Red Flag Alert – significant financial distress rises sharply among firms in property sector

Estate agents and property investors are among the UK firms in most financial distress, the latest Red Flag Alert report has said.

Insolvency firm Begbies Traynor, which produces the report, said that the total number of business in significant financial distress has risen 40% since the EU referendum.

The worst hit in terms of rises in cases of significant financial distress is the property sector.

Of the total figure of 489,000 UK businesses in distress, the property, retail and travel sectors are the most severely affected.

However, they are not alone: out of the 22 sectors studied, Begbies Traynor said that deteriorating financial performance is affecting a broad spectrum of companies, including sports and health clubs, and firms offering leisure and cultural activities.

However it is the property sector that Begbies Traylor picks out as having the highest year-on-year percentage increase across any of the sectors measured in the Red Flag Alert.

It says the property industry’s woes have worsened over the past year, with a 16% year-on-year rise – as at the end of September – in businesses in significant financial distress.

Specifically, Begbies Traynor found that property investment businesses were badly affected, experiencing a 35% rise in firms in significant financial distress.

Begbies Traunor defines property investors as firms involved in “the buying and selling of their own real estate”.

Begbies Traynor said the numbers of property investment firms in such distress numbered 13,876 at the end of September, up from 10,288 a year ago.

Its report, released to the London Stock Exchange, blames falling property prices, combined with reduced consumer confidence.

The number of residential builders in significant distress also rose, by 8% to 6,305.

The travel sector has also been badly hit, with the failure of Thomas Cook “symptomatic of broader malaise as consumers tighten their belts”.

The number of hotels in significant distress rose 7% to 5,230 as at the end of September.

Retailing misery has also spread to e-commerce, and online sellers have experienced a 10% rise in significant financial distress, with the latest figures showing 9,024 firms at risk.

A total of 31,00 retailers are now in significant financial distress, up 28% since three years ago.

Begbies Traylor said that there is also a marked increase in the number of businesses in critical financial distress, often a precursor to formal insolvency.

Ric Traynor, executive chairman of Begies Traynor, said: “This is a worrying assessment of the UK economy, with nearly 500,000 businesses now in significant financial distress – almost 150,000 more than three years ago.

“While the latest GDP figures has seen growth of 0.3%, we should not under-estimate the extent of the problems on the horizon.”

Begbies Traynor defines “significant financial distress” for businesses as having minor county court judgements of less than £5,000 filed against them; or which have been identified by the Red Flag Alert credit risk scoring system which measures working capital, liabilities, retained profits and net worth.

Critical financial distress is when firms have county court judgements of over £5,000 filed against them.

Begbies Traynor only includes economically active firms when it issues its Red Flag reports.

x

Email the story to a friend



5 Comments

  1. Mark Connelly

    No surprise. Brexit uncertainty is killing the property industry. While MPs play games, people lose their livelihood.

    Report
    1. Bless You

      Rightmove need to :

      Charge by number of properties per agent. i.e £10 a month per house. This would also maintain quality.

      Get New Homes off there

      Get pay any way off there.

      _____________________

      Onthe market need connells and countrywide on platform. CEO needs to go to achieve this or #eatHat

      OntheMarket needs to name the rightmove switch off date, or close down themselves.

      bless you all. you will need it soon.

      Report
  2. LandlordsandLetting

    Yes, you’re right. In fact back in 2016 Galliard Homes was marketing a new block of flats, I think in West London with the slogan that in the ‘unlikely’ event of Brexit they would return buyers’ deposits if requested.

    Report
  3. simonwilkinson73

    I do not agree that Brexit is the issue.

    The issues are:

    1. Stamp Duty

    2. Distortion of the first time buyer market through Help to Buy ( 80% buying premium priced new homes )

    3. Increased taxation on Property Investments

    So, 2 and 3 mean there are precious few buyers purchasing starter homes, where that seller then buys up and creates a ‘chain’ of transactions. There are hardly any ‘chains’ at the moment.

    To be honest, do you chaps actually sit down with homeowners and have these ‘coffee table’ discussions with prospective sellers, – Brexit is an excuse used be the uninformed and not a material reason. Look at wage rates – 4% year on year growth and the economy and job security all strong – 3,000,000 new jobs in the UK in the last decade. The Govt can – wait for the Budget – influence all 3 of the above factors and re-inflate the market and this in turn provokes numerous additional purchasing decisions – carpets, curtains, sheds, white goods which stimulates the wider economy, so creates a feel good factor and all in the run up to a General Election?

    Report
  4. J1

    First time buyers averaging an age approaching mid 30’s don’t want poor quality inner city terraced housing, and there are no landlords buying to take up the slack.

    Prices of these houses will fall by 25% minimum due to a lack of demand leaving people locked in to them unless they too become landlords which the new tax regimes will prevent.

    Government may need to start buying small terraces in order to create social housing and unlock this sector……

    If the new first time buyer is a mid 30’s with two cars and a ready made family then mid sized family homes will be in demand for a long time to come, but builders seem to be focused on building larger detached which fewer people can afford therefore there are cash backs and incentives that will leave people feeling like they are getting a good deal, but in essence they are getting a bad deal that tee’s them up for negative equity once the new build shine has worn off coupled with a drop in prices.

    Brexit is a distraction.

    There is a perfect storm brewing and a price correction which is long overdue is on its way.

    In real terms prices may already be 10% lower than this time last year……….

     

     

    Report
X

You must be logged in to report this comment!

Comments are closed.

Thank you for signing up to our newsletter, we have sent you an email asking you to confirm your subscription. Additionally if you would like to create a free EYE account which allows you to comment on news stories and manage your email subscriptions please enter a password below.