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Recession slowdown could be opportune time for property market reset – Rudolf

by: Beth Rudolf, director of delivery at the Conveyancing Association (CA)
  • 19/08/2022
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Back in 2013 when the previous governor of the Bank of England, Mark Carney, was appointed there was a lot of ‘noise’ about his ambition to give the market ‘forward guidance’ when it came to changes to the Bank Base Rate (BBR).

If you remember, Carney was attempting to provide some kind of certainty and assurances that, for example, BBR wouldn’t move until unemployment reached a certain level or other measures had been met. The understanding being that we would get much more effective monetary policy as a result. 

Unfortunately, the ‘forward guidance’ policy was unable to hold due to the significant economic and political changes that befell the UK, most notably the vote to leave the EU, which precipitated BBR cuts, and the pandemic. Forward guidance in relation to rates at least, was no more, if it had existed at all. 

 

Recession warning  

Fast forward to this month and we have a return to ‘forward guidance’ from the Bank of England but in another form. This time, it comes via a warning that the UK will fall into a recession in Q4 this year and it’s likely to last for the entirety of 2023. There’s nothing like good news, and this is nothing like good news. 

I’m not sure if such a warning is unprecedented but it certainly feels like it, and the fact it was issued on the same day that the Monetary Policy Committee increased BBR by 0.5 per cent and that a recession looks to be so long and deep, will no doubt give considerable cause for concern.  

Housing market stakeholders are not likely to be immune from a recession, and we are perhaps already starting to see the impact of the cost-of-living increases, interest rate rises, etc. in the form of lenders withdrawing mortgage products, house prices starting to dip, lenders pricing themselves out of the market, and demand starting to fall. 

However, might this forewarning and this potential activity slowdown give our industry a chance to reset itself, to prepare for what is coming, and to get our home buying and selling process into the best shape possible in order to deal with potentially fewer transactions?  

It would certainly be a policy worth pursuing by whomever takes over as Prime Minister next month, because it’s been clear for some time that many firms within the housing market have struggled through 2022, specifically in terms of finding the human resources required to deal with the business levels being generated. 

I know this has been a major source of frustration for advisers and their clients, but I’m afraid this isn’t a problem which has just affected lenders or conveyancers.  

 

Labour shortage concern  

What was interesting about the series of interviews that the BoE Governor Andrew Bailey gave, when the rate decision and recession prediction were announced earlier this month, was his focus on the internal labour shortages across so many UK businesses that have been a significant problem. 

He said that when he talks to businesses, the first thing they often say to him is that they can’t recruit enough people fast enough. Hence why we have strong employment rates but still hundreds of thousands of jobs that aren’t being filled in many areas of the economy. 

For what it’s worth, I know that many Conveyancing Association (CA) member firms have been on permanent recruitment drives over the course of the past six months to a year, and my perception is that this won’t stop even if demand and activity do dip. 

What of course will help us all in preparation for a potential slowdown is making every case count, or at least ensuring that the number of fall-throughs is at the absolute barest of minimums.  

What is worse in our sector than seeing the work that goes into a transaction going unrewarded because it falls through?

And given the huge number of chains we have, we’re all acutely aware that if one falls, then the domino effect can be significant.  

 

Upfront data could resolve fall-throughs 

It’s why the CA is supportive of the provision of upfront information to ensure the client and their conveyancer know from the outset everything that is material to them about the property and that there are no surprises later in the process which result in someone changing their mind and pulling out.  

At the moment, approximately one in three transactions are aborted before completion. In other territories where they have upfront information, that number is down to single-digit percentages, plus we would be able to speed up the process significantly meaning pipelines turn quicker, payment is received faster and profitability can be improved without wasted time, resource and investment on cases destined to fail. 

With a recession apparently a foregone conclusion for the end of 2022 and all of next year, it is clearly in all our best interests to lobby for a process that ensures all our work counts almost every single time. Each transaction will be needed and of great value over the course of the next 18 months – we need them all to complete to create a positive home-moving process for everyone. 

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