selected as the site for 13,000 more homes, but this is merely the tip of the iceberg in delivering the number of new homes that are actually needed.

Planning constraints on the development of land continue to be a major brake on an increase in housing stock. This is in spite of the recent policy changes whereby, in the absence of an up-to-date housing policy, land will be presumed to be suitable for development for residential purposes. We should see more relaxation in planning policy in the next year or so as the government takes further steps to tackle the shortage of new homes.

SDLT

The most significant change in 2014 has been the alteration to the rates of Stamp Duty Land Tax (SDLT), a policy introduced in the Autumn Statement. For residential property the tax is as follows:

• 2 per cent on any amount over £125,000 up to £250,000; and
• 5 per cent on any amount over £250,000 up to £925,000.

The change to a graduated tax, as has always been the case for income tax, will enable properties on the market at the limit of the old bands of £250,000 and £500,000 to be sold more easily. This should be reflected in increased sales in the spring. Conveyancers will face fewer cases of pressure from estate agents and clients to accept unrealistically high apportionments of the price to fixtures and fittings in an attempt to cut the tax bill.

Political motives

May 2015 will see the general election. Both the Labour and Conservative Party have pledged to increase the number of new homes built annually to at least 200,000. This must inevitably mean further relaxation of planning controls nationally. In London, Mayor Boris Johnson is pressing for more devolution of powers to cities, thus enabling them to promote development of sites. The Liberal Democrats, in turn, are championing more grants for self-build housing at a national level.

Interest rates

The impending election is likely to have little impact on interest rates for the first half of 2015, so buy-to-let will continue to be seen as an attractive source of potential rental income for many small investors, in comparison to the low rates of return achieved by investing funds on deposit. Young buyers will continue to rely on funds supplied by parents and grandparents to purchase a first property or to rise up the ladder. This presents an opportunity for firms to charge for additional advice given in relation to those gifted deposits’.

Conveyancing portal

It was announced by the Law Society in October of this year that the new conveyancing portal will be launched in spring 2015.The portal, called Veyo, is a joint venture between the Law Society and Mastek UK, a global IT solutions specialist. In its first phase, the system will allow professionals to better communicate with each other, clients and other parties, satisfy due diligence obligations more quickly and facilitate the conveyance of residential property through established protocols. Veyo’s chief executive Elliott Vigar has said he hopes the portal will “make conveyancing much more efficient and transparent, within a secure environment”.

The new portal will raise concerns from conveyancers as to the likely cost implications for their investment in infrastructure and training, as well as issues for their clients around how they produce the information required for the portal. Small high street generalist firms and sole practitioners are likely to struggle if they don’t get up to speed with the changes.

There are costs implications, too, for conveyancers, in handling significant numbers of documents when dealing with increasing numbers of new build transactions. Firms that have not yet invested in document management systems will find it hard to deal with the changes in conveyancing practice. I suspect that firms will give consideration to differential pricing for new build conveyancing, as opposed to the purchase of second-hand property, to reflect the additional work required.

The challenge for 2015 will be to ensure that the increased volume of conveyancing work translates into better profitability, rather than a continued relative downward trend in fees charged to our clients while house prices continue to rise.

The views expressed in this article are those of the author’s and do not necessarily reflect the policy of SA Law. SJ

Glenda Ferneyhough is a partner at SA Law