Banks

BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Economy

Draghi: Eurozone will decline without vital productivity growth

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Currencies

Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

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Banks

Barclays: life in the old dog yet

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Categorized | Property

Lettings agents’ main incentive is well aligned


Posted on November 24, 2016

Lombard once rented a house in London to a nice chap from the Middle East. Subsequent checks of the kind nosy journalists specialise in revealed he belonged to the political wing of an organisation classed as terrorist by the UK and that one of his friends had been shot dead in Hackney the year before.

This called into question the value of vetting he had paid for on Lombard’s behalf via a lettings agent. The chancellor now plans to ban such transaction charges, to the dismay of investors in companies like Countrywide, whose shares have slumped 17 per cent in two days. However the business model of traditional lettings and estate agencies is more robust than bears imagine.

Jefferies estimates the ban would next year cut the profits of Countrywide and LSL by 9.2 per cent and those of Foxtons by 6.7 per cent.

Countrywide says in Scotland, where transaction fees for tenants were banned in 2012, most costs were eventually absorbed by landlords. However agents have little incentive to hold down transaction charges on tenants, whose fear of homelessness makes them less price sensitive than landlords. Any such premiums would come out of their bottom line, following a ban in England and Wales.

That would be a lesser impact on earnings. Moreover, falling share prices also reflect a weakening market for home sales and lettings, particularly in London and the South East. Countrywide focused on this problem in a trading update, warning that 2016 earnings before nasties will come in at the bottom end of City forecasts. That implies a number of £85m, compared with £113m last time.

Does the future belong to online rivals who lack the hefty overheads of Foxtons, LSL and Countrywide? Startups such as Purplebricks have tended to focus on home sales, but their fees to landlords could be substantially lower than those of high street rivals.

The difficulty is that a large upfront fee incentivises traditional agents to market vigorously properties they fear losing from their books. Landlords moan that lettings jockeys make a mint from a yearly transaction then do nothing. Long voids are costlier. As for Lombard’s tenant, he was very polite and paid his rent more punctually than successors who were not political refugees.

jonathan.guthrie@ft.com