An upturn in business for letting agents

The Brexit vote and the announcement of the tenant fee ban both had a very negative impact on the housing market. Nevertheless, for letting agents at least, we are beginning to see some light at the end of the tunnel again. Many of my clients have shrugged off these threats to their businesses and during the last couple of months, they have seen a significant upturn in their turnover and profitability. There are a number of reasons for this.

Doing the sums

The typical letting agent used to earn 10-20 per cent of their income from tenant fees. There were dire predictions that all this income would be lost after the 1st June. In practice, this does not seem to have been the case. My clients have explained the consequences of the ban to their landlords who, for the most part, have been prepared to pay for charges such as referencing costs and check-out fees that used to be paid by tenants. They have then recouped this cost by increasing their rents. For example, tenant fees of £350 (£125 per reference for two plus £100 check-out) have been passed on to the landlord who has raised the rent by about £30 per calendar month to recoup the cost. Everyone is happy. The agent maintains the income, the landlord recovers the costs by raising the rent, the tenant is no worse off and has the convenience of paying £30 per calendar month rather than £350 in one lump sum and the government can claim that they have “done something”.

Longer tenancies? Or shorter?

A second consequence seems to be that tenants are moving more often. This may be a short term phenomenon caused by tenants delaying their moves during the first half of this year in order to avoid paying tenant fees. However, the early sign is that this may not be the case. As far as the agent is concerned, they are much better off if three tenants rent a property for one year each than if the same tenant stays for three years. It would be ironic if the tenant fee ban leads to shorter average tenancies when the government are trying to promote longer tenancies!

New tricks

A third factor is that the very threat of losing up to 20 per cent of their income forced letting agents to look more closely at their costs. As a result, agents have been increasing their use of PropTech and have been reducing the service levels that they provide to both tenants and landlords. For example, a lot of agents have cut down on the frequency of their periodic inspections. Others have started to insist that all repairs must be reported by email rather than by way of a much more time-consuming calls.

Property management bonus

A fourth factor is that many agents have reduced or even ceased their reliance on let-only landlords. Their view is that without the tenant fees, let-only contracts are unprofitable. To their surprise, they have found that if the benefits of an upgraded part-managed service are sold correctly, then landlords can be persuaded to pay extra for it and this is having a very dramatic impact on their income and profitability.

And finally…

The last factor is the impact that the chaos surrounding Brexit is having on the housing market. It has been estimated that almost one million people have delayed buying a home since the referendum three years ago. If owners cannot sell their homes, then many will be forced to rent them instead and this is having a positive impact on letting agents’ income.

The agent is much better off if three tenants rent a property for one year each than if the tenant stays for three years.

These accidental landlords are unlikely to hold onto their rental properties for long but as long as they do, there is extra income to be earned.

The impact of all these factors together has meant that many well-managed letting agents have seen their incomes rise by up to 10% over the last two months and this has had a significant impact on the value and demand for good quality letting agents.

This month alone we have agreed sales on three businesses that have languished on the market since the Brexit vote three years ago.

The residential sales market remains in the doldrums and there are further dangers ahead for letting agents such as the impact of Section 21 being abolished. However, for the time being, the message must be “Make hay while the sun shines”.

Adam Walker is a business transfer agent and management consultant who has specialised in the property sector for more than 25 years.

www.adamjwalker.co.uk