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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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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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

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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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.