It's an interesting time to be a letting agent - working in a sector which continues to grow rapidly, while battling numerous new regulations and challenges. In fact, according to a report from the Tenancy Deposit Scheme, there are over 145 laws (and over 400 regulations) covering the lettings sector.
As the Government continues to acknowledge the growing importance of private renting, it has sought to introduce several changes which aim to increase transparency within the sector and help make renting more affordable for tenants.
So, what does this mean for you? And how can your business adapt to a changing marketplace?
Overview: The ban on up-front letting agent fees
Arguably the biggest industry change for agents is the ban on up-front fees charged to tenants. The proposal was first announced in November 2016 and it's now been confirmed that a ban will be introduced in England in spring 2019 at the earliest. It's also expected that fees will be banned in Wales, but no date for this has been set.
The Government published its draft of the Tenants’ Fees Bill in November 2017, which sets out a ban on upfront fees, regulation of deposits and prohibition of double charging.
The draft Bill also confirms that agents who continue to charge fees after the ban is introduced could be fined up to £5,000 for a first offence and then £30,000 for any further breaches over a two-year period.
Meanwhile, the proposals have recently been scrutinised by a select committee, hearing evidence from the likes of ARLA Propertymark, the Residential Landlords Association and Trading Standards - looking at aspects such as enforcement, compliance and viability.
Over the next period, the draft legislation will continue to be scrutinised before a full version is published.
What do you need to consider?
With around a year left to prepare, it's essential you're aware of the impact the ban will have on your income and have a plan in place to mitigate this. Some agents have already dropped up-front fees, while others will be taking the opposite approach of earning as much as possible before the ban.
Whatever you decide, it's highly likely you'll need to replace lost revenue when the ban is finally introduced. You could do this by targeting additional revenue streams like utilities referrals, improving your landlord proposition so you can charge higher management fees or streamlining your business to make it more efficient.
Overview: The deposit cap
Alongside banning fees, the draft Tenants’ Fees Bill also seeks to address issues surrounding renters’ deposits. The bill proposes that:
- Holding deposits are capped at no more than one week’s rent.
- Security deposits are capped at no more than six weeks’ rent.
Some industry bodies and groups have criticised the cap on security deposits, saying it could end up having a negative financial impact for landlords. Others, however, have praised the Government for listening to industry advice and raising the cap on security deposits to six weeks’ rent up from the original proposal of four weeks.
What do you need to consider?
Agents will need to be in a position to advise their landlords on how the deposit cap will affect them. Landlords who accept tenants with pets may have to rethink their strategy as many that accept pets currently do so on the proviso that they charge a higher deposit. What's more, your landlords will need to think about the standard of furnishings they offer and whether these will still be covered by a capped deposit.
On the demand side of things, a cap could be positive as there'll likely be higher demand and more reliable tenants to choose from as one of the main barriers to living in a rental property is lowered.
Other industry measures to consider
There are several other rental sector changes that have been proposed or are coming into force soon which you’ll will need to think about. Here are some of the most important:
- The introduction of Minimum Energy Efficiency Standards (MEES) happened on April 1 2018.
- The gradual phasing out of buy-to-let mortgage interest tax relief which started in 2017 and ends in 2021.
- Reformation of buy-to-let lending criteria by the Bank of England’s Prudential Regulation Authority which started last year and looks set to continue.
- The imminent introduction of mandatory Client Money Protection for letting agents.
- An extension of mandatory licensing of Houses in Multiple Occupation (HMO).
- Government reform of the property industry’s redress system and the likely introduction of a single ombudsman.
Remaining resilient is key to continued success
It's clear the market is continuing to evolve and therefore as a letting agent you need to be proactive and adaptable.
The Private Rented Sector (PRS) continues to grow, which is positive news when it comes to rental demand for you and your clients. The latest English Housing Survey shows that private renting is now the largest tenure of all in London and covers a fifth of all households across England.
For landlords, property investment remains a profitable asset class despite numerous challenges. To keep the business of your clients, you need to make sure you're offering the best service possible and can demonstrate that you’re moving with the changing times.
Agents who are resilient and able to prepare effectively for a more regulated and tenant-favouring market can continue to be highly successful in the PRS.