The letting agency market place is facing unprecedented change, the perfect storm is brewing, and 2019 promises to be the year of significant winners and substantial losers.
It is the most chaotic market on record for letting agents.
Letting agents across the UK are faced with risks to their business and risks to their customers.
However, I believe there are also opportunities for those willing to take them.
New firms are popping up almost on a weekly basis, promising to solve all our problems – I am a letting agent myself – but what are they really promising?
Once you cut through the smoke and mirrors, the ‘proptech’ offerings often fall short on delivery and fail to understand the actual needs of agents and their customers.
There seem to be so many solutions looking for a problem to solve.
Tenant referencing
Offers to provide free references or complete references for say £5 are just not real.
Having spent 15 years either managing or owning tenant referencing businesses, I know for a fact that this is not possible.
Attached to such promises are ‘do-it-yourself’ style platforms or contracts to procure other services and products that more than fund the cost of a reference.
The actual pay away to external organisations, when completing a full reference with Right to Rent verification, AML checks etc, comes very close to £5, so agents can figure this out for themselves.
Several so-called referencing firms are now saying that they report tenants who pay their rent on time to the credit agencies, helping them improve their credit rating.
In my view, this is no more than smoke and mirrors.
The only way these claims can be remotely accurate is if the following statement is issued to every tenant: “We will improve a tenant’s credit score, but it will only improve the credit score we have set up for you that no lenders will accept and which is only shown to you.”
Tenant fee ban
The tenant fee ban, due to become effective from next April, makes cheap offers and opportunities to cut costs look very attractive.
But at what risk?
In an environment where margins are squeezed and both agents and landlords are under pressure, the worst possible scenario is a tenant occupying a property, failing to pay rent and refusing to vacate.
The potential losses to both agents and landlords are significant.
Even worse if the agent has no recourse from the reference provider, the landlord will certainly want to know what due diligence the agent carried out.
Unpaid rent is on the increase and rents are at a UK all-time high. Relatively minor changes in tenants’ circumstances can result in rent being unpaid.
For an insignificant sum, in the context of investing in a residential property and receiving the appropriate yield, letting agents can remove this risk from their business and from their landlords.
Rent guarantees can be high value to landlords and a serious income generator to letting agents’ businesses.
Rent guarantees with excesses, however, create chaos for letting agents; landlords are almost always disappointed that they did not receive all the rent lost and this often results in agents losing the landlord customer.
Replacement deposit schemes
Replacement deposit schemes are the new trendy product, with several credible players entering the market.
These schemes are unproven and whilst very attractive to certain tenants, we are yet to see the claims experience at the end of tenancies.
Standalone replacement deposits represent the greatest risk to both the agent and the provider.
I believe that the best chance of delivering a sustainable replacement deposit scheme is to do so on a fully integrated basis.
The key is to offer a whole package, including referencing, tenants’ liability insurance, tenants’ contents insurance and tenants’ income protection. The combined earnings for agents is much greater, the protection for tenants is complete and the chances of the replacement deposit scheme being sustainable are far higher. However, time will tell.
Selling to tenants
The changing market requires agents to treat tenants as valued customers.
Tenants are consumers with a propensity to buy value added products at the time of moving home.
From the application stage through to the move-in day, the opportunity to provide tenants with the right products and services is huge.
They want the property and are open minded about the things that will help them through the whole process. They also want to reduce the risk of high costs either during or at the end of the tenancy.
It becomes difficult if not impossible to sell tenants products the day after they move in when their whole focus and mindset changes.
London – and the rest
There are two lettings markets in the UK – London and the rest of the country.
London has specific challenges and risks that must be managed. London also has fantastic opportunities for agents – the average rents make the rest of the country look very poor indeed.
Tenant fraud in London is the most serious risk, followed by tenant affordability.
We have seen an increase in organised crime in London, often unknowingly facilitated by Airbnb. Applicants in London need to be assessed differently to the rest of the country and agents in London need to share more data. This is exactly what the LonRes Let Alliance proposition for London delivers.
Outside London, lower average rents means the tenant fee ban will have much more impact on agents currently reliant on it for income.
Tenant fees on average produce 20% of agents’ income, and this can often be 100% of the operating profit.
Action is urgently required – the waiting game is over. With as little as just seven months to replace tenant fee income, a proven solution is required, and the time for trying things that ‘might’ work is over.
Now is not the time to make rash decisions or hope that a white knight from the tech sector will turn up with the silver bullet.
Tried and trusted solutions are already there for you, from firms which do not use the word ‘proptech’ to describe themselves.
* Andy Halstead is CEO of Let Alliance which works exclusively with letting agents. He is also a letting agent, with a family business in Chester
Comments (10)
why have PIE removed some posts?
Dubious testimonials?
Poor show from LetAlliance if that is true Fudge, especially a company which must surely trade on 100% honesty
Thanks for your comments Mike.
I have taken a quick look at your website. Let Alliance works exclusively with Letting Agents, we do not work directly with landlords. Our mission is to help letting agents grow, one of our objectives is to get landlords to use the services of professional agents. We do not facilitate landlords to DIY, we believe properties in the private rental sector should be professionally managed by agents. It is impossible to offer services for free.
In the future, credit agencies might well record rental payments and lenders might recognise rental payment data. Currently this is not the case. We work strategically with Call Credit, as soon as, and if, any change in credit data takes place, we are ready to contribute.
Hi Andy,
Totally agree that private sector properties should be managed professionally and we are helping landlords do this. We keep our landlords up to date with the latest legislation and also ensure that they are fully ID checked, and have all the appropriate licences and certificates.
We offer a freemium service to landlords – free referencing, tenancy agreements and a unique communication and repair reporting system. We are also testing our premium, paid-for service with a number of our landlords – this will be just £25 per month.
Transunion (Formerly CallCredit) is the only Credit Reference Agency that has not agreed to accept rent payment data and so lenders using them will not have access to that data, which is a pity.
The offer of a coffee is still there.
Hi Andy,
You make some interesting comments here, some of which I agree with and some I don’t. I have to declare an interest in this, as I am the Founder of RentalStep.co.uk – an online platform that connects great tenants with great landlords. In the last 6 months, over 3,000 tenants and 1,000 landlords have joined our platform.
Tenant Referencing
I agree that the cost to an Agent for referencing (excluding staff time) is around £5 but that begs the question – Why do so many agents charge so much for this service to both tenants and landlords?
We provide free referencing for both tenants and landlords, as well as free Tenancy Agreements. We are happy that our external costs per check can be recouped from the additional, effective, paid-for services we charge landlords. Obviously, we would love our landlords to use our paid services, but they are under no obligation to do so.
Rent Recognition
We have recently received a large sum from HM Treasury to help us continue to build great services that make it easy for tenants to have their on-time rent payments recognised by Experian and Equifax. As you can appreciate, this is a fairly complex piece of work and we continue to work closely with these Credit Reference Agencies to make this happen.
We are also working closely with major credit providers and banks to ensure that they take these payments into account when deciding to offer credit.
This will become the ‘norm’ in the future where tenants can quite rightly assume that their rent payments can have a positive effect on their credit file.
Tenant Fee Ban
When this becomes law, it will have a huge impact on a large number of letting agents and although I sympathise with these, I think there is an argument that some of these have ‘had it too good for too long’. There will be consequences of the ban, but I am sure that the best outcome will be the tenants will no longer have to pay extortionate fees to some agents.
We are currently working with a number of agents to design a service that suits their requirements and that benefits everybody – Agents, Landlords, Tenants and Us.
Deposits
I totally agree with your sentiment on this. There appears to be a new ‘proptech’ offering every day wanting to solve the problem of deposits but I think it is too early to say which will be the preferred model for landlords and tenants. The problem, as our tenants and landlords see it, is one of timing, and we are working on a new way of deposit transfer and also working with a number of banks to provide a solution to this.
Selling to Tenants
I agree there is a window of opportunity to ‘sell’ to tenants prior to them moving but I would urge agencies not to push their products here. The letting industry has a poor reputation amongst tenants and any ‘heavy sell’ will only add to these negative thoughts.
London – and the rest
I agree that there are 2 lettings markets. London and the South East, in general, is a very different market to the rest of the UK, but tenants are still tenants, and landlords are still landlords, with similar wants and needs.
Hope this helps with some of your frustrations Andy. We are neighbours – we’re in Liverpool and you’re in Chester, so I would love a catch up with you over a coffee sometime soon.
Technology, like any other aspect of the business, is not a simple plug-in saviour. As agents you need to understand your business and where you can maximise the efficiency of your staff as well as generate additional revenue. Often the tech that creates efficiency also delivers a smooth & modern digital process that can become a marketing tool. We have placed PropertyFile at the heart of our lettings business for years & it enables us to retain strong landlord fees, secure lets & operate efficiently. As a small lettings office of just 5 staff we now generate almost £120k per annum per person and expect this to reach £150k in the near future. This is not just good business, our company runs effectively with highly satisfied landlords & tenants alike. There is no silver bullet and what works for 1 won’t work for another but understanding how your processes work & how best to transform these to free up staff & delight consumers is vital.
The majority of the agents with whom I work, have tenants fees at around 10% of total income.
Most will survive the tenant fee ban without increasing costs to landlords by simple efficiency measures and by *taking* stock off those agents who have been the real culprits in the ban becoming reality. (as they have no option but to increase costs to landlords)
A one stop shops sounds great, but with the invent of comparison websites etc, IMHO only the laziest of tenants will buy contents insurance/income protection through a letting agent.
Yes, 10% is probably about right for those of us that haven’t been taking the proverbial. However I disagree that we wont be charging landlords more. We simply must. For me I will offer them a higher management or higher letting fee at the start of a tenancy, take your pick. Anyone not charging more was clearly overcharging the landlord in the first place (in view of the tenant contributing towards the set up fees)
Good points well made! It’s good to see all these issues covered in one article as they are inextricably linked.
I agree a ‘one stop shop’ offer of the whole package makes sense. What worries me is that often agents income from tenant fees is higher than 20% and their bottom line often falls some way short of this. Even a small increase in their cost base can have profound consequences.