Adapting to the ‘new normal’ – Predicting the property market
Paul Sanders, MD of Legal Eye, gives a view on adapting to the ‘new normal’- How property lawyers are preparing for the future.
None of us can confidently say what lies ahead; however, what we do know is that the future will be markedly different to what has gone before. Clearly, we are going to enter a new phase in both our business and personal lives once the lockdown period is over; and chances are that law firms will need to approach the marketplace in a different way in the future.
There have been many positive aspects to the lockdown; it has shown us that it is possible to maintain businesses through unprecedented difficulties, work in alternative ways and find new methods to stay connected to our clients and colleagues.
The propensity of people to adapt and change has been nothing short of amazing and it has been noticeable how quickly remote working and ‘paper light’ ways of working have been adopted through necessity – even in businesses where these ways of working may not have been the norm before the coronavirus hit. As individuals we’ve benefited from the eradication of commuting and travelling for work generally resulting in the availability of more time to spend with our families.
Adoption of new case management practices.
Where firms may previously have experimented with remote working and with using entirely paperless case management systems; we now have no choice but to embrace these kinds of practices. Some firms are of course ahead of the curve and have been working in this way for years; others are having to adapt their working practices more radically and much more quickly than may have been anticipated.
For law firms that find themselves furloughing large numbers of staff and losing large numbers of instructions it is certainly a scary and uncharted path. But whether we believe those economists that are suggesting a 35% reduction in the economy and the worst recession in history; plus a 13% drop in the property market, we have to find coping mechanisms and ways to carry on and to prosper. That could be considered by some as an exciting and invigorating opportunity.
Drop in transactions
We know that large numbers of conveyancing transactions are on hold until such time as the social distancing requirements and lockdown are released, so we are already aware that there is going to be a surge in activity when those measures are removed. The challenge for firms is in knowing when to bring staff back to work and to be able to gear up quickly for the demand that’s likely to follow sometime later this year.
Here at Legal Eye we are seeing two strains of opinion. We are working with firms who have furloughed all of their staff and are sitting tight until there are able to resume activity. Whilst at the other end of the spectrum we are working with firms who are maintaining their staffing levels and supporting their staff with a view that at the end of this period there will be a huge demand for their services. Those firms that have furloughed will simply not be able to recover quickly enough in order to meet that demand. No one will know which is the correct approach until events unfold further – however standing still is not an option.
How will the property market respond?
So, what of the market? What are lenders, estate agents, solicitors and property professionals suggesting that the market is likely to do?
The property sector is the one area of the marketplace about which the government has specifically given guidance. They have very clearly said that conveyancing is not considered to be an essential service, effectively shutting down the market other than in a few exceptional circumstances. As a consequence, the rebuilding of the marketplace is – to an extent – in the hands of the property professionals and how they prepare to respond to return to a new normal. We have seen the opportunity to do virtual viewings emerge, a concept which I suspect is here to say and will be beneficial.
Business planning and disaster recovery has probably never featured so centrally in businesses. We have all had the policies and processes, but they have never been thoroughly tested. Nor have we been required to predict and respond to such an uncertain picture of what the future might look like in order to restructure and reorganise our businesses, policies, procedures, and people.
Are we seeing the market starting to take control of a phased push to get the market started? Several lenders have today increased their loan to values and adopted desktop valuations in an effort to kick start the market, we are seeing the potential return to work for some major house builders on the cards for next week.
Getting ready for the return to work
Commentators all agree that the end of lockdown will bring immediate significant activity and it is right that firms should be planning for how they deal with that period when there are likely to be significant numbers of people who wish to put their properties on the market. There will be a period where the buyer considers it to be a “buyers’ market” – perhaps where the seller is in financial difficulty due to redundancy and because of a greater choice of properties available – and negotiations as to price will become sensitive. This also creates challenges for those wishing to sell their property where they have a historic belief on the value of that property.
In reality, value is all relative. The sale and purchase of property will continue and if a prediction of a 13% drop in property value is accurate then the new pricing is applicable to both buying and selling.
The relaxed lending that we’ve had over the recent past may in itself cause some issues for sellers. The high loan to values that were allowed more recently will potentially put homeowners in a negative equity situation and, as a consequence, lenders will need to consider what their policies and approaches are toward repossession. Do you return to the late 80s with huge repossession numbers or do we find ourselves in a position where lenders actually take a more pragmatic and sensible view of the market and allow different methods of repayment and potential holiday payment periods? I do not think that it is possible for the repossession market to re-emerge in the same way that it has done historically but it may become more prevalent.
Working on an assumption that lenders will not want to repossess and that consumers will still want to transact, there is still going to be a requirement, as before the pandemic, for property to be transacted therefore law firms need to be ready and available in order to conduct those transactions for the public.
The question becomes how are those transactions conducted – will there be a return to the traditional paper-based transactions, or will everything move online? Is the face-to-face meeting dead?
If nothing else, this period of lockdown has shown us that it is possible to conduct transactions from a distance and although we still have some challenges around the witnessing of deeds and documentation we have seen firms finding successful ways of conducting transactions without the need for face-to-face discussion. This brings with it considerable review of how firms assess the risks presented by new clients in the light of the increased difficulty in accurately profiling the risks associated with conducting transactions at a distance. However, all of these problems are surmountable provided that the firm is prepared to take a fresh look at how things are done. My next article is a practical guide to help prepare your firm to return to work.
digitalmove – an online conveyancing portal
Systems like digitalmove, an online conveyancing portal produced by our parent company ULS Technology, allows the collection of data online through a secure portal and enables it to be transmitted immediately and safely through to law firms.
As the system delivers information directly in to the firm’s case management system in the correct format; this saves considerable time both at the point of bringing the client on board and undertaking proper due diligence on the client as well as providing time savings throughout the transaction.
Once the client information has been collected, processed and passed to the nominated law firm from a pre-approved panel, the system allows the electronic transfer of mortgage offers and documentation which effectively remove the requirements for face-to-face consultation.
The ability to build risk checks in to the systems ensures that the firm helps to manage the risk aspects of a transaction as well as streamlining administrative tasks. This leaves the lawyer free to focus on the legal aspects of the transaction and frees up administrative staff for other tasks and creates more capacity within the conveyancing team.
Looking further ahead…
After the initial flurry of activity in the property market it is predicted that there will be potentially another slump in instructions where the realities of those that were furloughed and subsequently made redundant become more apparent and potential loss in income with cautious lending and lower loan to value rate will make it more difficult for people to obtain funding for property purchases.
Predictions are that after Christmas 2020 the market will stabilise, and confidence will have returned and therefore the period to Easter 2021 will be the highest potential boom in the property market for some time.
Taking these potential circumstances into account there will be clearly a need for closely controlled business planning over the next 12-month period. The requirement to service any immediate demand after the lockdown period followed by a lower interest in property transactions may then lead on to one of the highest boom periods in the early part of 2021. This is not an easy set of circumstances to plan for but for; but for those that get it right there are potential opportunities.
Those that will potentially gain are those that embrace a new way of working and recognise that not only are there systems out there that can support remote working. It may not be necessary for offices to be as large as they were previously and for such a high level of paper to be involved in these transactions, potentially reducing cost and increasing profitability.
The one constant and increasingly important aspect of business planning is going to be the risk profiling of your business, looking at the nature of the clients that you work with and not taking unnecessary risk on the clients that you take on will become key to the running of the businesses.
Implementing more effective business continuity planning and changing the way that you make a profit will bring advantages to firms. There is a huge hidden cost, that very few acknowledge, in not risk profiling clients and business processes closely enough. The end of the transaction is not necessarily the end of the cost to the business; complaints, claims and general noise around transactions costs more in time to settle than the original fee in many instances.
Having the confidence to have a more robust approach to these matters will, we believe, make businesses more efficient and more profitable.
Please contact Paul Saunders on firstname.lastname@example.org for more information.
Kindly shared by Legal Eye