This week, we team up with our sister company View My Chain to take an in depth look at how Conveyancers are coping with the increased level of market demand. Crucially, we will explore whether or not (or perhaps when) this will mean that buyers potentially miss out on the stamp duty holiday which is due to end in March 2021.
Time to Progress a Sale (Sale Agreed to Exchange)
You would think that one of the key indicators that Conveyancers are struggling to cope with increased levels of demand might be an increase in the time it takes from getting a sale agreed to exchanging contracts. We refer to this as the time taken to progress a sale.
The following chart displays the volume of Exchanges within TwentyCi’s data and compares this with the average time to progress in days:
You can see that during and just after lockdown, progression timescales did rise to a peak in June. Since this time however, time to progress has fallen, where in August 2020 we saw the lowest time to progress since January 2019.
It is clear to us that this was due to the comparatively low volume of Exchanges taking place in the month and we would expect time to progress to rise moving forward as the number of Exchanges rise, but more on this later in the article.
What this chart does show us is that the time to progress a sale across the whole of 2019 was around 95 days.
Fallen Through Percentages
You would also think that one of the key indicators that Conveyancers are struggling to cope with increased levels of demand might be an increase in the percentage of sales agreed that subsequently fall through.
However, this is not currently happening either. In fact, if we look at the volume of Sales Agreed in June 2020 and how many of these properties in the same cohort subsequently fell through in July to September 2020, the percentage is 15.6%. This compares with the like for like 2019 percentage of 16.7%.
So right now, for Exchanges happening last month, the Conveyancing industry is coping well. However, coming down the tracks right now is an unprecedented increase in demand for their services and this is best shown by analysis of Sales Agreed.
Sales Agreed Volumes
To put this into perspective as to how drastic the increase in demand is, we have decided drill into Q3 and look at a comparison of the last 5 years, which is shown in the chart below:
This clearly shows that from 2016 to 2019, there has been a fairly steady volume of Sales Agreed in quarter 3 of each year. However, 2020 displays a massive increase of 53% on 2019 volumes. And October 2020 (based on extrapolated numbers) shows little signs of this trend slowing at the minute.
Whilst there is currently no visible impact on time to progress and fallen throughs, the graph above suggest that there will be one coming very soon.
Comment and Analysis on Sales Agreed Volumes
We have had four years of the same volume and in the fifth year, the volume increases by 53%. The question one should ask is how does a people based legal services business (Conveyancers) with largely fixed assets and little way of expanding them deal with an unprecedented and sustained 53% increase over four months in their levels of work. The answer is that they probably won’t, or at the very least not very easily.
Given the fact that the average time to progress in 2019 was 95 days (which equates to 14 weeks or 3.1months), it is exchanges that will happen in the near future (the next few months) that will be affected and not those that are currently happening. Furthermore, the compound effect of the sustained increased volume of Sales Agreed is also likely to increase time to progress further as time moves on.
If we assume that Conveyancers can’t flex at all, with all other factors remaining equal, that means the time to progress will also rise by 53%. So the average 95 days then becomes an average of 146 days (which equates to c21 weeks or c4.8 months).
Now, I am sure that the industry will flex to cope with some of the higher volume, but you also have to consider other related industries as each sale and each chain will only move as fast as the slowest sector. So lending, valuers, local authorities conducting manual legal searches and even removers are also heavily involved as well. They are all people based professional services involved in sales progression that can’t scale by 53% very easily and as such, we consider it more likely that progression times will lengthen in proportion to demand.
Worse still, if we allow for a 2 week Christmas break, because it will not be possible to progress chains at Christmas unless every services business works through the period, this adds 14 days to the 146 days which makes a grand total of 160 days on average to progress a sale (which equates to c23 weeks or c5.3 months).
If we work back 160 days from when the stamp duty holiday ends on 31st March 2021, this equates to a date of 22nd October 2020 or next Thursday.
This is an average time to progress, so let’s assume 50% the transactions will take less time and 50% of transactions will take more time. So, of the Sales Agreed on the 22nd October 2020, it is perhaps fair to assume that half of them will not complete prior to the stamp duty holiday ending.
Comment and Analysis on the Monetary Impact
Sales agreed volumes in Q3 2020 are running at an average of 158,000 per month. If we assume that October and November will continue at this level and half of all transactions with Sales Agreed from 22/10/2020 to 21/11/2020 will not complete by the end of March 2021, the monetary impact makes interesting reading.
The latest UK HPI report states that the average transaction price in July 2020 was just short of £238,000. So taking half of the 158,000 Sales Agreed by £238,000 suggests that £37.6 billion of property transactions will be place at risk from this month alone.
It depends on what you view is as to how many of these 79,000 transactions will fall through as a result of the buyer not having a stamp duty holiday. But lets just say that it increases fall throughs by 10% at an average of 1% commission, that equates to c£19m off the revenues of Estate Agents. And this is just for the first month.
Perhaps more damaging to consider the political impact rather than the economic impact. A buyer agreeing a sale this month or even next would naturally expect to benefit from the stamp duty holiday and they will be profoundly disappointed if they do not.