Politicians of all stripes are promising to help more people onto the housing ladder, but behind the headline-grabbing policies, the elephant in the room is whether the mortgage and conveyancing market can cope with a spike in transactions, says Joe Pepper
The housing market will be a key battleground in the forthcoming election, and we have already seen some of the battle lines drawn. Labour has committed to deliver 1.5m new homes should they come to power, and speculation is mounting that Jeremy Hunt will seek to back 99% mortgages and reform stamp duty in the forthcoming Budget.
There is no doubt that the housing market needs support. Though mortgage rates have fallen from their near 7 per cent high in July 2023, 1.5m mortgage holders will need to remortgage this year as their products expire, exposing many to far higher rates than they are accustomed. Meanwhile, affordability makes owning a home a distant dream for many first time buyers.
But behind the headline-grabbing policies that will require significant government investment, the elephant in the room is whether the mortgage and conveyancing market has the right infrastructure in place to absorb a significant or sustained spike in transactions. Recent experiences with the stamp duty holiday would suggest otherwise.
Without fixing this issue at the same time, any government will see reduced returns on its housing market investment – and a lost opportunity to boost UK productivity.
A fragmented system holding back transactions
The legislation that underpins the UK’s conveyancing system – so fundamental to efficient property transactions – is antiquated, being based on the Law Property Act 1925. It’s also fragmented in its nature, as it’s delivered via thousands of predominantly small practitioners ,which has made change difficult. Where firms have sought to deliver technology solutions, they’ve often created embedded silo processes which contribute to significant delays, and a fall-through rate of over 30% of property transactions and around 10% of remortgages at a huge cost to both the consumer and the UK economy.
Not only does this stop consumers getting advantageous remortgage deals, it also means people stay put for longer. People used to move house once every seven years; they do so now far less frequently to avoid the process. Reduced transactions in turn reduce the multiplier effect, including reduced revenues generated across associated industries – like building trades or removals companies. Reduced revenues damage the ability of firms to invest, both in their people and their technology, which has embedded a vicious circle.
At the heart of the issue is the lack of a common framework for digitalisation and automation. This creates huge pressure points and bottlenecks, and places conveyancers under an avoidable administrative burden. And at a time when the number of conveyancers is dwindling, down an estimated 13 per cent in the past two years, the sector is unlikely to have the capacity to handle a radical resurgence in demand.
Transforming our infrastructure
We believe widespread digital transformation is the only thing that can address the current inefficiencies in the system, radically speed the process, free up conveyancers, and ultimately make it scalable to support any government stimulus.
This should not require huge capital outlay from any government. The private sector can, and should do the heavy lifting in driving innovation. PEXA has already invested nearly A$150 million into the UK conveyancing market to make this a reality, building a new settlement payment scheme with the Bank of England, and working with industry to embed it. We have proved that processes that would ordinarily take days can take minutes. But the scale and pace of change we need to see necessitates ongoing support and buy-in from any Government regardless of the side of the political fence they sit on.
The UK property market is a critical part of the UK economy, and as we see investment in housing rise up the political agenda, we cannot overlook the creaking unseen infrastructure that supports it.
Joe Pepper is CEO of Pepper UK