SPECIAL FEATURE: The race is on for law firms to consolidate their conveyancing sector share – Taylor Rose

SPECIAL FEATURE: Taylor Rose has written an article discussing the race for law firms to consolidate their share of the conveyancing sector.

In the past year, we have witnessed a significant change across the conveyancing sector, with larger law firms vying to increase their market share by adopting new ways of operating to address the changing trends over the last two years in the housing market.

These shifts started during the pandemic, with more lawyers looking to move out of major cities and operate remotely as virtual working became the norm. However, while an increased number of solicitors began operating remotely, this has simultaneously increased the risk for insurers – particularly for those working in smaller firms without well-established risk, compliance and quality control processes. This, therefore, led to a rise in professional indemnity insurance (“PII”), pushing up premiums to cover potentially high pay-outs. As a result, we have witnessed increased financial pressure on smaller firms and consequently a greater incentive for small firm lawyers to gravitate toward larger firms for additional job security.

Furthermore, as people escaped cities for more space, the demand for conveyancing services also increased. The sector benefitted from the exodus of people moving away from cities in the “race for space”, as working from home became the norm in many people’s lives. Unsurprisingly, the stamp duty holiday and new mortgage guarantee introduced last year continued to heighten this demand. The UK-wide government schemes enabled first-time buyers with smaller deposits to access mortgage products which created a sharp jump in average deposits for first-time buyers. The soaring property demand meant that conveyancers were dealing with unprecedented demand – completing 1.26 million transactions during the 2021/22 financial year, according to the latest analysis of Land Registry data.

This record figure indicates the pressure solicitors have been working under as the housing market recovered from the initial Covid hit. As a result, the pressure to hire talent has also risen, creating a resourcing challenge in the industry. The highly fragmented conveyancing market – made up of a large number of predominantly smaller firms, each with a tiny market share – continues to consolidate as smaller firms struggle to cope with inflationary pressures and the need to modernise to keep up with a shifting post-Covid market. Thus, as the number of transactions climbs upwards, the number of firms servicing them is simultaneously declining.

The geographical offering of each firm is also becoming increasingly imperative. At Taylor Rose MW, we have adapted to the shifting property purchasing patterns by ensuring we have a presence where there is significant market demand. The opening of our new office in Cardiff – announced in June 2022 – is an example of our strategic positioning to address rising regional conveyancing demand, with Wales recording the highest house price rises of around 12 per cent in the year to March 2022, faster than the UK annual rate of 9.8 per cent.

These changing patterns are also being acutely felt within conveyancing firms, who are increasingly pressurised to meet shifting employee demands in order to attract and retain talent. As the pandemic led many workers to re-evaluate their work-life balance and seek remote working flexibility, conveyancing firms who are set up to enable this have benefited. We have seen a consistent stream of conveyancers joining our consultancy division from smaller firms, often seeking the flexibility the model can offer. The legal consultant business model offers lawyers a central service platform, brand, and management infrastructure from which to operate, in return for a percentage of the lawyer’s revenue. The lawyers themselves are self-employed consultants, who retain an average of 70% of their earnings, with the remainder taken by the consultancy firm. Taylor Rose MW currently has over 450 consultant lawyers – and the hiring momentum remains as strong as ever.

The ability to attract and keep good people is vital in the current climate. It is what is enabling us to continue to win market share and be bullish about the future, despite the expected changing trends in the property market.

While the pandemic fundamentally changed geographical trends in the property market, it is now being altered again due to the cost-of-living crisis. Following the surge in property demand – and in turn, demand for conveyancers – the property market is now facing a hard reset. Inflation levels are spiralling, and the cost-of-living crisis is set to hit even harder in Autumn as the energy price cap substantially increases bills. As a result, household budgets are being squeezed tighter and tighter, and mortgage rates will increase by several percentage points.

While the last year saw property prices soar beyond expectations, interest rate rises are beginning to bring house prices back down to a sustainable price pattern. Rightmove recently published figures which show that the average house price coming on the market has fallen for the first time this year, dropping by nearly £5,000 during August. Property in London was most susceptible to this fall, reporting a -3.5% month-on-month fall in asking prices. Falls in house prices are normal during the summer, and average house prices are still eight per cent higher year on year. However, a longer-term downtrend is expected in 2023, with prices expected to fall by around four per cent.

There is little question that the conveyancing market as a whole will suffer from a prolonged cost-of-living crisis as interest rates rise and transactions more than likely slow down. But the changing economic trends will create new opportunities for the sector. The market is so fragmented, with so much to play for, that there will be a huge disparity between the winners and the losers in conveyancing. I expect to see many smaller high street names disappear as they struggle with their overhead costs at the same time as losing business and lawyers to more modern firms. In this market, the legal firms of the future will be those that can provide strong local connections, forward-thinking technology, and offer the kind of people-centric culture and innovative working models that can attract and retain the best people.