The Letting Fee Ban – An Expert's Insight
An expert’s insight into the letting fee ban.
University Cribs works with, among other accommodation providers, a diverse range of letting agents. From nationwide franchises, to traditional family run agencies and everything in between. Yet one thing they are all likely to have in common was a mixture of uncertainty and dismay at a certain announcement in Michael Hammond’s Autumn Statement. This is referring of course, to the proposed ban on agency fees in England.
As it stands, the situation for lettings businesses and prospective tenants hasn’t changed at all. It is currently a proposed change, and the Government will still need to consult as well as assess the impact and find the time to implement it.
The consultation stage is obviously key, and we decided to beat Hammond & Co to the punch by consulting the UK’s No.2 Letting Agency Growth Guru. We reached out to Christopher Watkin to discuss just what a letting fee ban could mean for agents, landlords and tenants alike, in an effort to develop our company to solve any problems we can.
Agency fees were often seen to be unjust, is there legitimacy behind these claims?
C.W: The issue of agency fees is an emotive subject. I have particularly seen some agents (especially in London) discount their landlord fees to attract business to their agency, and recoup any losses by charging exorbitant fees to tenants. These agents are certainly in the minority, but the feelings they have stirred in the tenant population has meant that of us have suffered in going forward with the total banning of fees.
A complete ban is a big step; would there have been softer options available to the Government?
C.W: Certainly a soft option would have been a cap on fees. However, the Conservatives needed a headline grabbing issue they could hang their hat on at the recent Autumn Statement. Though I will stress that whilst they may have ruined it for the majority, we only have ourselves to blame as an industry.
A common reaction to this ruling is the suggestion that the increased costs will simply be passed onto Landlords. With Agents already taking roughly 10% of rental income in management costs, could this push some smaller Landlords towards self-management?
C.W: If one thinks about it the reason landlords use letting agents, it is the peace of mind and security, almost like buying an insurance policy.
Landlords use letting agents because they do not want the hassle or confrontation of chasing rent or receiving phone calls at 10 o’clock at night for dripping tap.
I see time and time again where the letting agent is lazy, in not putting up the rent in line with market rents, and it is the responsibility of the landlord to ensure that their agent’s renting the property at its fullest extent. This in turn will ensure any additional costs are mitigated.
Do letting fees make up a significant part of an agent’s income, and to what extent will agents in the UK as a whole be affected?
C.W: All we have to do is look to the agents north of the border when their tenant fee band came into force in 2012. Some agents fell by the wayside, some sold out, but the smarter agents mitigated the loss by working smarter, not harder.
Without merely passing the costs directly to Landlords, what can letting agents do to mitigate these changes?
C.W: My intuition tells me that an awful lot of letting agents will find the next 12-24 months challenging. The important thing is to do something about it now – planning for the worst and hoping for the best.
Most agents do not even know what their competitors charge, and I’m not just talking about the headline management rate, as I also include every minutiae of charges on both sides of the fence, to both landlords and tenants.
If they cannot pass the cost directly onto landlords, they must either cut costs, or increase revenue by bringing in more landlords to their letting agency, it is as simple as that.
If agents want to go down the cost-cutting route, then the obvious big-ticket items are premises costs, staff costs and portal costs. Making staff redundant can seem an easy option to take a lot of costs out, but this can often cause more problems than it solves. Maybe you should consider reassessing which portals you are using, and look for new, innovative options.
Agents want to attract more landlords to the letting agency, I feel the traditional techniques of advertising your services, using marketing techniques such as ‘landlords wanted’, cheap fee deals or brand awareness campaigns do not work anywhere near as well as they did five years ago. People do not like to be sold to, and landlords are just people. Marketing has changed, but letting agency marketing hasn’t.
We need to intrigue, educate and be noteworthy to the population of landlords who use other letting agents. Landlords do not swap letting agents just like people do not swap banks. Nobody loves their bank, it is just they cannot be bothered to move because of the hassle. I personally advocate a different type of marketing called ‘content marketing’, a system where one writes intriguing and educational articles about something that guarantees the interest of landlords in the area. Every landlord is fascinated about their property, how much it’s worth, its yield, capital growth, and all other aspects. Therefore, why not talk about that, as opposed to talking about yourself, your services or your firm?
University Cribs works with letting agents, student tenants, and indirectly, landlords as well; whom do you think will be worse off as a result of the ban?
C.W: On reflection, I believe everybody will be worse off as a result of the ban. Looking at what happened in Scotland, rents will rise as the majority of the fees are passed over to landlords. In all probability, student tenants will end up paying more in their monthly outgoings, although they won’t have the spike of fees when they move. The Government will have to pay more in housing benefit claims, which affects the general taxpayer, and higher rents could increase inflation also. Finally, Letting Agents will be affected, but nobody cares about them these days!
So there you have it, the prospective ban could in one way or another have a negative affect on almost everyone involved. It also presents an interesting conundrum for agents, whereby the simplest strategy of passing the costs to the landlord may not be the best available if their competition manages not to do so.
Instead, letting agents will now have to reassess their business model to become more efficient wherever possible in the areas that Chris mentioned, significantly, marketing and administration, which are in turn, the main focus areas that University Cribs looks to revolutionise for agents.
We will only see after the consultation stage what a letting fee ban in England will actually look like, but it is likely that it will be how proactively agents can move forward in developing and growing their business that will be the defining factor as to whom thrives and whom may fall by the wayside.
If you want to find out more about how we can improve your marketing efficiency, and streamline administration in the future, then please check our agent Agent page.
Alternatively, please contact Torin directly on email@example.com
If you’re an agent who wishes to know more about becoming the local property guru to grow your agency, check out Chris’ blog at www.landlordfarming.com or get in touch at Christopher@christopherwatkin.co.uk.