We are at the beginning of the end for let only tenancies which have effectively been subsidised in the past by tenants fees, according to a property management company.
The ban on tenants’ fees which kicked in at the start of summer will lead to an industry-wide re-appraisal of Let Only according to David Alexander, joint managing partner of Apropos.
“Agents, prior to the ban, were able to offer a reduced rate for this service because they were subsidizing their income with tenants’ fees. Now this has gone agents will no longer be able to offer such low charges so it’s inevitable that they will be putting up these fees. Some agents may take longer to appreciate this shift but all will have to change unless they want to run their business at a loss” he says.
“A recent survey reported that many agents are facing a gap of between 10 and 25 per cent of income and they must adapt to the new way of working or find their business failing” he continues.
Alexander says many landlords who favoured Let Only tenancies are quitting the market due to tax and regulatory changes.
“Agents which increase charges for a Let Only service will only exacerbate the financial issues these landlords are already facing. Change is inevitable in all markets and the companies that adapt to the new business environment will survive while those who bemoan the passing of previous systems will perish” he says.
He says the key for agencies wanting to succeed is to adapt.
Scotland - where a tenant fees ban exists - appears to have a more stable rental landscape, he suggests, with the best agents changing their business model accordingly.
“The number of companies entering formal insolvency procedures involved in real estate activities in Scotland fell in 2018 to its lowest figure since 2007 with just 17 companies going bust during the whole year.
“By contrast the number of real estate companies failing in England and Wales reached its highest level in four years in Q1 2019 with a total of 121 and the year as a whole looks likely to be similar to the previous peak which occurred during 2014 when 522 companies entered insolvency.”
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I use a let only agent and will stay with him.I will of course adapt my rents to cover my increased costs,as I will for all government forced extra costs !!!!!!!!!!!!!
Any government that will not see this ,are without doubt complete idiots !
Many LL will refuse to pay higher LA charges.
They are under enough other cost pressures that are barely being met by rent increases.
Where LL are able to they will self-manage.
There must surely be a competitive advantage for self-managing LL over those who remain with LA full.
management.
Such self-managing LL will presumably have lower costs if not using a LA.
It will be found by many LL that if they wish to achieve net income from their properties they will have to get their hands dirty.
The days of passive income with a LA managing everything are over.
LA charges are a significant cost for LL and removing such costs can easily be the difference between viability or not.
I predict many LL terminating their LA contracts.
Obviously all this is a challenge for LA especially as those self-managing LL not using LA will have cheaper rents than those with LA.
This cost burden must surely start to affect where LL choose to invest or retain properties.
Investing no more than say 1 hrs drive away will perhaps mean LL are more able to self-manage.
Inevitably this will mean fewer properties being retained and a retrenching of investment in properties nearer to where the LL lives.
There will to some extent be a large repatriation of capital from the North to the South where much of the PRS investment capital comes from.
Not sure how this will assist the poorer Northern tenants with rental stock being sold off.
Tenant fees have to some extent suppressed rents.
This inevitably now must change as it seems most LA are simply passing on the cost to LL.
This simply ISN'T a viable solution as LA will find when LL start terminating contracts.
There are moves afoot to professionalise the industry to include 'reserved activities' by only those qualified (much like pharmacists when issuing prescription medication or conveyancing solicitors when formally registering a property asset). Unless LLs all plan on becoming the equivalent of a graduate pharmacist, then they will need agents.
Luke P very interesting stuff you have quoted.
But to 'professionalise' LL would need to be registered which effectively means a National LL licensing scheme which in principle I have no issue with providing the Licensing is FREE or very cheap.
This should result in all other LL licensing schemes to be abolished.
Registering the LL rather than per property owned.
RSW already had this scheme in place but there are many thousands of LL who are NOT using LA who have failed to comply with the RSW regulations.
For LL to 'professionalise' I believe a similar scheme that vocational transport drivers are required to have would be appropriate.
So that would be something like 40 hrs of CPD training to be carried out once every 5 years.
It should also be a requirement that before any property may be let out the LL will be required to undergo the 40 hrs of CPD training.
If not then a LA may manage on behalf of the LL until the LL has achieved the CPD training.
Such requirements could result in LA obtaining more business from LL who choose not to 'professionalise' which would be their prerogative though doing so they are hostages to fortune of LA who will know the LL isn't able to self-manage.
I believe that before mortgage lenders lend for BTL or LTB they should require that the borrower has a LA who will be used to manage or has achieved the CPD training.
There would be the problems of being accredited for LL until CPD training had been completed.
But I believe as a general principle all those involved in the lettings industry should have taken part in some sort of formal training.
The new NRLA should be perfectly capable of devising a CPD training package and delivering it which would garner considerable income for them.
This would be great news.
Potentially many LL would join the NRLA which would substantially increase the gravitas of the NRLA giving LL a far better lobbying voice.
I know that personally had I been required to undergo CPD before I became a LL my investment business decisions would have substantially changed.
But certainly some sort of professionalisation for LL should be required.
Whether the political will is there for this to be achieved is another matter!
Your first point is easy to deal with for Government. Get the tenants to be the police. Ask for a particular document/membership/whatever and if the LL cannot provide (because he doesn't have an agent), then they're caught. Perhaps part of this professionalisation could include the agent formally registering each let with a centralised body similar to The Law Society.
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