Restructure of the Lettings Industry:

Confusion, Uncertainty and The Future for Agents

When it comes to the Letting Fee Ban, it’s important that Letting Agents know how this will impact their business and what options they have at their disposal to mitigate any loss of income.

There has been a recent slew of articles in the media suggesting how this loss might be navigated, but we would like to offer some concise and easy to use advice, that may not be as readily available.

As we know, the ‘Ban’ will result in the loss of a percentage of revenue, and may also cause an even more competitive Letting Agent market environment, but there are a number of ways we can suggest these challenges can be overcome.

Loss of Revenue and Restructure

One method of dealing with the Ban is adapting and restructuring in order to recover revenue where it may have been lost.

Increasing landlord fees and leveraging zero deposit schemes are options, as are gaining a commission from preferred service providers such as cleaning, inventory or moving companies.  

Aside from recovering any potential loss of income, the most important task should be to maintain a good rapport with landlords and tenants so as not to lose their business to a competitor.

Solutions are Coming

Although some options are capped, Letting Agents can charge more for other areas of the business to regain lost income. These include increasing charges for lost keys, late payments and change of tenancy (capped at £50).

‘Let only’ landlords may also be persuaded to switch to ‘managed’ services providing further opportunity for Letting Agents to expand income streams.

Bolstering your Reputation in the wake of the Ban

An improved reputation is often an effective strategy for increased business because it can result in positive online reviews and other free or inexpensive marketing opportunities. This may also appeal to a wider demographic and bigger potential market.

The untapped local market can also provide more income based on reputation management.

An article for Entrepreneur.com, by Dan Slagen, CMO of Alignable (an online business networking giant), revealed that 85 per cent of small-business owners surveyed attributed word-of-mouth referrals to acquiring more local customers.

A good reputation can be nurtured by appearing to “go the extra mile”, for clients.  This can include care packages upon move in, follow-up calls once tenants are settled, outstanding customer service and making sure the aftercare is consistent  throughout a tenancy.   

How has the Letting Fee Ban Affected Competition and Consolidation

It can pay to investigate what the competition is up to. Leveraging the experience of others is an effective way to circumvent teething or originating challenges.

Knowing the competition includes understanding what fees they are charging, and for which services. It can also be good to adopt those that are different and appear to be beneficial or economical.

This information can be gleaned from positive reviews of competitor’s services from satisfied customers or from ‘mystery shopping’ and posing as a potential client.  

There are other ways in which the business can be stabilised. Exercising regular and detailed inspections, vetting and maintaining good contractors and ensuring reliable and efficient software are just a few ways to do this.

How to Keep Tenants Happy Despite the Letting Fee Ban

There are a number of “quick wins” that can be employed to maintain a satisfactory relationship with tenants, despite the letting fee ban restructuring that will need to be addressed.  

Inflating charges and fees may be effective ways to make up for the loss of income incurred from the Ban, but these increases should be made sparingly so as not to create the impression that the tenant is being exploited.

Small, affordable gestures can also do much to ingratiate oneself with tenants.  Providing a welcome pack on arrival for new tenants creates the impression of a considerate and thoughtful Letting Agent.

Another easy strategy to apply is to always respond to any queries or problems the tenant may have quickly and cordially and keep them up to date with any progress they may be expecting.

Communication is key to any relationship.

Why Rent Guarantees don't Really Work

It may be tempting to make use of a “rent guarantee” scheme that appears to take all the “stress” out of managing tenants and provide the perception of secured income over time, but these schemes have recently been revealed to be less than reliable for some.

Worst case scenarios have left landlords with absent agents and no income from their tenants at all.

Moreover, even in better scenarios, the monthly income is often lower than those offered by other schemes.

Fortunately, there are more reliable solutions with better income potential available.

When is a guarantor not a guarantor?

Not all “guarantors” are made equal.

Often, rent guarantee schemes are confused with guarantor services. Both are an option for accommodation providers to protect their rental yield but where true guarantor services are legally the exact same as an individual guarantor, rental guarantee schemes are in fact an insurance policy.

Rent guarantee services, in their original form, are paid for by the landlord to cover against tenants’ unpaid rent and any legal costs in claiming. Tenants and guarantors are required to pass the insurers referencing, it normally has an excess of one month and, as with all insurance, it uses many angles and compliance rules to avoid paying out.

In most scenarios, overall rental yield is lower, especially if accommodation providers are locked into a long term deal whilst rents increase, which also have issues in terms of tenants maintaining a property over time.

In addition to this, there is a selection of ‘rent guarantor schemes’ that claim to stand as the guarantor for a tenant but are, in fact, again insurance policies much like rental guarantee schemes. The main difference here is the tenant is the one required to pay for the policy as a result of being unable to provide a qualifying guarantor.

Unfortunately for accommodation providers, these insurance policies masquerading as a rent guarantor service have the same pitfalls of insurance clauses and caveats that can mean payout is often denied or at least reduced by a large excess.

Fortunately, true guarantor services in their original form do exist.

Find out more here.

For more information on Housing Hand, click here.