Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.Donate to our crowdfunder
I beg to move,
That this House
has considered the conveyancing process.
It is a pleasure to serve under your chairmanship, Mr Percy, and I thank the Minister for being present today to respond on behalf of the Government. I refer you to my entry in the Register of Members’ Financial Interests, because Spicerhaart estate agent kindly provides a regular donation in kind by printing my parliamentary “Reporting Back” publication. I was also a practising property solicitor, although I gave that up on election to this place.
As a nation, we have long held home ownership to be a valued tradition. This Government have done much to promote home ownership and to make it easier for people to get on to the property ladder. Once someone has saved a sufficient sum for a deposit, perhaps utilised a Government scheme such as Help to Buy, and found a house to purchase, however, the conveyancing process kicks in, and recent mortgage research from Which? suggests that seven in 10 people who have bought or sold a home have found it to be nerve-racking and the biggest source of stress apart from getting a divorce. Having a child, changing jobs and arranging care for an elderly relative are all said to be less stressful than getting involved in the property market.
Are we surprised by that? A person or couple have put in their offer and instructed a conveyancer. They pay a retainer to the conveyancer to cover the cost of searches, which is about £200; for a survey, which is between £200 and £600; and any fee due to their mortgage adviser. They also complete a load of paperwork, and then wait and wait until their conveyancer informs them that they are in a position to exchange contracts. If one gets to that point, the house is under contract and people can breathe a sigh of relief. To be clear, up to and until that point, either party may pull out of the transaction, and usually no costs are recoverable. But is that okay because such cases are rare? No. More than one in five property transactions fall through each year—around 200,000—and about £270 million is wasted annually on legal fees and surveys for failed house purchases.
As I mentioned, by way of background, I was a practising solicitor specialising in residential property, so I worked in this area of law and have first-hand experience of the frustration of the conveyancing process in England and Wales. I am not, however, a poacher turned gamekeeper, because although conveyancers are far from blame free, the issues that need addressing are largely with the system and the process. Conveyancers are often demonised, because they are the day-to-day contact with their clients and the venting point for frustration, but in many cases they are not responsible for the numerous obstacles that can arise as part of the house-buying or selling process.
At the end of last year, I was pleased to see that Her Majesty’s Treasury and the Department for Business, Innovation and Skills announced plans for a call for evidence to explore
“options to deliver better value and make the experience of buying a home more consumer-friendly.”
That is no easy task, but I am delighted that the Government are taking it up. Recognising the issue is the first step, although I fear that finding possible solutions will not be as easy.
I will touch on some of the obstacles and frustrations in the conveyancing process, with my observations. Residential conveyancing is covered by the doctrine of caveat emptor, let the buyer beware. The purchaser’s conveyancer is therefore responsible for checking the title and undertaking relevant searches and surveys. That leads to detailed inquiries and, despite the Law Society trying to curb them where they are general, they still represent a considerable administrative burden. The burden is also on the purchaser’s conveyancer to be satisfied on behalf of purchasers and, in most cases, their mortgage lender. There would therefore be considerable merit in clarifying the extent of a conveyancer’s obligation to the client and mortgage lender.
Gazumping is the practice of buyers outbidding those who have already had an offer accepted. The practice causes huge frustration and disappointment for buyers who think they have secured their dream home, only to find that they lose it in a heartbeat to someone with deeper pockets. It also means that those buyers, who lose out regularly, end up paying for abortive legal costs, mortgage consultant fees and survey fees, which can run into thousands of pounds, adding insult to injury. Gazumping accounts for 21% of collapsed sales, while only 15% are because the buyer pulls out at the last minute. The answer could be a financial commitment pre-contract, which would be forfeit should the seller, without warning, raise the price or pull out of the sale.
I congratulate my hon. Friend on securing this important debate. The last time a Government looked at gazumping was under Labour, which set out to tackle it, but actually tackled a completely different problem and introduced the ill-fated home information pack. Does he agree that any proposal to change legislation should involve the industry, including estate agents—I refer the House to my entry in the Register of Members’ Financial Interests—and the legal profession, to ensure that any changes are beneficial to the process?
I thank my hon. Friend for his intervention, because he is right: any change that the Government make has to be in association and after consultation with the industry, which is estate agents, solicitors, licensed conveyancers and surveyors—everyone involved. If we do not take them with us, any change will simply not work.
Long chains are commonplace in the conveyancing process. They can cause considerable delays to buying and selling. Although chains can be and do get broken, it is not easy, and action such as encouraging short-term lets could provide an answer. There is no question in my mind but that the simplification and standardisation of the mortgage application process would be a good first measure to consider, potentially including an industry standard of instructions and documents for the conveyancers to deal with. I recall the minefield that, in practice, is the Council of Mortgage Lenders handbook, with parts 1, 2 and 3, and all lenders having differing requirements. Reducing or standardising that handbook would lead to a reduction in the work that a conveyancer needs to do, therefore considerably speeding up the process.
There is a strong argument for deciding on agreed protocols and procedures in the conveyancing process. I recall that, in practice, it was only when a sale was agreed, conveyancers instructed and a retainer paid that property information protocol forms would be sent out to clients. Those forms are far from simple and take several hours, if not days, to complete, which means at least a week of delay before they are returned to the conveyancer to be sent on to the purchaser’s conveyancer. Comprehensive and standardised questionnaires would create consistency, and enable those selling a property to complete the forms when the property is originally put on the market.
Furthermore, I argue that estate agents have a part to play. They could be obliged to obtain basic information when a property is first marketed, and they could provide more detailed standardised property questionnaires from the conveyancer for the seller to complete while a buyer is being sought for the property. That might shave at least a week off the conveyancing process.
To remain on estate agents, several pieces of legislation affect them, in particular the Estate Agents Act 1979 and the Property Misdescriptions Act 1991. However, things have clearly moved on since then, and I suggest that we might need to review the existing legislation to make it fit for purpose. If, for example, estate agents were licensed—a potential option—the other regulated professionals, such as surveyors and solicitors, would have more confidence in relying on them to manage their part of the conveyancing process.
Currently, landlords and managing agents charge for information about leasehold properties and, in my experience, it often took weeks to receive the information. That causes considerable delays, especially when there is a chain of leasehold properties, which in our great capital city is commonplace. Regulation of the sector dealing with leasehold properties could be the answer, including, for example, minimum response times and a centrally held database of management packs, particularly for large blocks.
Finally, I will reserve some of my fire for my former profession. The move towards factory conveyancing with ridiculously low fees is not only leading to delays, but potentially costing clients. As fees fall, the margins fall and firms need to take on more and more work to remain profitable. That means that many conveyancers are reactive instead of proactive not out of choice but out of necessity. It is the client who then suffers as conveyancers cannot meet their rightly high expectations. Trade bodies have tried to address that by introducing specialist conveyancing credentials such as the kitemark. They have played some part in driving consumer choice, but ultimately—this is my experience and I think the industry would support me in this—the vast majority of clients are primarily motivated by the fee instead of the credentials of the conveyancer. That often leads to lots of complaints being made retrospectively—“I wish I’d used another firm. I wish I’d looked into it.”
May I declare an interest? I am still a practising solicitor. I have been very interested to hear what my hon. Friend has had to say and I have a lot of sympathy with it. One thing he has not touched on is the Scottish system, which is distinct from the English system. Does he think there is some merit in looking at how the Scots do conveyancing, or does the way we do it in England just need reform rather than fundamental change?
I thank my hon. Friend for that intervention. The Scottish system certainly has merit, but we should not see it as a panacea. It front-loads a lot of the obligations and costs on to the seller. In the current market, where properties sell easily and quickly, that process can work quite well. However, in a more stagnant market, where sellers are having to cover those costs up front, there is often a lot of frustration there. We should certainly look at the Scottish model, but we should not look only at that. Our system in England and Wales needs fundamental reform not just mirroring the Scottish system.
Technology may be part of the solution. People search online for a property and it is reasonable to expect that they would also like to contract and correspond online with their conveyancer if that speeds up the process —if I had a pound for every solicitor who still sends out letter after letter by post, I would be a very wealthy man. I am aware that systems such as Veyo and Free2Convey are in the pipeline, but I question whether they will actually fix the underlying issues in the process.
I very much welcome the plans of Her Majesty’s Treasury and the Department for Business, Innovation and Skills to undertake a call for evidence to explore options to deliver better value and to make the experience of buying a home more consumer friendly and I eagerly await that response. However, unless the Government are willing to change fundamentally our antiquated conveyancing process root and branch, we will not see the improvements that those buying and selling residential property are so desperate to see.
—with glorious sunshine outside and in. I congratulate my hon. Friend Will Quince on securing a debate on this important topic. It seems like only yesterday that I was responding to him on a different debate that he secured, which shows what an assiduous MP he is on behalf of his constituents.
There were some 1.1 million completed property transactions in England and Wales in 2014-15. About a million of those—the vast majority—were residential sales and the amount of human as well as monetary capital caught up in and reliant on the conveyancing process at any one time is difficult to overestimate. The process, which delivers a secure and marketable titled property, is important to the parties to the transactions and to our underlying competitiveness as an economy.
The broad purpose of the conveyancing process is first to deliver a good and marketable title, free from unexpected encumbrances, to the buyer and to the lender funding the process in order that it can be registered at the Land Registry without difficulty. The investigation of title is only part of that process. Secondly, conveyancers must interrogate the seller and public records for information affecting the property and, once obtained, information must be analysed and any uncertainties clarified. The buyer and lender must, at the end of the day, both be content to proceed. They will both rely on their conveyancer, who is normally the same person, and, in the event of negligence, the conveyancer’s professional indemnity insurers.
Thirdly, conveyancers must know their clients and satisfy the money laundering regulations. Fourthly, conveyancers must co-ordinate their transactions so that they proceed only when their clients both want to proceed and are able to proceed. Finally, conveyancers should support their clients through an emotionally charged process that in most cases they will encounter only a few times in the course of their lives.
As if that was not complicated enough, residential cases can be even more convoluted. The reality is that most individual residential transactions are linked by virtue of chains and without simultaneous transactions sellers and buyers would have to move into temporary accommodation. That carries the additional risk of the market moving before they can re-enter it or having to take out potentially open-ended bridging loans with the risk of unaffordable interest. The conveyancing process as we know it today in England and Wales is a result of those competing pressures and objectives.
The process is not mandated in detail by law. Rather, the law tries to provide a broad framework in which the parties are free to decide how to shape their own transactions, although in practice most of those transactions follow fairly straightforward—or at least common—standard industry protocol. Sales may proceed by auction, tender or private treaty, with several different approaches available in each of those courses, but in practice the vast majority of transactions proceed by private treaty, which in layman’s language is really private contract, and it is that experience that shapes their views.
Opinions on the conveyancing process vary. They are sometimes negative, as we have heard from my hon. Friend. There are complaints about the time taken and the costs involved. Transactions can be prone to delay and all parties can get frustrated about the lack of transparency in the process. Estimates vary, but anecdotal sources suggest that the fall-through rate is roughly between a quarter and a third, which can amount to additional costs to both consumers and the wider economy of about £270 million each year. Millions more may be lost to estate agents and conveyancers operating on a no sale, no fee basis, who incur costs they cannot recoup directly if a transaction falls through.
It is important to say that not every failed transaction is as a result of some form of bad faith, but the practices of gazumping and gazundering, even if relatively rare, do little to improve the reputation of the business. There is no clear cause, or at least no single cause for those problems or the fluidity of the underlying market, which is inherent in a free market system. Many people point to the length of time needed to get from an agreement subject to contract to a binding legal commitment as the key problem. Often the solution proposed is a requirement to enter an early conditional contract along the lines of the traditional Scottish model. However, the truth is that, at least at present, few people in England and Wales seem to be keen to use conditional contracts as a matter of voluntary practice.
In the same way, few people try to protect themselves despite the risk of the transaction failing: they do not seem to make great use of either cost guarantee agreements, where the party that breaks off the deal forfeits a specified sum to the other, or lock-out and lock-in agreements that can secure exclusive negotiating rights. That may be due to lack of costs or awareness or the likelihood of being able to secure those terms—it is true that that is not clear. I think the lack of use or take-up should at least give us some pause for thought before we prescribe a single mandatory remedy as the silver bullet.
Another complaint that we hear is that certain parts of the process—most commonly the local authority search—take too long. Where there is an essential process within an overall conveyancing framework, steps to improve response times will assist in reducing delays. Examples include inquiries of the seller, inquiries of the landlord in leasehold situations, or Land Registry and local authority searches. There may also be wider benefits in making property information more accessible online, and the Land Registry, which holds 24 million titles, has moved from a paper-based system to an electronic approach. That has at least helped to make quicker transaction times possible. The Land Registry has successfully developed certain digital products—most notably the award-winning MapSearch and Property Alert services, which will further modernise and digitise the services that consumers receive. The Land Registry is also taking over the local land charges register from local authorities, so that we deliver a single digital local land charges register in England. That should help to reduce overheads and also eliminate regional variations in practice.
Speed of communication between the principal participants is also sometimes flagged as a problem. Obviously, improved communication between the various parties involved could only be beneficial. However, I have to say that my impression is that the office procedures within the conveyancing process today are generally computerised and likely to become more so in response to consumer expectation and, indeed, competition. Chains of transactions of course present their own communications challenges, almost inherently, but attempts so far to provide an all-embracing, all-encompassing, secure electronic environment, in which members of the chain can communicate seamlessly, have foundered. That happened most recently, as my hon. Friend the Member for Colchester mentioned, with the Law Society’s Veyo project. That is clearly a difficult nut to crack.
Finally, Mr Speaker—
It is only a matter of time. Finally, Mr Percy, we should not forget, when looking for the causes of procedural problems in the system, that the conveyancing process has to deal with some pretty difficult areas of law, and simplification and modernisation of the substantive, underlying law has a part to play in improving the overall effect of the conveyancing process. Work on the Law Commission’s recommendations to reform the laws relating to easements and covenants, as announced in the context of the Queen’s Speech, shows the Government’s commitment to improving the underlying substantive law in the area, which should have a knock-on effect for consumers, in terms of process.
The Government of course also announced at the time of the autumn statement last year that they would publish a call for evidence on home buying, exploring options to modernise the process and provide consumers with different and potentially quicker, simpler, cheaper and more effective ways to buy and sell a home. My hon. Friend the Member for Colchester made reference to that. The call for evidence will be published by BIS later this year. It will invite evidence and proposals for innovation from all aspects of industry, but also from consumers. I am sure—I certainly hope—that my hon. Friend will be engaged and involved in making sure we get the right evidence in, and that the right conclusions will be drawn from the evidence throughout the process.
I pay tribute once again to my hon. Friend for bringing this topic before the House, and I am sure that I will be back again to respond to him in debate soon. I hope that in the light of my comments he will be reassured that the Government are aware of the multiple concerns he has raised, and that they are endeavouring to take the right action to address them.
Question put and agreed to.