A review of the 2019 Property Market

Whilst law firms faced profit reductions in 2019, 89% had experienced income growth and remained optimistic about the future, according to the Annual Law Firms’ Survey 2019 by PWC.

The majority of firms attributed Brexit to be the main catalyst stifling further growth with 80% looking to prioritise technology to stimulate growth over the next 2-3 years.

Here, we look at the changes influencing the sector in 2019 and consider the potential influencers as we enter the next decade.

Regulatory Change and Compliance Obligations

Current Changes

In December last year, the sector started settling into life after price and service transparency regulations took effect.

Overall, the legal sector spent the majority of 2018 fretting about the implications, worried it would result in a race to the bottom as firms compete for business.

In the majority, this has not been the case as firms began highlighting the expertise and services they were able to offer the prospective client.

Others looked at digital ways of catering to the needs of the consumer by implementing a range of digital services to ensure the client journey was improved. Over a third of firms are now offering legal services digitally or through email, according to the SRA.

Prior to instruction, the use of chat bots and pricing calculators meant quotes could be offered outside working hours. Artificial Intelligence (AI) has been used to improve efficiency whilst Portal systems have helped create a smoother workflow and increased transparency for the consumer.

Whilst a quarter of SRA regulated firms were not compliant with regulations following SRA observations, the majority were using the regulations to drive growth in their law firms.

The Solicitors Regulation Authority (SRA) released their updated Standards and Regulations in November. The new rules are shorter and considered less prescriptive than the former 2011 rules.

The SRA claimed that the new system offered law firms and regulated members greater flexibility, unlocking the potential to usher in a new way of working for many legal service practitioners.

In-house solicitors have more freedom to offer pro-bono or non-reserved legal services whilst freelance solicitors can now set up non-reserved legal services without having three years’ experience.

All changes should now have been made and signed off through law firm decision makers. Documentation and policies should have updated to reflect the language of the new regulations and law firms should be looking to build in regular review periods to monitor initial responses to the changes.

Immediate changes in 2020

While they were also some major changes announced that would impact conveyancers in the first few days of 2020.

Conveyancers will need to be aware of the regulatory changes enforced by the Environment Agency from 01 January 2020. Over a million UK homes will be impacted by the updated General Binding Rules which amends 2010 legislation into septic tanks.

In order to reduce the amount of contaminates in groundwater supplies in surface water in rivers, streams and lakes caused by septic tank run off, all tanks built before 01 January 2020 will need to ensure they comply with new regulations.

Properties will now be asked to join a mains sewage system, create and use a small sewage treatment plant or build a drainage field/soakaway system.

Transactions in the final days of 2019 will need to ensure that any non-compliant septic tank issue is incorporated into a condition of sale. Buyers and sellers will need to consider who is responsible for the changes and conveyancers will need to advise their clients on the issue in the weeks and months ahead to ensure all parties are aware of the issue in advance of the sale.

10 January 2020 will also see the Fifth Anti-Money Laundering Directive come into force, offering much needed clarity for many law firms who have struggled to fully understand their compliance obligations.

Electronic Verification has been endorsed in the legislation and the directives expand on who is not considered a politically exposed person (PEP) with additional governmental information helping to make this issue more transparent.

Slowing Property Sales

Uncertainty has spooked the majority of stakeholders in 2019, especially buyers and sellers who adopted a cautious wait and see approach.

The UK completed 854,630 property transactions in the opening three quarters of 2019. This figure represented a 1.5% annual fall when compared with 2018’s 867,900 completed transactions. Similarly, industry reports also suggested consumer confidence was restricting movement in the market.

According the NAEA Propertymark’s annual housing report data, the number of available properties per estate agency branch had plummeted by 59% in the last ten years. Despite dealing with the aftermath of the financial crisis, estate agents were marketing 65 homes per branch in 2009. However, in the current climate this has fallen to just 44 properties and the average over the past two years falls to 38.5.

The UK’s construction sector has also suffered in 2019 with a reduction in commercial and residential starts limiting growth in the sector.

According to Office for National Statistics most recent data (ONS), construction output for October recorded the largest monthly fall since January 2018. The 2.3% month-on-month reduction was largely attributed to a 3.1% fall in new work.

During the second quarter of 2019, new work had decreased by 14.5%, reducing by a further 0.3% in the third quarter.

Driven by Brexit uncertainty and the impact this will have on new project starts, hiring a specialist foreign workforce and the fear of increasing materials.

However, forecasters are confident following the Conservative majority that these issues will be resolved, and the market will once again grow in 2020 and beyond. Between 2020 and 2024, UK housing transactions are expected to grow by 11.5% from 1.22 million to 1.36 million.

Annual house prices are also expected to increase by an average of 3% over the next 5 years.

GlobalX want to ensure all conveyancing firms are able to start the next decade positively. Our extensive range of property searches for both residential and commercial transactions throughout Wales and England will ensure that all bases are covered in a time of increasing due diligence and regulatory compliance. Contact GlobalX on 0800 197 1757 to find out more about our unrivalled services.