In this article which also appeared in the Solicitors Journal Wolverhampton Law Society Council Member Andrew Lund hopes to provide members some food for thought about the possible consequences of the latest housing “boom and bust”.
Let me make a brave and, most likely, controversial prediction which is this – in ten years time there will be no such thing as residential conveyancing. Instead, conveyancing as we know it will have been replaced by insurance backed certificates of title.
In order to appreciate how we may well arrive at this outcome we need to look at where we are at now and the main drivers for change.
Unlike 20 years ago conveyancing is no longer the preserve of Solicitors. Most is undertaken by unqualified staff. The “big” players are largely licensed conveyancers. The price has been driven down to unsustainable levels. The perceived value of conveyancing is very low (you only have to compare Estate Agents’ fees with those charged for conveyancing to get the picture).
Unlike 20 yrs ago the market for conveyancing is not controlled by Solicitors. Instead it is controlled by those who arrange the finance for property transactions – that is the mortgage lenders and (until the credit crunch) mortgage brokers – or those who introduce the parties to the underlying transaction (estate agents).
Conveyancing is now seen as a de-skilled “process”. This is largely due to the impact of the Registration of Title. Furthermore, I suspect that if pressed the public would say that it views conveyancing with antipathy – it might well be categorised as an inconvenience that gets in the way of a transaction that the parties have set their hearts on.
If the summary set out above is correct then the future of conveyancing is in the hands of the financial sector. At present it is tolerated by that sector. Why is this? In essence the conveyancer provides the Lender with a free copper bottomed and insurance backed Certificate of Title. If something goes wrong the Lender sues the Conveyancer who is backed by compulsory professional indemnity insurance. Those of us who have been qualified for long enough have now seen three “boom and bust” cycles in the property market each one bigger than its predecessor. Each time we have had the toxic combination of run away house prices, relaxed lending criteria and sloppy cut-price conveyancing. In a rising market with lots of churn people can get away with it but when the tide eventually goes out a fair number are always exposed…..these tend to be the hapless Conveyancers to whom Lenders then turn to effect a recovery and, by extension, their Professional Indemnity Insurers.
Twenty years ago Lenders had the double safety net of the Conveyancers PI cover and separate Mortgage Indemnity Guarantee (MIG) cover. After the first of the three busts MIG ceased to be underwritten routinely – the Insurers had had their fingers burned. The Court of Appeal initially hammered errant conveyancing solicitors with gusto but then woke up to the fact that the Solicitors Indemnity Fund was on the verge of insolvency and started circumscribing the duties implicitly owed to Lenders. We then had the Lenders’ Handbook as an attempt to codify the limits of the conveyancers retainer with and obligations owed to Lenders.
The latest mother of all busts would appear to be the final straw for Conveyancing. Certainly the SRA seems to think so. Just look at the latest consultation on client protection , not only do we have the suggestion that conveyancing as an activity should be separately insured but that protection for financial institutions should be written out of the minimum terms. It would appear that the PI insurers are no longer prepared to pick up the tab for property busts and the SRA seems to have decided that conveyancing is no longer a core activity for the solicitors profession and that the resources required to police it might be better focused elsewhere. The Law Society on the other hand in a last ditch attempt to save conveyancing for the profession has come up with the Quality Conveyancing Scheme. Maybe this will put off the evil day until the next inevitable boom and bust? Or will it?
I was talking the other day to a gentleman at a firm which specialises in developing new Insurance products for the Property Sector. With a background at First Title he is used to insuring risks around title. When it comes to Registered Titles he envisions a situation where all the Conveyancer does is check the terms of the sale contract and perform money laundering due diligence. A team of underwriters gets Office Copies of the Register and decides whether or not to issue an insurance backed certificate of title. As he observes, all the Lender really wants is to nail down its risks on title. These risks can be insured away.
It seems to me that risks around the personal covenant will likely be more controlled after the FSA Mortgager Market Review. Put together both components and you can start building mortgage portfolios where the underlying quality of the loans is of a suitable provenance for securitisation. Securitisation is the key for attracting more finance to the property market from off balance sheet lenders and others (there are rumours of the likes of Tesco and Sainsbury eyeing up the mortgage market). Securitisation allows the origination of loans which are then pooled and sliced and diced into bonds. Ultimately, this is the key to restoring volumes and underpinning house prices…..an attractive scenario which would play well to both politicians and a wider public. I suspect that neither are likely to allow conveyancing as a process to get in the way.
Note- the opinions expressed herein are the writer’s alone rather than those of the Wolverhampton Law Society.
