Another 153 estate agents have gone insolvent in the last year, up from 148 the year before, as the pressure from online rivals continues to increase, says Moore Stephens, the Top 10 Accountancy firm.
Even larger estate agents look to be feeling the strain, with London estate agent Foxtons reporting 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 day in late June, after it issued its second profit warning of the year.
The online estate agents market is growing, with the likes of Hatched and Yopa further increasing pressure on the profit margins of high street rivals. Traditional estate agents often have higher staff and property costs than online-only firms, meaning they can struggle to compete with the low commission rates of online services.
Moore Stephens adds that 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. Chancellor Philip Hammond announced the ban in the Autumn Statement 2016, but the Government now expects the bill to be passed in the spring of 2019.
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. Sales volumes appear to be in decline, with the number of property sales in London alone falling 20% from 2014 to 2017, and the number of property sales UK-wide falling 1% in just the last year.**
Chris Marsden, Restructuring partner at Moore Stephens, says: “Insolvencies of high street estate agent are increasing as online competitors continue to chip away at their sales and undermine commission rates.”
“With the ban on letting fees stated to come into force in 2019, estate agents will struggle to pass those fees onto landlords.”
“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.”