Why agents should look to interiors to plug the hole of the Tenant Fees Act
Despite the Tenant Fees Act coming into force in Scotland in 2012 and England on 1st June 2019, lettings agents appear slow to examine other revenue streams to offset the inevitable drop in income.
The Secretary of State for Housing, James Brokenshire was quite clear about the intention of the new bill when he commented: “Tenants will no longer be stung by unreasonable costs from agents or landlords. This Act bans unnecessary letting fees and caps the majority of deposits at five weeks’ rent, helping renters keep more of their hard-earned cash.”
He painted his vision of the rental market post the Act saying: “Alongside our recent announcement to scrap no fault evictions in the sector, this will make renting fairer and more transparent, creating a housing market that works for everyone.”
The concept of ‘a market that works for everyone’ seems to ignore the financial needs of letting agents. With tenants set to save an estimated £240m a year in England it is clear that their saving will come at the cost of agent revenues. So how is the industry responding to a move that could see profits slashed to the point where some businesses face insolvency?
So far the industry seems to be living in hope that their margins will be maintained just by passing costs on down the chain. Even David Cox, Chief Executive of the Association of Residential Letting Agents suggested that the status quo will be maintained in his media interviews on 1st June, saying: “Agents will pass (the fees) to landlords, landlords will pass them back to tenants through increased rent. Whilst they may see lower upfront costs, it’s really a question of cutting the pie differently rather than actually taking out costs that tenants are going to have to pay.”
Reassuring as that may sound, that was not the experience in Scotland when a similar act came into force in 2012 and is unlikely to be the case in commercially sensitive areas across England. Shona Hay of Scottish letting agency Belvoir commented on BBC Newsbeat as far back as November 2016 saying: "I'm hearing various things … (from England) about how fees will be passed on. We didn't pass it on. We're in an area where you can't ridiculously increase rents because people just won't rent the properties. So we've had to absorb it.” Referencing the legitimate cost of references and credit checks she said: “We continue to take a loss on that.”
So if costs can’t be passed on as fees, what other options do agents have in terms of generating income to meet the new shortfall?
Some agents are reinventing their model by moving to a ‘no deposit’ system. Leaders, for example has launched ‘the Residency membership’, where tenants pay a monthly fee instead of a deposit. This is an intelligent, but significant change open to some of the bigger players. But there are more immediate and easily available income streams that agents should be embracing.
Leading commercial interiors firm Hatch and its interior design team Inko work closely with letting agents across London and in major cities nationwide. Agents frequently recommended to Hatch to their private rented sector (PRS) clients and to developers looking to fit out show homes. While this recommendation is driven by the quality of Hatch’s work, it is also a welcome income stream thanks to the commission paid on each contract.
“We recognise the value of our agent partners,” comments Hatch’s Owner and Founder Darren Phillips, “and have built a successful commission scheme over the years that rewards partners for their recommendations.
“The advent of the Tenant Fees Act is clearly putting pressure on the sector and it is essential that agents explore every avenue for additional income to offset the new caps. Schemes like ours are likely to come to the fore, as agents can build a regular income stream while at the same time performing a valuable service for their clients.”
Phillips continues: “Our success is dependent on a healthy letting agency market so we are stepping up to help agents to bridge the income gap that will result from the new regulations. We are currently devising a new loyalty programme that will provide additional levels of support for agents looking to work with an approved interiors supplier.
“In the same way that we are responding to this fundamental market challenge we urge agents to look for new and innovative ways to expands their revenue sources.”
The new Hatch scheme is currently in a consultation phase and will be launched to the market shortly. It will cover agent recommendations both within the PRS and build to rent (BTR) sectors, reflecting Hatch’s extensive track record in both.