By Charlie Davidson, Associate Solicitor in the property department at Bishop & Sewell LLP. Charlie sits down with Stuart Whiter, Associate Portfolio Director at AJ Chambers. He explains first-hand how residential property fared in a 2022 review.
Bishop & Sewell is an all-service law firm based in central London. With a particular focus on real estate (as it has been for over 40 years).
While I sit within our residential property team, I work with both our Commercial, and Landlord & Tenant Teams. I have seen the shifts in how the conveyancing industry responded to the events of last year.
Residential Property Review 2022
While somewhat removed from the infamous Stamp Duty holiday, 2022 remained an overheated time. The pressures of Covid and the Stamp Duty holiday caused many experienced conveyancers to leave the industry. Given the increased need for expedited transactions it sometimes meant that training was lackadaisical. Training of staff, and the recruitment of experienced conveyancers, needs to be boosted in 2023. Otherwise we face a concatenation of disasters. Highly trained professionals leaving the sector just as more complex legislation comes pouring in. Alongside a public (and insurers) that are demanding ever-more technical perfection.
The main surprise, of course, was the political turbulence we faced last year.
With Liz Truss’s ascension to the premiership, we were all very surprised when she announced a mini budget. It was going to touch upon Stamp Duty Land Tax. Many of my conveyancing colleagues were concerned that we were going to face another Stamp Duty holiday. With it, another mad rush to get transactions dealt with. It was expected to put a great burden on the welfare and mental health of the conveyancers who carry out the transactions. I was up early, in my dressing gown, coffee in hand, watching the political scene unfurl before me. In the end, the suspected Stamp Duty holiday was merely a mid-term increase in the Stamp Duty rates to 2025. I recall the entirety of the conveyancing profession heaving an almighty and collective sigh of relief.
The biggest effect was the turmoil that the mini budget had on the money markets and the economy. There was unpredictability in the market and the financial institutions responded to this by withdrawing products. There was a brief calamitous moment where mortgage offers were being pulled mid-transaction. Or individuals, hoping for full offers following agreement in principle, were left in the lurch. This was followed by increases in the base rate from the Bank of England, which went right to the bottom line and affected even the initial fixed rates of mortgages for new buyers.
Overall, this entire situation made it far harder for buyers to get mortgages, and even if individuals were very safe and secure in their financial situation, there was a lot of concern and mistrust. Based in Central London, and predominantly dealing with the Greater London area, we have seen a slight downturn – but are as busy as ever. The London property market has always been overheated and is frequently seen as the gold standard for anyone looking to invest or purchase real estate.
With the new year, comes some new legislation that conveyancers will have to deal with in 2023:
Levelling Up and Regeneration Bill
First introduced to parliament in May 2022, promising to make changes to the current system of, planning, developer contributions and regeneration. We shall see.
Renters Reform Bill
To be introduced to parliament before May this year, HM Government promised that the Bill will bring about a ‘generational shift’ between landlords and tenants. I suspect this will be another bureaucratic burden on private Buy-to-Let landlords, who are already selling up and leaving the market.
Economic Crime (Transparency and Enforcement) Act 2022
Introduced a new Register of Overseas Entities at Companies House to identify the beneficial owners of overseas entities which own property. The deadline for registering is 31 January 2023. If an overseas entity does not apply to register by this date, it may be committing a criminal offence, and will effectively be unable deal with its property. My Corporate team and I have been working hard to look after our clients on this point.
Building Safety Act 2022
This substantial piece of legislation introduced seismic changes to building safety for residential properties. New obligations will apply throughout the life of a building. This means owners, developers, designers and contractors, funders and occupiers all need to be aware of the significant financial impact of this new law.
While this economic downtown is not predicted to be as calamitous as the financial crash of 2007, we are already seeing buyers re-negotiating offers with sellers – and on much harsher terms than they would have done 6 to 12 months ago. Normally, I would say that we are in a buyers’ market, if it was not for increases to the interest rates, making borrowing money much more expensive than it was a year ago.
I am aware that this is possibly not the most insightful of predictions, but with money being more expensive to borrow and the pound being devalued, we are predicting an increase in overseas buyers. The UK economy is fundamentally sound but is going through a period of recession, but this should (all things considered) turn back. Individuals who can buy real estate with limited/no borrowing could reap the rewards of a renewed economy in the mid to long term.
The individuals most at risk now would be anyone whose mortgage is about to re-set. The balancing act for individuals whose mortgage is exiting their fixed period will come down to a simple question. Is it better to refinance and fix a new rate now, or is being locked into a mortgage that will come with a hefty early redemption charge if they seek to move in the near term be worth it?
Ultimately, individuals should now take a very close look at their own circumstances and what their plans are over the next 2 to 5 years. I would strongly suggest for everyone to speak to an Independent Financial Advisor before committing to any moves.
For people who have bought their forever home and have no interest in moving until either retirement or the children have left the nest, it could make sense to refinance. However, for individuals looking to move in the short to mid-term, it may be worthwhile biting the bullet. Getting through the unpleasantness of the higher rates, rather than be locked into a mortgage. Which would cost a small fortune to redeem upon the sale of their home and the purchase of a property.
Overall, 2023 will be more turbulent and less friendly to the average first time buyer. But for the experienced property investor, this is a good time to reconsider purchasing assets and refinancing. We at Bishop & Sewell are specialists in property matters and have lived through this before. Over the long tenure of the firm, we have seen markets rise, and markets fall. We know what to expect from other solicitors. But we always treat our clients as individuals with their own particular needs and concerns. We will provide you with a dedicated conveyancing lawyer, who you will work with from start to finish.
This article is intended as a general summary on the law – no reliance should be placed on it. Correct at time of writing 17/01/23.
Charlie Davidson is an Associate Solicitor in the property department at Bishop & Sewell LLP. Please visit https://www.bishopandsewell.co.uk/ to learn more.