New figures from property consultancy TwentyCi lay bare the challenges faced by the lettings sector.
In the third quarter of 2022 new instructions and lets agreed were down by 25 and 19 per cent, respectively; and in contrast to the owner-occupied sector, there was a marked supply and availability issue, as some landlords withdrew from the market because of tax changes put in place in 2019 reducing incentives.
The consultancy adds that the lack of supply is compounded on the demand side as tenants are undoubtedly deferring decisions to buy as a result of higher house prices, inflation and interest rates.
Looking at the regional picture, TwentyCi says that as of last month all regions have settled at around 1.5 months of available stock - this time last year it was two months.
The consultancy, in its latest market snapshot, says: “Pressures on the supply and demand side mean that this situation is unlikely to improve in the near term. Landlord incentives have been dulled by legislative and tax changes, whilst the reduction in buy-to-let mortgage products will inhibit any significant injection of new supply. Households deferring decisions to buy due to adverse economic conditions will tend to increase demand.”
The average asking price across the UK was £1,605 per month in Q3 2022, 19 per cent higher than in Q3 2019.
This trend of increase is likely to continue as higher interest rates and inflation may be passed on by landlords whilst supply constraints and demand pressures continue to apply.
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Letting agencies are closing their doors up and down the country while tenants queue up to apply for homes as they need to live somewhere and cannot buy. All of this while costs to landlords increase and many leave the market. This can’t go on.
Lettings agencies are now aathinal business with the tenant fees act. And now with the end of section 21 lots of properties will be occupied by tenants who won't leave and won't pay.
Should have said 'marginal business "
What this article doesn't show is the high rate of renewals. Properties returning to market are flying at eye-watering rents. Meanwhile, renewals are flying through at high volume and usually with strong (but slightly below open market) rents. Agents who haven't built a strong and constant revenue stream throughout a tenancy will find this market tough.
Agents need to take a long hard look at their fee structures and revenues on long-term tenancies- to combat the current climate and the impending removal of S21.
We started migrating our clients a few years back from a traditionally split fee structure (lettings upfront & management monthly) to a standardised monthly fee for everything that is payable for the duration of the tenancy.
This has not only assured us good revenue whether tenants bounce or stay long term, but it also means our business has a very steady cash flow throughout the year with around 85% of our managed clients now being on a full monthly fee. The nice sell to Landlords is constant cash flow for them with rent in their pocket from the very start of a tenancy (rather than traditionally seeing little to no income from the 1st 2 months' rent).
Steps like this will see us record our highest-ever lettings revenue this year and we should sit around 35-40% profit so there is no need to think lettings is a 'marginal business'- it really doesn't need to be.
Kristjan you live live in a fantasy world. The tenant fees ban cut the agents fee by approx 50 %. Lots of properties will go off the market, due to landlords bailing out and PRS tenants converting their rental into sitting tenants by not paying or slipping rent and playing ducks and drakes with the landlords. A lot of landlords are old and are likely to be intimidated by the tenants and the councils. Sounds to me as though you are based in London, which is a different world.
I am, indeed, based in London but, as an agent and now a supplier to agents, I talk to agents up and down the country. Many agents across the UK are reporting similar performance. If an agent lost 50% of revenue due to TFB- they are one of the reasons the ban was instigated. I haven't heard an active agent complain about the TFB in over a year. Most have offset this with increased landlord fees which have been implemented across the market as agents could no longer supplement cheap landlord fees by charging tenants. It's levelled the playing field.
Of course, the largest of operations have much tighter profit margins, but successful independents often sit in the 30%+ profit range.
How we run our agency is an open book and we have had several agents over the years visit to see how and why we do things. This will never change.
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