Conveyancing: Firms told to prepare for downturn
The Council for Licensed Conveyancers (CLC) has issued a stark warning to the law firms it regulates to “stress test their businesses for resilience” to a fall of up to 40% in work volumes.
It will ask about the preparations they have made as part of its regulatory return questionnaire being issued next month to the 230 law firms it oversees.
The news came as separate research showed the rising cost of moving home, which it said was likely to discourage non-essential moves.
In an advisory note on preparing for changes in the economy, the CLC said some of its firms had reported that property transaction volumes were already falling.
“That might be expected anyway given the very high volumes in 2021. However, increasing interest rates, the Bank of England’s stated expectation that the UK economy will be in recession until summer 2023, the falling availability of mortgage products and the tightening supply of properties for sale will all contribute to falling transaction numbers,” it said.
“Against this background, all law firms should consider how they would respond to a significant downturn in the economy.
“Those that are focused significantly or entirely on conveyancing would be wise to prepare a contingency plan that sets out steps they would take to protect the business in the event of a fall in transaction volumes similar to that seen in 2007-08 – a 40% decrease.”
The regulator said that plan might include cost savings, “increasing the profit margin on services”, the potential for growing income from probate services – which the CLC also regulates and “are less affected by the economic cycle” – and falling back on reserves.
“Preparing for the worst is vital for the resilience of the legal services sector and for the sustainable provision of conveyancing and probate services to the public.”
The advisory note recalled how the 2007-08 global financial crisis saw a more than 40% drop in conveyancing transactions from one year to the next, with the turnover of CLC-regulated firms falling by 27% “before largely recovering the following year”.
It added: “We know from past analysis that CLC-regulated conveyancing practices recovered their turnover levels sooner than others after 2007 and that growth has continued.
“The total turnover of CLC-regulated firms in 2009/10 was £85m, having recovered from the crisis. By 2020 it was £277m – a more than three-fold increase. The year to April 2021 was of course exceptional, not least because of the SDLT holiday deadlines, and saw an astonishing further 26% growth in turnover to £349m.”
The CLC added: “It has been an extraordinary decade and a half. We are now entering a very different world, though.”
Separately, average conveyancing fees rose by 21% over the past year, according to new research that showed the cost of moving home rising by a similar amount from £11,777 to £14,207.
Based on the median purchase price of £380,000, conveyancing fees made up £2,003 of that, with stamp duty the largest expense at £6,500, followed by estate agent fees at £4,544 (+15%) and removals at £649 (+8%). Surveying costs fell by 10% over the year to an average of £456.
Reallymoving, a comparison website for home-moving services, analysed data from 714,000 quotes generated on the site in the year to 31 July 2022 to find the typical moving costs.
It said the increases were due to rising house prices as well as inflationary pressure and high demand for services.
Chief executive Rob Houghton said: “At a time of soaring inflation and rising interest rates, the prospect of record high moving costs is bound to deter some non-essential home moves.
“Despite the welcome stamp duty cuts announced in the mini-budget, which have had a big impact on first-time buyers in London and the South-East in particular, rising house prices over the last year and the associated impact on the cost of services such as conveyancing and estate agent fees mean that moving home now eats up almost half of the average UK salary of £31,772.
“Moving costs for first-time buyers are thankfully more stable but with mortgage affordability declining, record high rents and rising inflation making it even harder to save, finding £2,198 in up-front costs on top of a deposit is extremely challenging.”
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