7,000 UK estate agents risk going insolvent

More than 7,000 UK estate agents are showing signs of financial distress and could risk following the path of 153 estate agents who went insolvent in 2017, a new study has found.

These figures from accountants Moore Stephens showed an increase from the 148 insolvencies in 2016 as pressure from online rivals continues to increase.

London estate agent Foxtons reported a 15% drop to £24.5m in revenue in Q1 2018 from the same period last year. Shares in the UK’s largest estate agent Countrywide fell 25% in one last week after it issued its second profit warning of the year and its fourth profit warning in eight months.

Traditional estate agents are feeling strained and the growth of the online estate market only aggravates their situation since companies like Hatched and Yopa have less staff and property costs than traditional firms. Therefore, these companies can have lower commission rates that appeal to the customers.

Moore Stephens said government plans to ban letting fees charged to tenants may narrow the profit margins of some estate agents even more, as fees from tenants currently contribute significantly to the bottom line.

The extra stamp duty surcharge of 3% of the value of a buy-to-let home introduced in April 2016 could also be contributing to problems for estate agents, with some buy-to-let investors choosing not to add to their portfolios, said the accountants report.

Also the number of people buying homes and property is decreasing in London alone falling 20% in three years.

Chris Marsden, restructuring partner at Moore Stephens, said: “Insolvencies of high street estate agent are increasing as online competitors continue to chip away at their sales and undermine commission rates.

“Some areas in the UK are appear to have an excess capacity of estate agents, which could mean there is not enough business to spread around as property transactions stagnate.

“Estate agents with a traditional model may have to look at whether they can reduce overheads and review their service offering to effectively compete in the current market.”