The impending tenant fees ban could entirely wipe out some agents’ profits, turning them into loss-makers – and half of letting agents are considering giving up.
Half of agents believe they will lose between 10% and 30% of their revenue when the tenant fees ban comes in.
The finding is carried in the latest annual Fixflo report published today.
The report says: “This is a major threat for any business, especially small businesses who will often yield a net profit of 10% to 20%”.
A total of 49.63% of agents asked about the impact of the ban said they would lose between 10% and 30% of revenue, but almost 10% of those asked said they would lose 30% or more of their income.
Agents cited loss of revenue as the biggest challenge to face them over the next year, at 41%. A further 32% said their biggest challenge would be winning new landlords.
Just 8.87% of agents cited online competition as a major concern.
Most worryingly, almost half (48%) said they are wondering whether to carry on because of developments in the lettings industry.
The Fixflo report says that changes such as the Tenant Fees Bill are putting the traditional letting agent business model under increasing strain.
It says: “It is evident that the Government’s measures are not being welcomed by the industry.
“We expect to see further industry consolidation over the next 12 months as the increased costs of compliance need to be spread over larger portfolios to keep compliance costs per property at economical levels.”
Today’s survey is based on responses from 401 agents around the country.
In addition, 100 landlords responded to a separate landlords survey.
Of these, 72% said that things had become more difficult for landlords over the past year.
Despite this, 70% of those polled said they plan to keep their portfolios or to expand.
Of the total, 37.21% do not use a letting agent.
Of those that do, rent collection was cited as the most important service provided by an agency, followed by legislative compliance handling, with repairs and maintenance in third place.
Comments (23)
I ask the question what about the agents that do charge a fair price they are going to get stung!
How on earth can the government tell a business what they can and can’t charge ?
If a tenant is willing to pay a fee that is fair then guess what? they will pay it . Otherwise they will do what they always do and negotiate that fee down.
This isn’t solely down to Agent greed it’s down to lack of enforcement! Now legislation is going to create more legislation to sit on top of other legislation that again is not policed Properly!!!
These small surveys should always be taken with a pinch of salt. They haven’t published details around demographics, how questions were worded, etc.
In any case, these are interesting times. I believe/hope that this will help filter out weaker and rogue agents. The strongest can take it and may even become stronger.
I managed a portfolio of some 500 properties for many years where my landlord clients paid 12% – 15% for full management and 10% let only. Tenants were only ever expected to pay the Homelet referencing charge. The explosion in the buy to let market and subsequent increase in agents chasing new landlord business quickly resulted in reduced landlord fees compensated for by a sharp increase in unjustified tenant fees which begs the question: who is the client? Agents, you shot yourselves in the foot and deserve everything you get. Landlords will have to pay for agency services, just like they used to, or do it themselves.
You seem to be characterising all those with concerns as low management fee/high tenant fee models. My analysis shows those charging the highest tenant fees are the corporates who also charge much higher management fees. They charge for almost everything except the air the tenants breath.
The same applies to most London centric agents too.
The principle that the tenants should make a financial commitment to the process is a good one. Ripping them off is not. How about lenders being banned from charging arrangement fees?
Tenant fees make up about 10% of my income. Irrespective that’s still straight off the bottom line.
If some decide to sell up fine, I’m in the market for a portfolio. With sales weakening the days of Lettings subsidising sales will soon be a thing of the past for anyone with less than 250 properties under management.
Politicians assume the whole of the UK is like London and it is not. But it is ok for an MP to draw an income and moonlight on the boards of companies in our time.
Fantastic, it will sort out the wheat from the chaff. This industry will thrive but ineffective agents will NOT!
Good riddance then, they’ve been the reason for the ban in the first place. Reasonable pricing should have been adhered to, plus ensuring stock is good enough quality that it doesn’t require any more time than the next property.
Looking forward to snapping up a few portfolios!
If those figures are correct then I actually see it as a benefit to my business as it may well lead to more business for me. We made the decision years ago when setting up letting to not be tenant fee reliant so although the loss will have an impact it will nominal.
Automating the job of collecting tenant fees via agents management software could be considered a driving factor in this “mess”. Make it easy and automated and it becomes the norm and agents let it tick-tick-tick up, up and are now watching it go away.
I’ve met thousands of agents over the years where in parts of the country it is the norm to charge double bubble on maintenance works & repairs (Landlord & Contractor – Landlord under fully managed fee and a fee from contractors for giving work) and yet in other parts of the country this practice horrified the agents.
Is this for real? If that’s the case then perhaps they should find another business to go into. Tenants fees should never have been the main income for an agent and it’s this reason why they are probably being banned! Admin fees account for 5% of my revenue so it’s going to be a loss but nowhere near the level where it would make me need to change industry! I wonder how much these agents were charging in admin fees?! This is why we’re in this mess. Pure greed.
Maybe that’s a survey worth doing and collating a list of tenant fees per agent, should be an easy task as they will all be posted on everybody’s websites!!!! Ha, sorry i forgot what world I lived in for a second.
The main problem for these Agents is that they bought business by offering ridiculous Landlord fees and then made their business model reliant upon high Tenant Fees. They now have an issue because they simply cannot go back to their Landlords and increase the fees…..especially if they are tied into a Landlord Contract. A “karma moment” for all the agents who lost business as a result of their actions
I too have not taken the biscuit when it comes to charging tenants, I don’t expect that my turnover will be down by much more than 10%. I have already been discussing the issue with my landlords priming them for the increased costs coming their way.
Not sure you are aware how business works Woodhen, but in my world the companies I deal with review their costs annually etc, and their fees/charges go up accordingly. In the case of one such supplier by quite some margins and on a regular basis (no prizes for guessing who that would be).
Why are letting agents any different? I will be writing to all my clients to re-iterate where we are as an industry. I will at the same time be telling them my charges are going up to match the increased work load and costs. My existing agreement still stands of course..
You know like EE, bt, RM, commercial landlords, paper suppliers, insurers, staff, etc etc do from time to time…..
Exactly. We make about £30 profit on Tenant fees for a couple taking a property. So, the landlords will have to pay a bit extra to cover the costs, but it isn’t going to hit me as hard as it will an Agent in my area who charges three times what I do, and has a much larger rental stock list…
Go back to charging 15% plus Vat
You mean 18%
Yes I do.
Any business model relying on tenant fees doesn’t deserve to survive
well said. Its this pure greed why we’re all in this mess
I’ll remember that next time at tenant calls me at 12 o’clock at night because I’ve locked the keys in the property and they want me to let them in with the spare set. That’s not gonna happen when they ban tenant fees. I’ll stay at home with my kids and let them call a locksmith out themselves , Who will charge four times the amount !
Well said. Any agency that relies on tenant fees for 30% plus of its profit IS overcharging tenants. We still have agents offering free management and tenant find to landlords.
Not surprised, does lettings really make enough profit for any business after the amount of time, effort and money you put in?
Especially on the fees landlords are willing to pay, with all the red tape letting agents have to deal with.
I think lettings/property management is probably the only thing keeping many agencies afloat at this time so yes, lettings does and can money/profit!
Let’s hope it is the revenue and not client money!