Reasons to be hopeful

Sharpening up on your accounts and how to use them, and some practical exercises in thinking differently about problems, were among the sessions offered to solicitors at the Society’s third High Street Conference at the end of November.

Held again on a Saturday morning in Stirling, so as to attract the maximum participation from small firms around the country, there seemed to be a measure of agreement among delegates that business prospects had stabilised since the first such event a year earlier, even if 2009 had been tough.

That was certainly the outlook for the property market, according to Kennedy Foster of the Council of Mortgage Lenders, who gave the first main presentation. On CML forecasts, inflation will remain low, but the impact of unemployment and the cuts in public spending are as yet unknown.

On the mortgage market, supply and demand are in better balance, but conditions are still tight on the money markets, though the Government and Bank of England initiatives have had some positive impact.

But there is now much less competition – specialist lenders have disappeared through being unable to access money, and 85-90% of lending is now in the hands of six or seven major players. And with around 900,000 borrowers across the UK in negative equity at present, which inhibits their ability to borrow more, or remortgage, the recovery in housing and mortgages is likely to remain slow.

To put it in perspective, the CML forecasts 850,000 housing transactions across the UK in 2010, up from 810,000 last year, with gross lending up from £141 to £150 billion. But the market reached a peak of £342 billion in 2007, from only £77 billion 10 years earlier, so perhaps we are seeing a return to more normal conditions.

As for repossessions, Foster predicted that low interest rates and “creditor forbearance” would keep the numbers down. On the Scottish Government’s current bill, he had some concerns over the proposed pre-action requirements and also on the ability of the court system to cope; while the consultation on unauthorised tenants was “one of the poorest papers I have seen”.

Acknowledging concerns over lender panel arrangements particularly as affecting small firms, he pointed out that lenders are responding to the current level of mortgage fraud, much of it the work of professional fraudsters. One lender was investigating 500 solicitors’ firms, mostly in England & Wales; there had been collusive arrangements; and cases had been found where no title had been registered for the borrower or security for the lender. Panel arrangements were an individual matter for each lender, but dialogue with the Society continued.

In the property pipeline

Also on the lenders’ panel front, John Scott of the Society’s Professional Practice Department told the meeting that negotiations with Abbey were continuing on whether they would accept an open panel. The talks had stalled while Abbey discussed mortgage fraud with the SRA in England & Wales.

In a general roundup of property matters, Scott repeated earlier warnings from the Society about the various types of mortgage fraud currently prevalent – ID fraud (to obtain a loan), “back-to-back” arrangements to achieve a higher loan, and rebate schemes. He also alerted solicitors to possible changes regarding letters of obligation, which still cause “a large number of very expensive Master Policy claims”. The 21 day period could come down to 14 in the next year; and longer term, though probably not until parliamentary time is found for a Registration Bill, a system of advance notices will come in under which Registers can be told of a transaction in advance and will not allow registration of any document for a certain period pending settlement.

From 1 April 2010, payment of fees to the Registers will have to be by direct debit. (Errors on cheques are one of the main reasons for rejection of applications.) And if your firm has an above average rejection rate, it can expect a letter from Registers sometime soon, spelling this out.

Registers also plan to cut from 60 days to 30 the period for responding to a requisition – solicitors will have to ask for an extension if they cannot reply within the new limit.

Get it figured out

Solicitors should work with their accountants in order to get the best information from their figures, according to CA Gordon Christie. Many accounts are “rubbish”, he said, because they don’t really help you understand which parts of your business are making money and which are losing it. You should know the basic cost of providing each type of work you offer, and how much of each type you need to make it pay. That gives you the information to help you focus on what is profitable, or take corrective action if something is not – to scale up or give it up.

And you need that information promptly. You should have figures showing the contribution from each area every two weeks, or monthly at worst.

He urged his audience also to consider zero-based budgeting: instead of taking last year’s outgoings as your basis, look at each item and ask why you are spending that money at all? If you are still entertaining clients, for example, are you actually getting work as a result, or just indulging yourself?