Some 286 estate agencies became insolvent in a year
Business confidence has fallen this month, according to Lloyds Bank Business Barometer report, down to 47% from an eight year high of 50% in August and July. A year ago, that figure was a paltry 36%.
And coupled with the news that a bump in confidence after Labour’s election win is starting to lose its gloss, comes news that the number of estate agencies in the UK facing insolvency has surged by nearly a third over the past year, with almost 300 companies going under. This alarming rise highlights the ongoing challenges in the UK property market, where the volume of home sales has plummeted to its lowest level in over a decade, severely impacting estate agent and mortgage intermediary revenues.
In the 12 months leading up to July 31, a total of 286 estate agencies in the UK became insolvent, representing a 32% increase compared to the 216 that closed in the previous year, according to data from the Insolvency Service. As we all know, the downturn in the housing market is closely tied to the highest borrowing costs seen in 15 years, which have affected both property sales and lettings. Add in more government restrictions for the buy-to-let market and investors, in particular, have shifted their focus away from buy-to-let opportunities, seeking better returns elsewhere, according to Forvis Mazars, a tax and advisory firm.
Rebecca Dacre, a partner at Forvis Mazars, commented on the dire situation: "The high level of estate agents going insolvent shows just how tough the last few years have been for the sector. Higher interest rates have proved to be a significant deterrent to virtually anyone moving up the housing ladder." Smaller, local firms are especially vulnerable, as they struggle to compete with larger, private equity-backed consolidators that can afford bigger marketing budgets to attract clients in a shrinking market.
The volume of residential property transactions in the UK fell by 12% in the year to June 30, amounting to just over 861,000 sales, marking the lowest level of activity in more than 10 years, according to HMRC data. These figures coincide with an economic environment marked by uncertainty, where confidence in the broader UK business landscape has also faltered. Fears of an economic slowdown and potential tough fiscal decisions in Rachel Reeves’ upcoming budget.
Despite the gloom, there are signs of cautious optimism in the housing market. Foxtons, one of the major players, reported that the market was beginning to show positive signs, although it is still grappling with the lingering effects of the mini-budget introduced by former Prime Minister Liz Truss in September 2022. This budget, which caused a sharp rise in interest rates and a collapse in mortgage approvals, left lasting scars on the property market. In the twelve months up to her mini budget, there were over 820,000 mortgage approvals – in the twelve months following there were only just over 590,000.
Foxtons has said that buyer activity has started to rebound, thanks to a year of stable interest rates and a quarter-point cut in August 2023. Mortgage approvals are also on the rise, helped by a battle for market share among lenders that is helping drive down mortgage interest rates, and house prices have increased by 2.3% over the last 11 months, reversing the 1.8% decline seen in the year following the tumultuous Truss budget. This emerging stability in the market is encouraging some buyers to return, although the recovery remains fragile.
As traditional estate agents grapple with these challenges, online platforms such as RightMove continue to thrive, and Zoopla has returned a profit this year. RightMove is currently considering a £6.2bn takeover offer from Rupert Murdoch’s REA group, with a formal decision expected shortly. This move underlines the shift in the property market, where online portals and larger players are better equipped to weather economic storms compared to smaller, local firms.
In the broader economic context, UK businesses are also bracing for potential challenges in the coming months, with inflationary pressures and interest rates cited as key concerns by financial leaders, according to a survey by KPMG. This uncertain outlook reflects the interconnected nature of the housing market and the wider economy, where both sectors are dealing with the consequences of a turbulent period.
As estate agents continue to face mounting pressures, many in the industry are calling for a period of stability, not only in interest rates but also in broader fiscal policy, to help businesses regain their footing.
