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The CLC is recommending that firms should stress test their businesses for resilience to a significant fall in work volumes.
It will not come as news to you that the economic outlook for the UK is uncertain. The global economy is challenging and the pressures on UK businesses and citizens are well known.
The 2007-08 Global Financial Crisis saw a more than 40% drop in conveyancing transactions from one year to the next. The turnover of CLC-regulated firms fell by 27% before largely recovering the following year.
The 14 years since then have seen some firms under CLC regulation increase their turnover significantly. There has been change in the membership of that regulated community, but the number of firms under regulation is broadly the same. We know from past analysis that CLC-regulated conveyancing practices recovered their turnover levels sooner than others after 2007 and that growth has continued.
The total turnover of CLC-regulated firms in 2009/10 was £85m, having recovered from the crisis. By 2020 it was £277m – a more than three-fold increase. The year to April 2021 was of course exceptional, not least because of the SDLT holiday deadlines, and saw an astonishing further 26% growth in turnover to £349m.
It has been an extraordinary decade and a half. We are now entering a very different world, though.
Take steps to prepare your business
There is a growing consensus that property transaction volumes look set to fall and some of you are telling us that there is already evidence of that. That might be expected anyway given the very high volumes in 2021. However, increasing interest rates, the Bank of England’s stated expectation that the UK economy will be in recession until summer 2023, the falling availability of mortgage products and the tightening supply of properties for sale will all contribute to falling transaction numbers.
Against this background, all law firms should consider how they would respond to a significant downturn in the economy. Those that are focused significantly or entirely on conveyancing would be wise to prepare a contingency plan that sets out steps they would take to protect the business in the event of significant falls in transaction volume. That plan might include cost savings, increasing the profit margin on services, the potential for growing income from probate services (which are less affected by the economic cycle), falling back on reserves or other steps that the managers and owners believe necessary and effective.
Preparing for the worst is vital for the resilience of the legal services sector and for the sustainable provision of conveyancing and probate services to the public.
The CLC will be asking its regulated community about preparations that they have made when it issues its Regulatory Return questionnaire in November 2022. In the meantime, the CLC is happy to speak to any practice who would like to discuss concerns or resilience plans with us – each practice has its own named contact in the Regulatory Supervision Team.