Asked what they judged to be the biggest threats to their businesses, 42 per cent of agents pointed to the government’s lettings fee ban, due to come into force at the year’s end.
Lack of new landlords came a distant second, worrying only 20 per cent of respondents most. Meanwhile, other challenges like internal inefficiencies and lack of capacity, seemed barely on the agents’ radar.
What’s alarming about these results is not that agents find the removal of these charges – paid for by tenants in exchange for alleged services like referencing and inventory checks – inconvenient. Anything restricting income is obviously a problem for a business. It’s the fact such a large majority of agents appear to view this single issue as a substantially bigger threat than factors which could wipe out lettings agencies altogether.
One factor is the demise of buy-to-let landlords. Their prosperity is integral to the survival of lettings agents, since they account for the bulk of an agents’ stock and client list. Yet landlords are being squeezed hard, having had many financial privileges removed, the latest being tougher lending rules on buy-to-let mortgages which came into force at the end of September.
Build-to-rent developers, like Fizzy Living, are also challenging the hegemony of the old buy-to-let models, attracting aspirational tenants who once would have paid top dollar to a traditional landlord. Ultimately, then, many landlords facing escalating costs may decide to get out while their portfolios remain profitable. If this happens on a big enough scale, lettings agents will be in trouble.
Lettings agents also seem to overlook competition from online portals. Fee-free and often more accessible than their high street counterparts, brands like Purple Bricks are rapidly expanding their lettings portfolios to accompany an already popular purchase arm. These could well make the middle-men of the rental world redundant in a few years.
So, with lettings agents facing two existential threats, why are they obsessing over the loss of a single income stream? Clearly, these fees have ballooned out of all proportion. What was supposed to be a supplementary form of income, has become a lifeline. In a market where demand is high, lettings agents have exploited their positions as guardians of rental properties to charge tenants exorbitant amounts to do very little (some even work both sides of the deal, taking management fees from the landlord too – a practice fortunately being stamped out).
But, in a weird twist of poetic justice, such greed has returned to hit them hardest. Yes, tenants are in many cases ripped off by agents, with little means of redress, and it is for them that I imagine the chancellor abolished the charges in his last Autumn Statement. But the fees have also acted as a panacea for lettings agents, providing them with short-term profit blinding them to the need to engage with a changing rental landscape.
The agents were likely sleepwalking towards a cliff face and now the panacea’s being pulled, panic is setting in.
Hopefully, however, the move will engender a step change in the sector. If indeed this happens, the government will have done two things right: freeing hard-up renters from ridiculous charges and making an old-fashioned market more competitive and dynamic.
• Harry Downes in founder and managing director of Fizzy Living