Urgent warning to agencies over repayment of Coronavirus debt

There’s a new warning that the estate agency industry may be in a more fragile financial condition than before the pandemic, despite the buying frenzy of recent months.

Insolvency specialist Business Rescue Expert claims the UK real estate sector - dominated by estate and lettings agents, consultants and suppliers, but not including the construction industry - is the sector of the economy with the third largest debt in the shape of the Bounce Back Loan Scheme. Companies in the real estate sector borrowed an average of £35,080 per loan.

BBLS is the business support funding launched by HM Treasury to help companies hit by the Coronavirus crisis, multiple lockdowns and continuing resrictions on some activities.

The British Business Bank, which manages the BBLS loans, there are some 1.53m loans with over £46.5 billion in total - most of these have been to small and micros businesses. 

These loans provided lenders with a 100 per cent government-backed guarantee and would last for up to six years. 

Business Rescue Expert predicts three possible scenarios for how the BBLS as a whole will fare: it says its best case scenario is a 15 per cent default rate, a median case scenario is a 40 per cent default rate and a worst case scenario is of a shocking 60 per cent defaulting. 

Chris Horner, insolvency director with Business Rescue Expert, says: “In the first quarter of this year alone, over 42 per cent of the liquidation cases we’ve handled had taken out a BBLS, and the average amount borrowed averaged £37,500 per company.  

“As the first loan payments for the BBLS come due, businesses will have to seriously look at their ability to pay and their calculations might have been affected by not being able to reopen earlier than this month at best. 

“Businesses that have topped-up their initial BBLS loan will also find out that not only are they unable to defer these payments, but they’ll come out at the same time as their original loan repayments – an unwelcome and expensive surprise.”

This is the second insolvency warning to the real estate sector in the UK.

Last week Begbies Traynor’s latest Red Flag report said:  “Despite the booming residential property market, the whole real estate and property sector - a key indicator of the economy's performance - has seen another 11,000 businesses enter significant distress in the last quarter … with a leap of 51 per cent since the same period last year.”