When my company, The Property Franchise Group, presented our 2017 results to the city, we also took the opportunity to update investors on the impact a tenant fee ban would have on our group. The impact over a full year would see a loss of revenue of £10m.
With an expected implementation date roughly a year away and other “mitigation” work we are doing with our franchisees, we are hopeful that this will reduce down.
However, let’s take that £10m full year figure and do some maths.
We manage around 52,000 properties across 280 traditional brand letting agents. The Government impact assessment reckons that there are 16,000 letting agents in the UK.
So our Group represents 1.75% of the total, and multiplying our “lost” £10m gives a total loss of revenue for the industry, in a full year, of £570m against the Government’s peak assessment of £273.9m.
Either we are unusually efficient at charging tenant fees or the impact assessment woefully underestimates the scale of the losses.
Secondly, at the profit level the impact could be even worse. In my experience the small to medium sized letting agent operates on sub-30% profit margins. So removing 10-15% of revenue could mean a third to a half less profit.
Where can agents find alternative sources of profit? Well, not by charging an insurance premium to a tenant for a “deposit replacement” or “nil deposit” scheme on which the insurer will pay commission.
It’s now clear the Government intends to limit agents to only charging rent and a deposit (which might be extended to include a deposit proxy), with all other tenant charging being tightly defined and restricted.
We recently obtained fresh advice on the position in Scotland (where there has been a tenant fee ban since 2012) and were advised that whilst offering a tenant an alternative to paying a deposit may not fall foul of the law (but is untested in court), it would be completely illegal for the agent to benefit from any commission. Do we really think that the English Parliamentary draftsmen will allow us a loop-hole?
Some of these “deposit replacement” schemes rely on the tenant paying a monthly additional premium throughout the term of their tenancy. What is best advice to the poor landlord now that we know the Government’s intentions? What would happen if the insurance premium is ruled illegal and no physical cash deposit is being held by the agent?
Finally, in my opinion there is only one “silver bullet” now that we see there is complete cross-party support for a tenant fee ban, and that is for agents to acquire their competitors’ managed portfolios and scale up their property management departments.
Commission from management portfolios is recurring and contractually locked, and the profit margins on big management businesses rise with their scale.
- Ian Wilson is chief executive of The Property Franchise Group whose brands include Martin & Co
It seems that Mrs May has turned her ‘hostile environment’ mantra about UK immigration towards the lettings industry. Having read the so called impact statement put before parliament on Wednesday I can’t believe the inaccuracy and false claims made by the government. Today’s PIE story about compulsory CMP to become compulsory ahead of fee-ban legislation in the expectation of letting agency closures is the final straw: Vote Conservative – get Labour!
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They’re all socialists.
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Mrs May had a very poor track record in her last position and more than enough history to indicate she is not a leader. That is the problem with the Tories, lack of a leader. Labour will get in next election, not from high votes but by default as so many Tories voters will abstain from being shafted by socialist policies.
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It’s basically impossible to trade now. The gov’t. Doesn’t understand tech and while agents like purpkepricks still have reviews saying they thought the service was free… agents providing a real service are getting smashed. Good luck on finding new franchisees wen this ban kicks in. Will be about 10 years until gov’t u turns on this one .
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The problem is all politicians live in a bubble and have become institutionalised to the point they have lost reality outside of their own little world. Crisis after crisis, scandal after scandal not matter which political party. MP’s advisers are not fit for purpose and far too much weight it given to political lobbyists and fear of public rejection from poor publicity. If lettings control was to be in the private sector (where it is but is being taken over by the state) most of these politicians would have been sacked for incompetence. Sec 24 is scandalous and daylight robbery. First to go must be the civil servants for that is where the real rot lies. All this talk about helping tenants is backfiring and going to cost them more money and more will become homeless either from small landlords throwing the towel in (happening) or letting agents unable to pay the overheads and continuing to provide a free tax inspector service and immigration officer, who will only touch sweaky clean tenants (foolish not to).
It will get worse when Corbyn introduces 3 year protected tenancies, Sec21 will disappear and no protection or redress for bad tenants. This only the tip of the iceberg.
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>The problem is all politicians live in a bubble and have become institutionalised to the point they have lost reality outside of their own little world.
Always been the case in my lifetime.
>All this talk about helping tenants is backfiring and going to cost them more money and more will become homeless
How will it cost tenants more money if the above article is correct? Surely it will cost Landlords who use Agents more money & Agents will get less?
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Rents will go up as it is the only source available to cover the costs and reported to have happened in Scotland.
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>Rents will go up as it is the only source available to cover the costs and reported to have happened in Scotland.
But will they go up more than the saving in fees?
The Property Franchise Groups claim their revenue will drop which suggests they can’t pass the cost onto Landlords. Landlords will only put the rent up if they can get away with it and only to the amount that their fees have gone up.
It will be the smaller Agents with lower economy of scale who suffer most and market share can be taken by the larger agents and those who can afford to take a loss while building market share (mentioning no names).
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It will go up to cover the costs as the tenant will be paying the small increase for the whole time they are in the property. That will equate to more than the reasonable fees they would have paid from an up front fee … the longer they stay, the more they pay. As for the smaller agent, no necessarily, they are in a far better position to manage costs and even be prepared to do things for free while the big agents have to pay the salaries come what may … they could be the biggest looser.
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You’re just looking at a particular example, it’s overall that savings will be made. On average.
No time to discuss further but it’s impossible for an Agent to see a decrease in revenue if they are simply passing the fees they would have had onto landlords and landlords are passing them onto tenants by an increase in rent.
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What on earth are you talking about, one cannot come to the conclusion you haven’t a clue, some may say normal. The lead story is that agents will loose revenue directly from the tenant. This is no different to any other sector of industry ….. you look for another avenue to recover that revenue for work you have done i.e. the landlord who just like any business will then put up the retail cost to cover expenses as they are not a charity!!! When you have a product that a customer has to have, in our case property to rent you can basically ask what you like and there is nothing the customer can do about it. There will be some who cannot afford and they will be left behind. These are the people the politicians say they champion but have effectively priced them out to be homeless. If you think any company is going to work for nothing you live in cloud cuckoo land… Did you go to work for no pay, did your employer not earn a profit to keep you in employment? if you were a trade unionist, everyone would be out on strike!
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I make less than £30 profit for each tenant fee. Most of my income comes from managed properties on my books, but why should I do things for free?
Cyberduck46, may I ask what you do for a living?
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Over the scale of the Tenancy, yes! If Landlords put the rent up by £25 a month to cover the increases, over a 6 month initial tenancy that is £150. Over a 12 month tenancy, that is £300. I charge £200 including VAT to a tenant to start a tenancy, and that includes a contribution towards the inventory and admin.
If ridiculously long ‘minimum terms’ come in, someone mentioned 3 years above, then that is £900.
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Easy, I intend to increase the monthly rents by approx a tenner a month and charge the landlord a fraction more (and tell him/her why) Oh and before you lambaste me I charge £200 for an introduction which includes inventory, drawing up lease, credit checks, referencing and all the other legal paperwork. The tenants will also be told why the rents have gone up and they can also blame the gov’t.
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>I intend to increase the monthly rents
Surely the market will dictate what rents can be charged and Landlords will want to remain competitive and will only increase by an amount equal to their extra charges at most.
The Property Franchise Group are suggesting they aren’t going to be able to pass on all of the lost fees because their total revenue is going to decrease. They are saying it will be worse for smaller Agents.
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Sorry wrong. It is the poor tenants that will suffer. Agents will continue and probably increase the number of DSS rejections. It is a supply and demand dictating competitiveness. Currently very short supply and massive over demand. Labour have said they want to cap rents … now that will cause a storm and that will be the tipping point for lenders wanting their money back and decline of BTL. Insurers may consider tenant risk to increase premiums, another add on which can only come from rents. Small landlords may consider ditching (many have already) exasperating supply and demand further and this whole sorry saga was supposed to help tenants.
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Spot on WT, in our area rents have risen between 15-20% in the last 18 months and we still have tenants fighting over the limited supply. A small increase on our part will make no difference at all.
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>Sorry wrong.
OK, then what The Property Franchise Group are saying must be wrong. I’m basing my points on what they are saying.
>we also took the opportunity to update investors on the impact a tenant fee ban would have on our group. The impact over a full year would see a loss of revenue of £10m.
They will have looked at whether they can make up for the losses by passing the fees onto the Landlord and they must have decided they can’t pass all of them on. The effect of this will be an increase of rent less than the savings made by applicants.
Ian Wilson, CEO “Ian has worked in the property industry for thirty years. After graduating from Bristol Polytechnic with a Degree in Housing, Ian’s first job was to manage one of the UK’s most deprived housing estates in the north east of England.”
David Raggett, Chief Financial Officer “David holds a Degree in Economics and Accounting from Reading University where he was under the tutorship of Professor Christopher Nobes. Since qualifying with PWC as a Chartered Accountant he has spent his whole working life in franchising as franchisor and franchisee. ”
They look well qualified to me to see the overall picture.
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Just like PB you haven’t a clue. If you don’t know or understand a subject it better not to say anything. Your argument as usual is based on limited information and no knowledge and trying to justify an argument that has so many holes in it, its embarrasing to watch. They are talking about the loss of revenue from tenants fee’s. They haven’t said they will not take action to recover those lost fee’s!!!!!!!!!!!!!!!!!!!!!!! unless they have no intention to recover the costs. As for trying to make out they have experience … well m8 I am more highly experienced in the industry than both of them and IT DOSEN’T NEED A GENIUS TO WORK OUT WHERE THE LOST REVENUE COULD COME FROM AND IS HAPPENING.
Still not sure, try reading the other posts, there is a common theme.
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No doubt the Government has in deed under estimated the cost impact on all agents big and small, the whole rental sector has become a political football, with ministers who don’t understand the basic nuts and bolts of the way our industry works. How are you suppose to invest in your business and staff and get a decent return / living for your efforts, when the Government sees agents as free service business.
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What next? Always been a ‘Blue’ – no longer!!
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Hardly a insightful article! It’s salient point is something most people concluded themselves after only the briefest of considerations
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All this government meddling will surely drive investors to want to manage their properties themselves and not to use agents at all. Many will not have any idea of the rules and regulations. As a Landlord of 30 years running 25 properties, I have often used agents for introduction services for new tenants. I cannot see that this is going to happen in the future, it will just be too expensive and I will do the work myself.
I pity you agents because I do not think that many of you will survive!!
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Scotland and Wales has proven that for many partime landlords in England managing, have a big shock coming when licencing is introduced.
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What’s the point of number juggling and finger pointing now?
The time for ceo’s of estate agents to cry over spilt milk is long gone. They should have united when the subject was first mooted and lobbied against the crazy concept of a customer (the applicant/tenant) getting something for nothing.
Also, the ban happened in Scotland some years ago and the sky didn’t fall in. Or if it did, surely that should have acted as the rallying cry for the industry in England when the first malodorous sniff of a ban hit the air.
No. Industry chiefs have been far too complacent or simply asleep on the job.
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Perhaps they were never invited to the party. It did seem that NALS and ARLA were allowed lip service and open to criticism over how effective they were, compared to the level of hearing for Generation Rent, Shelter and looney left socialists.
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Arla just rolled over and let government and shelter et al tickle their tummies. They didn’t fight they didn’t try and get involved with non Arla members they wrote a weak letter which was too little too late. But then fee ban won’t affect them with their monthly pay pack and nice pensions paid from the subs that have been collected over the years.
If government look for a single body to oversee training within the industry or to be the statutory body, let us all hope that nobody considers Arla!
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This has already been covered above, but I will state that the “mess” is already happening, rents are rising, both because so many landlords are getting out of the market and selling (less supply) and demand for good housing to let is rising (demand). Basic economics but sadly, which I simply do not understand, is why the many junior/senior civil servants who I am sure have been to college and many have Maths or Economic degrees, cannot see what is going to happen. Add to this (at a conservative guess) 60% of agents will dump their existing fees into an increased rent/management fee combination, then guess what = tenant pays more over 6-12 months, probably 10-20% more than they would a sensible reference fee upfront.
Cannot blame this all on the Gov, look closer to the industry and the small amount of agent who looked to ripp off tenants with ridiculous reference fees + admin costs + agreement fees etc etc. If NALS , ARLA etc would grow a pair and be pro active, they could have got all members to agree to a “fixed fee” across regions or even the UK to prevent the “small number” of ripp off agents making a quick buck and causing havoc for years to come.
Too late now, ripp off agents probably sold up and fleeing for the hills.It’s going to be fun, but I would not like to be in TPFG shoes or any large corporate who needs to find a way of filling a very big hole.
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>This has already been covered above, but I will state that the “mess” is already happening, rents are rising, both because so many landlords are getting out of the market and selling (less supply) and demand for good housing to let is rising (demand).
But does this have anything to do with the fees ban? It needs to be looked at in isolation.
Why would a Landlord sell if they can pass the increase in fees onto tenants?
The Property Franchise Group are looking just at the effect of the fees ban and they are saying they can’t pass on all the lost fees to Landlords. Landlords will surely just increase rent to cover the fees but Agents aren’t going to be able to pass all of their lost fees on.
The overall financial effect is a saving for tenants with a loss to Agents.
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PFG may not be able to if they were one of the culprits of gross overcharging! Wake up and read the other posts of what the industry is saying and is actually doing about the loss from a fee’s ban.
The overall financial effect is a saving for tenants with a loss to Agents. Not if rents go up to recover it.
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I have 2 Martin and Co franchise branches near me. I think they are both struggling and I believe will be next on the local closure list.
It’s a shame as the owners are nice people.
Belvoir opened near us twice and closed.
I just don’t think these Martin and Co and Belvoir franchises have any customer appeal.
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There’s a difference between a living and a killing, agents ripping off tenants with fees when they know a property is not available and other sneaky charges has caused this, the bad eggs have killed the golden goose.
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That’s very true, the greedy and immoral have ruined it for those of us who charge a fair price and try to give a good service.
One Agent near me charges nearly £600! Dick Turpin would be appalled…
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I am sick of anti-capitalist, social media addicted MP’s saying anything that they feel is popular, just to better their own profiles.
Only 3 years ago they were clambering over themselves to promote apprenticeships, something we took advantage of and benefited from by way of what are now full-time staff members.
Unfortunately it is looking unlikely that we will be able to retain them, which has been a waste of everyone’s time, especially theirs. It is also unlikely others will be hiring and so it’s back to re-training or benefits!
Our application fees are banded on rental amount and therefore are shared by anyone applying who wants to be more than a permitted occupant, with their own split of the tenancy.
They are still affordable if you are applying alone. Unlike the TV licence (a forced fee) rich or poor!
Funny how legislation was suddenly passed forcing agents to include the VAT and not highlight it as a stand alone fee at the start of all this debacle! Don’t want the public thinking the government benefited from application fees, but we do want them to think that the agents fees are higher than they actually are! (Crooked politics).
We work closely with our tenants, often giving them time outside of office hours, we do far more for them than simply manage the property they live in. Guess what, when they want to move, they often want to remain with us!
MP’s and Shelter should stop referring to agents as unscrupulous or rogue without evidence to back it up.
I’d be interested to hear what Kevin Hollinrake MP (founder of Hunters) has to say. It’s large companies like them that seem to benefit the most by mopping up the smaller independents once the government has finished cutting the legs off them (Labour would be no better, or worse).
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