Rents would rise 2% to 3% across the UK next year if letting agent fees currently charged to tenants are passed in full to landlords.
The prediction comes from City analyst James Fletcher at Cenkos Securities, who yesterday gave a ‘buy’ rating to The Property Franchise Company – formerly Martin & Co.
Fletcher said: “Should landlords decide not to pass these costs back to tenants through higher rents, we do not believe this change would materially affect a landlord’s decision to let a new property or renew an existing tenancy.
“However, combined with upcoming changes to mortgage interest offset and the already imposed BTL Stamp Duty this year, political interferences are making life as a landlord increasingly a less attractive proposition.”
Fletcher said that for franchisees, tenant fees make up around 16% to 18% of annual lettings income, and 11% of total income.
The entire Property Franchise Company network is expected to earn £57.1m in lettings revenue this year, with tenant fees equating to £9.1m to £10.3m of this.
In Scotland, Fletcher noted, the ban had a positive effect on the firm’s franchisees.
He said that overall, the ban led to higher income returns for landlords, and higher landlord fees for agents. The latter more than offset the removal of tenant fees, almost offset in the first year following the ban.
Scottish franchisees saw their total lettings income increase 4% overall in the year following the ban. While this growth was attributable to higher instruction numbers (5% growth), the ban only impacted underlying fee income by 1% in year one.
Set-up fees increased from around £200 per landlord at the start of the ban to £400 currently.
Most startling, said Fletcher, was that franchisees’ monthly management commissions increased by 11% of total lettings income in the first year after the ban. Over half of this growth was attributable to higher rents which resulted from passed-on tenant charges. The remaining growth was from franchisees winning more landlords’ instructions to let properties.
Fletcher’s note concludes that the ban in England and Wales will not mean a write-off of an income stream, but rather a change in who pays the fees.
Stupid Analysts!
In a very competitive market place agent will lose out on the bottom line purely because they can’t help undercutting each other!
In South Warwickshire you can get 10% managed but some franchises & new starts charge 5-8% for their version of a “fully managed service” (means different things to different people!!)
Landlords are greedy and will mop up anybrent increases they can for themselves and will negotiate any proposed admin fee increases!
I wonder what the government’s next stupid idea against the industry will be? Some more regulation (tax) on something I’ve no doubt!!
Not all agents are evil you know!! (except the corporates!!)
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Suggesting landlords are greedy is not wise, it is because SOME greedy agents have levied high charges and exploited SOME tenants the ban has come in. Without landlords investing their savings in property you would have no income from lettings.
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Oh come on Will…
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Seriously? Wasn’t there an article about the effect in Scotland on this site just a few days ago where there was a mixed picture reported at best? The Scottish CLA reported that just 20% of agents made some kind of effort to recoup costs from landlords.
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All James has said is what the industry already knows. Ban fee’s rents will go up. The agent is happy, the landlord is happy, the tenant … pays more not just in the first year but for the entire life of the tenancy and RichardHill61 the next stupid step is Corbyn and cronies have vowed to cap rents and 3 year protected tenancy. This would kill off the private rental sector with a slow miserable death for many landlords who will not enter the market or want the risk that comes with it, the fall out from tenant debts and capital erosion as that will be all that is left to tax even more. Agencies will reduce, contractors will get less work and the biggest looser ….. the tenant they say they champion.
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Of course they’ll do that and more!
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I did a quick survey on the day the ban was announced and a whopping 92% of agents sdai they will pass the costs to landlords, knee jerk reaction? Maybe but lets see what happens when the government get their act together and issue the legislation 😉
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The Scottish market is different to big city markets of England. Demand in England is much higher meaning rents can be artificially risen for a large portion of the year when many tenants are desperate. Also, there was a ban in place in Scotland pre-2012 (just not enforced) so many agents were only charging small fees to tenants when the enforced 2012 one was introduced – very different to England. Further to this, Shelters report was only a few months data after the ban was introduced in Scotland, so their claim of rents not rising isnt credible. I emailed ARLA yesterday and told them to invest in a new report of Scotland market, to take to the consultation in new year.
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Landlord traditionally paid agents fees but then some agents started to charge tenants. This was designed to attract landlords (clients) and improve instruction levels for agents. Quite understandable. Agents are not going to work for nothing and landlords (who seem to have been bashed from every side) will have to pay agents fees. They will, if the market dictates, increase rents to try and maintain their margins. None of this really helps it just pushes things around. In the short term it will be difficult. I guess landlords will seek competitive fees whilst tenants were sometimes charged excessive charges (BY SOME) because they had no bargaining power. We live in a competitive economy and things will level out in time. Like the rogue landlord arguments the actions of the few have forced unwelcome change on the many including the many good, reasonable and fine agents.
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I am absolutely staggered that ARLA or NFoPP could not find anyone to represent them at such a meeting
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As an agent and landlord my opinion (for what is is worth) is that a landlord will take his business elsewhere if there is an attempt to increase his charges in lieu of what is lost a result of the tenant fee ban. There are plenty of agents that will present themselves as able to do the job Mr Landlord wants without charging him more and, if there is a shift in the market and rents rise even further; he’ll get the benefit of that too. If my agent (me in this instance) suggested increases in rent that displaces a good reliable tenant, I would point out to him (me) that if I lose a tenant because of a rent increase to assist my agent, I also have to pay him to find a new tenant, pay council tax whilst it’s empty and that’s when the property may have to be improved also. With my landlord hat on, I wouldn’t be best pleased!
Rents are going up in any event and as the tenant fees only equate to 6% of revenue and 10% of profit, accepting the situation is likely to be the lesser of the evils. I accept that not all letting businesses may have the revenue profile above however; I can’t help thinking that some in our industry have brought this upon us all.
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