The number of estate agency businesses going insolvent increased 32% in the year to July 31, research from international tax and advisory firm Forvis Mazars has found.
Firms who couldn’t afford to pay their debts rose from 216 in 2022/23 to 286 in 2023/24, likely due to a downturn in the market amidst higher mortgage rates.
Rebecca Dacre, partner at Forvis Mazars, said: “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 provided to be a significant deterrent to virtually anyone moving up the housing ladder.
“Estate agents are currently in the unenviable position of dealing in a hugely competitive market during a time when sales are at their lowest level in over ten years.
“Without transactions estate agents have to rely on a lettings business that is normally lower margin than their sales business.”
The rise in insolvencies in the sector comes as the sharp hike in interest rates since the start of 2022 has hit property sales.
Not only has the increase in interest rates had the obvious effect of pushing up mortgage rates it has also caused lenders to be more cautious in their lending and making fewer high LTV mortgages available.
The number of UK residential property transactions decreased 12% in the year to June 30, from 973,790 in 2022/23 to 861,210 in 2023/24, the lowest level in over 10 years.
Another key problem for estate agencies is slow growth in their lettings businesses, as higher interest rates have persuaded some more highly levered buy-to-let investors to exit the market.
Higher yields on savings accounts and government bonds have also made the yields available on buy-to-let investment look less attractive.
Dacre added: “Smaller-scale local firms can find themselves at substantial disadvantage against their larger regional rivals and an increasing number of PE backed consolidators who can invest more marketing spend to attract those instructions that are still coming through.”
“We are starting to see a reduction in interest rates and mortgage rates peaked some time ago. However, we are likely to more insolvencies in the sector as further rate cuts are expected to be slow in coming through.”