“Taking staff off furlough will present too much of a financial risk.” – open letter to Chancellor

An Open Letter to the Chancellor, Rishi Sunak,  asking for further changes to the Government’s furlough scheme, has been sent by The Home Buying & Selling Group, comprising: RICS, Society of Licenced Conveyancers, NAEA Propertymark, Council of Property Search Organisations, Property Energy Professionals Association, Residential Property Surveyors Association, Bold Legal Group, The Conveyaning Association, and the British Association of Removers.

It sets out the HBSG’s expectation of how the housing market will perform in the coming weeks, and the difficulties that will be faced by businesses as they cope with a ‘spike’ of activity but are unable, financially, to bring workers in for short period of time from being furloughed.

The group proposes that employers should be able to move their staff in and out of furlough on a weekly basis rather than the current three-weekly basis.

The letter reads:

We are writing to you with regards to the Government’s Furlough Scheme.

As a group we represent estate agents, lawyers, search agents, valuers, surveyors, energy assessors and removal companies.

The Government announcement lifting restrictions on the operation of the housing market has been welcome both for consumers and all parties involved in the home buying and selling process. The whole property sector has come together in a co-operative effort to ensure that transactions which are now able to proceed do so in the safest possible way in accordance with Government guidance.

The sector has considered the impact of ‘re-starting’ the market and there is a very real and practical issue that needs to be urgently addressed to optimise the smooth operation of the market.

Whilst the extension of the Furlough Scheme and the flexibility that will become available from 1st August is very welcome, current furlough arrangements require that individuals can only be moved into and out of the scheme at three weekly intervals. This requirement will present difficulties for businesses in the property sector as the home buying and selling market begins to reactivate.

There is a universal view across the sector that there will be a spike in activity in the immediate future as pent up demand to complete transactions is released following the lifting of restrictions – indeed there are already signs of this after only a few business days. This spike will be concentrated at the start of the process with listing of new properties for sale and property viewings by those who have had their plans put on hold over the last two months, and at the end of the process where all those transactions which had progressed through the process to the point of exchange of contracts during the period of restriction will complete and allow home moves to occur.

There are approximately 450,000 transactions (as MHCLG Secretary of State Robert Jenrick referred to last week) that underpin this spike in activity. Once the spike at each end of the process has passed there will be a lull in activity whilst the pipeline of transactions rebuilds.

Please see the PowerPoint attachment which demonstrates the projected spike in activity based on real data which represents a statistically valid analysis.

It is of course the case that the spike in activity will not happen uniformly across the country, or indeed with a consistent demand on resource from one week to the next (or even one day to the next). There will be inconsistent demand for the whole range of services across the homebuying and selling process, whether it be for EPCs, lenders valuations, buyers surveys, property viewings, removals, conveyancing and Land Registry registrations, the production of searches or the provision of mortgage advice.

In order to manage this short spike in activity property practitioners will need to move furloughed staff back onto the payroll. However, the property market is dominated by small practices, who cumulatively cover a significant proportion of the market (for example, 90% of law firms offering conveyancing services employ fewer than 15 specialist conveyancers, and these firms account for at least 45% of the market share of completions). If the market is to get going again, as is intended, these small firms will need to be able to reactivate their workforces to deal with the spike in demand. Individually, however, it is unlikely that the amount of work that this spike brings to each individual firm will be enough to make it economical for those firms to return staff to the payroll for the minimum three weeks required.

In these circumstances taking staff off furlough will present too much of a financial risk, and early evidence suggests many firms are instead opting not to do so. The end result of this will be a logjam in the market. The current furlough arrangements present companies that are involved in the home buying and selling process with very difficult short and long term choices which must be set against their ability to survive over the coming weeks and months. Government will be aware that businesses involved in the home moving process, particularly estate agents and property lawyers, are in the majority only paid once transactions have completed. This means that cash flows must be extremely carefully managed, and for so many organisations that serve the property market, employee costs are the largest expense.

This has to be set against a reality that income levels for all market participants have been devastated over the last 8 weeks and cash reserves affected accordingly. Realising income from the spike in completing transactions will not restore these cash reserves particularly as the majority of businesses will have to bear the cost of the up-front spike in activity as well as the spike in completions. It is the loss of overall transaction volumes occasioned by the pandemic which has the greatest financial impact on the property market. Government schemes, whilst greatly appreciated will not absorb this impact.

Against this backdrop, if companies cannot bring employees in and out of furlough on a shorter term basis do they:

• Delay bringing employees out of furlough now with the consequence that they struggle to deal with the short term spike in transactions. Firms acting rationally can conserve cash in the short term by simply allowing cases to drag out until they have a stronger incentive to un-furlough staff to work them through to completion. Customers and the overall market will suffer but the labour cost of waiting is largely covered by the furlough scheme. As transactions only progress and complete at the pace of the slowest party this would result in disruption in the market place, particularly with so many transactions being subject to chains. The knock on effect would be a further negative impact on company cash flows creating something of a ‘vicious circle’. Disruption in the market place will of course dilute the economic impact which home moving has on the economy and could also potentially increase the risk of Covid-19 infection if consumers or other parties become frustrated by delays.

• Bring employees out of furlough, but find that they cannot carry the expense of employment as entailed by a three week commitment to pay wages which could ultimately result in redundancies or company failure. This has the potential to seriously inhibit the longer term recovery of the market.

It would be possible to overcome this dilemma for firms by providing greater flexibility in the job retention scheme. Allowing employers to move people into and out of furlough on a weekly basis would allow them to deal with the expected spikes in activity without risking unmanageable staffing costs once the spike has passed. It would help to smooth the re-activation of the property market, save jobs, promote the long term future of viable businesses, and ultimately save the Treasury money in unemployment costs.

This increased flexibility would also likely result in short term savings for the Treasury, as risk averse employers will feel more comfortable taking staff off the job retention scheme with the benefit of this increased flexibility.

According to early figures from the estate agency, removals, and conveyancing sectors, less than 50% of employees have been brought out of furlough following the lifting of restrictions on the operation of the housing market. Increased flexibility in the job retention scheme could, we believe, lead to an additional 10% to 15% of furloughed employees being returned to work. At such figures, the cost savings to the Treasury of one week’s less furlough payments at the lower estimate of 10% is in excess of £18.5 million

We would be delighted to meet with your officials to discuss this proposal in greater depth.

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15 Comments

  1. Property Poke In The Eye

    Yes – I do like this co-ordinated approach.

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    1. Sarriea101

      Great letter with logical proposals to give the flexibility currently required

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  2. EAMD172

    How long do they think the short term spike in transactions is going to last? We have been back in for 10 working days now and have agreed 10 sales from one office that I work in. It feels quiet, easily manageable with 60% of our full time staff. Everyone is job sharing and picking up the slack from where it’s needed. Phones ring through to an app on our mobiles so we don’t need to have the office manned all the time. Taught everyone different elements of others’ jobs like floor plan drawing and photo taking etc. Secretary is now able to do viewings. Clients are happy and so am I. We have adapted to this new normal and don’t understand why these firms don’t just manage the situation they are in.

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    1. Jim S

      Could you please share the name of the App for diverting landline telephone calls to your mobile?

      TIA

       

      Jim

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      1. Jrsteeve

        Most likely something like Yay.com, which is a VOIP service. I switched to it a year ago and have been very happy and it’s a fair amount cheaper if you have a few lines, approx £13-£15 per line and quite easy to setup but you will need different phones.

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  3. mattfaizey

    Of course one school of thought might consider that survival of the fittest might be the correct route.

    The recession of 2009 was similar, plenty before it too and history shows that the fiscally responsible and well run firms survive and prosper.

    We have had @9 weeks of disruption. That’s it this far.

    One could argue that if any business needs and becomes addicted to such drastic life support after such a short period then there’s a bigger problem.

    If we want a healthy economy then the fittest firms need to be allowed to thrive. Like it or not that means allowing the weakest to fail.

    Weakest – means those firms who were already bumping along when this hit. Hooked on cheap credit, snorting low interest rates.

    Those same firms will still be here after this, holding back growth, keeping rates and earnings low. The great firms, with capacity to thrive and create growth and jobs will be held back by even tougher zombie competition.

    And the UK (plc) is becoming the worst of all. Moreover the growth wrecking bandaid of financial dummys being handed out is indebtedness and stagnation for many future generations.

    It’s been 9 weeks.

    I’m astonished at how badly run firms are that they’ve forgotten how to run responsibly, plan for the future, be prudent and fight for market share.

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    1. Dezza25

      Agree. Although harder for start ups within the last couple of years who haven’t yet built up a good cash balance – but any established firms having access to furlough, grants, rate relief, rent holidays, portal fee reductions, loans and doesn’t have the funds to cover 9 weeks should be looking at the way they run their firm…

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      1. mattfaizey

        One could argue that a startup without headroom has been badly planned.

        There ain’t no sentiment in business.

        Yet it isn’t being nasty to suggest that preparing for an economic shock is consistent prudence.

        Failing to keep headroom for short term disruption is bad management.

        Periods like this weedle out the weakest, and worst run

        No business has a right to exist. As the size of a sector rises and falls over time so does the number of servicing agents.

        Only in recent times do we seem to believe the rules of free market economics should be applauded when all is well, and manipulated when it isn’t.

        The economic cure for the effects of C19 are like curing an alcoholic by only letting them drink beer instead of spirits

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    2. MarkJ

      @mattfaizey

      Whilst I dont totally disagree with you ….remember that all agents are not even working again.

      Here in Wales we dont even have a start up date yet. So this is ‘survival of the fittest’ with both arms tied behind your back at the minute….

      So personally I would welcome a more flexible approach to furlough as its going to be cheaper for the tax payer in the long run…..

       

      You will have plenty of opportunity to demonstrate your apparent superiority later in the year …when you are contributing 25% to your furlough wage bill  Aug-Oct / watching redundancies  mount up by the day / and see Brexit coming back into the news again.

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      1. mattfaizey

        I am not without sympathy. My ire is that 9 weeks is not long. Once we get into the type of timescales where prudence would never plan to go then drastic support would be warranted. All of  my comments relate to the fact that thee reaction to a temporary period of brown splattered fan is way OTT. And so are the demands being made in this letter. Once the deadzone goes beyond where prudence measures from responsibly run firms runs out THEN throw everything and the kitchen sink at assisting survival.  

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  4. JW

    Too many “groups”like this one have become quickly drunk on furloughing. The country cannot afford it for a second longer than necessary. The sheer size of the admin side of running the scheme for 8million people must be a nightmare. To have people dipping in and out would increase that problem. Business is a risk – some of us see opportunities out there, and we getting going as fast as possible. This proposal is a poorly thought out knee-jerk reaction. The Chancellor will, I’m sure, ignore it as nonsense.

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  5. Rob Hailstone

    Survival of the fittest is a bit harsh. There are many reasons why one business might struggle more that another. For example, a relatively new business, or maybe one that has lost someone to Covid-19.

    Also, “dipping in and out” may mean that fewer people are actually made redundant.

    Certainly, not a knee jerk reaction, and one it is hoped would help.

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  6. TAB

    There’s actually a significant error in the Group’s letter :-  “Bring employees out of furlough, but find that they cannot carry the expense of employment as entailed by a three week commitment to pay wages“. There’s no requirement to pay 3 weeks wages.    3 weeks  is the minimum length of each furlough period.  An employee can be brought back for a week or two, and then furloughed again. For example, an accounts or wages clerk may only be needed the last week in a month and furloughed the other 3. 

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  7. haveathink

    This is poor form asking for this and shows a complete lack of fiscal understanding.

    Government and HMRC is not a sweet shop pick in mix, we should be thankful for all the support we have received, that we and our kids will be paying for in years to come, and not be begging for more.

    Maybe as an industry we should be reviewing the fees we charge and be putting more away for future rainy days.

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  8. itsgreatupnorth

    reality is that this has just shown how archaic many business models are. Let’s be honest, as a former member of the high street suit set and now in out of town serviced offices without people wandering in off the street because its too hot, or it’s raining, Im making more money with less headache than in my previous 20 years doing this job. 9 Weeks out of action ? so what ? I was worried when they said  that it would take 18months to go back to normal. but frankly 9 weeks feels like a very happy xmas to me. Stop cutting fees just cause purple wotsit did, believe in the power of yourselves. ditch the boring suits, get some polo tops on your staff and come into 2020. The days of the briefcase carrying snorting estate agent are over. well unless you want to become extinct. then carry on.

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