A high-profile landlord says the upcoming ban on letting agent fees 'can't come soon enough'.
Writing a column in the Evening Standard's Homes & Property supplement, Victoria Whitlock says she does not 'think the ban itself will harm landlords'.
The landlord, who lets four properties in South London, quotes the government's recent impact assessment which estimated that the ban will cost agents in excess of £157 million in its first year of operation.
"According to [the impact assessment], most [landlords] don’t charge tenants fees and those who do typically charge £25-£107," she writes.
Whitlock then goes on to discuss the prospect of agents charging landlords higher management fees in order to replace lost revenue when the ban is introduced.
"I think it’s unlikely agents will increase their fees significantly as landlords can easily take their business elsewhere."
"In fact, I think one of the reasons letting agents have been charging tenants so much is to compensate for a fall in commissions over the past few years," she says.
"Some landlords might be happy to pay their letting agents more if they think they’re doing a good job, but those of us who aren’t can always shop around. Unlike our tenants."
Whitlock says it's 'beyond cheeky' that agents 'charge tenants hundreds of pounds for services for which they're also charging me'.
She also details her daughter's experience of using a letting agent.
"I’m appalled that she and six of her friends had to hand over £1,400 to a letting agent to secure a house for next term."
"All the agent had to do was spend 15 minutes showing the girls round the house, so she earned the equivalent of £5,600 an hour."
"I’m also annoyed that the charge wasn’t properly explained to my daughter and her friends, who thought they were handing over a holding deposit, not a fee."
Whitlock explains that after pursuing the agent herself, she found out that it was a non-refundable fee, equivalent to 35% of a month's rent.
“Agents have been able to get away with such sky-high fees because tenants have no real choice over which ones they use,” says Whitlock, who then goes on to challenge ALRA Propertymark chief executive David Cox.
"[He] claims tenants will end up worse off. I’m not sure how he’s worked that out. My daughter and her mates would’ve been £1,400 better off with the ban."
She says that even if landlords do increase rents to combat increased costs, the ban on fees means tenants will be able to 'see from the start' what they are being charged and able to 'compare property prices more easily'.
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If this landlord believes the agents job to the tenant consists of the 15 minute viewing then that says it all.
How much time does the average agent spend on setting up a tenancy? I'm genuinely interested.
So riddle me this Ms Whitaker, if what you say about agents imposing ludicrous charges is true, how come the average agent barely makes a profit? Try to resolve this puzzle, how do you stay in business if you lose 24% of your income and your profit margin is 15%? Just in case you fancy answering, please don’t, these questions are rhetorical and meant to be ironic, I hope the explanation helps
I suggest you examine your business model Simon. The one you're currently operating is not viable.
"The landlord, who lets four properties in South London"
A wealth of experience then. Be interesting to check her tenancy paperwork against a legal compliance checklist.
Well Victoria when the ban commences I for one shall have to let a member of my team go, just to justify the rental side of my business being viable. While we currently charge a £200 reference and admin fee which is paid to us by the incoming tenant for referencing and for the contracts being drawn up and other additional admin required, the tenants often want to view more that once which takes a lot more that 15 minutes. Our Landlords pay us 8% plus vat to fully manage their property which includes the inventory fee, the 3 monthly inspections and the handling of any day to day issues that occur the only other charges they pay for is the EPC and the annual gas safe certificate.
If we try to pass the £200 fee onto the Landlord I am sure many will want to take over the running of the property themselves hence our portfolio reduces and in my opinion so will the quality of the management of the property.
I am sure you Victoria choose to be a Landlord to earn from your investment and as a service company don't we deserve to earn a profit and keep people employed.
Our Landlords do not pay anything towards referencing
On the second reading of the bill it confirmed that tenant groups are happy that rents will rise as a result of this ban.
So the winners will be Landlords and tenants who move property frequently whilst the losers will be letting agents and long term tenants.
Rents have to be affordable so if landlords put their rents up significantly they may find they have increased arrears.
The tenant fee ban to me is nonsensical. Agents provide a service to landlords and to tenants, I have never received a service from any organisation for free unless it was a charity. If tenants give false information and then fail references, who picks up the bill for the referencing costs and wasted time? The applicants have nothing to lose to try their luck. Agreed some agents fees are extortionate, so I tenant fee cap would be more sensible to cover the real costs involved with running a tenants file that landlords do not want passed on to them.
When you apply to a recruitment agency for a job that is advertised would you be happy to pay £500+ for the agency carrying to carry out referencing and "admin" tasks? No of course you wouldn't. The employer pays the agent for finding a suitable employee. Letting agents perform a similar service but deal in property not employment. Think about it! And every letting agent I've dealt with has been very keen to tell me that they work for the landlord - not the tenant. If they insist on taking money from the tenants, then they ARE working for the tenants too. Better make sure they treat them well otherwise they could be contravening Consumer law.
I think she has hit on an area of the letting industry which is currently extremely unfair to tenants: student lettings. The students, in their 2nd year of term, and therefore typically 19-20 years old, are pressurised into making very quick decisions about their property 9 -11 months before they are due to take occupation. Agents specialising in this area, charging each student the same admin fee (4 or 5 x) will be severely hit by the fee ban. It will be interesting to see whether the rents in university towns increase during the student year following the tenant fee ban.
What is missed by Miss Whitlock in this article is that not all letting agents operate in London or high rent areas. In London, most agents will do absolutely fine on the fees earned from their clients- our average fee per let is around £2.5k and half that again if we manage it- so very, very viable. What is overlooked in this blanket ban is the impact on the regions where rents (and therefore agency fees) are considerably lower. If you let a property for, say, £600 a month then an agency fee would be typically £600-720 (1 month to 10%) + VAT (I have not included this amount as this ultimately isn't agency revenue)- I know that I certainly couldn't operate a viable, compliant and quality service offering at this low level of income. These agents have to fulfill the same legislative requirements (which are seemingly ever-increasing) for around 1/4 of what we make in London. To continue to survive these agents will simply have to increase charges to Landlords, adding to the tax changes already affecting them not to mention pipeline licensing costs and so much more- and this will result in 1 of 2 outcomes- increased rents or sold property. The sad truth also, however, is that as an industry we have, by and large, brought this on ourselves by too many agents (such as the one that has recently let to Victoria's daughter) being far too greedy and simply charging as much as they can get away with rather than what is fair, legitimate and justifiable. The fee ban will remove around 2% of our revenue but I have heard numerous examples of agents operating at around 16% profit (industry average) with over 20% of earnings through tenants fees- swathes of UK independent agents will close or be acquired in the next 2 years.
Apparently agents need to look at our business model with 15% profit margin .. (uneducated comments with no experience of running a business).
check out the profit margin of many FTSE 100 listed companies, are they ‘not viable’. ?
15% is all well & good as long as you’re not just about to have 15+% of revenue outlawed. A good profit margin in the service sector is around 20-25% if possible but that can be affected if you invest heavily in growth.
Your profit margin is obviously a major factor but the measure of whether a business model is viable is whether it delivers a net profit (or there are expectations that it will in the future). Amazon struggled for years making huge losses but it had investors with deep pockets. It diversified into a number of different areas and is now hugely profitable. If letting agents don't diversify then no, their current business model is not viable.
Sue hard t compare the likes of a small independent lettings operation the the might of amazon....and there is one of the key issues. Letting & Estate Agents are usually perceived as some big cash-cow operation with a huge operation and even bigger profits when the opposite is actually the true case. Yes, amazon lost millions for years, but that is a unique success story where they invested in massive infrastructure (a similar success story on a smaller scale is now being seen with ocado) but that does not translate to independent agencies. The fee ban has been caused by a few greedy agents over-charging to the detriment of the rest. It is easy to say letting agents should diversify, but in a sector with ever increasing legislation, digital evolution and service level expectations that is far easier said than done. Some generate additional income through the likes of utility switching & insurance selling but these are relatively small levels of income, especially for smaller operations. For the average small business in any sector simply making a net profit is not enough, that profit needs to be substantial enough to fund business growth & development, fund the income of senior owner/managers and support the business in downturn market and in times of extreme change.
Just 15 minutes work, that's all it was.
I am curious though, did the accompanied viewer wake up the house where the viewings took place or did they have to drive/commute there? Are the running cost of the car free?
Before they drove to the viewing did they have to pick up keys from the office? The office where they keep the keys, is that a free office with no charge for power, business rates, insurance, etc? Presumably all of their office furniture, computers, telephone system and other equipment are free too?
What about the advertising where the advert was seen in the first place? Rightmove, Zoopla, On the market, their own website, window displays? All free too?
Presumably the person that went out to carry out the market appraisal works for free? The photographer, they work free of charge too?
That's just a taste of what needs to be in place before a tenant even applies. The list is endless.
It is the complete ignorance from the likes of Victoria Whitlock and politicians that has railroaded this ban through without a thought or care for the consequences.
This is a very difficult industry to be in and it is constantly getting more and more difficult with little appreciation for the good many letting agents do.
I am all for a cap on fee's as many agents are extortionate, but please don't be so ignorant to think that to provide an accompanied viewing is just a case of a 15 minute task.
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