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By Simon Duce

Managing Director, ARPM

OTHER FEATURES

Targeting the right landlords for post-fees ban success

We know that the tenant fee ban has cost letting agents dearly, with an estimated loss of £300 million paid to letting agents by tenants now lost.

It’s dawning on many agents that there’s still the same amount of work to do – perhaps even more so with an ever-increasing amount of compliance – for less money. Gaps in income can be alarming and we can’t say we’re surprised to hear that some agents are resorting to questionable approaches.

But desperate times do not always call for desperate measures – especially in an industry that’s as close to official regulation as you can get, and one that doesn’t always have the best ethical reputation.

Just weeks after the ban came into force, we learnt of one agent in London telling tenants that the fee ban only applied to renters outside of the capital and others who have increased rents without informing landlords or charging exorbitant default fees that are still permissible for lost keys or defaulting on a tenancy term, for instance.

Instead of dishing out these cheap shots, letting agents must go back to basics and review the types of landlords they are targeting and tailor their services accordingly.

Doing so will make their service more attractive to the right type of landlord client, hopefully boosting their managed book and income.

The blissfully ignorant landlord

Hundreds of thousands of landlords are potentially running illegal lets, after failing to keep up with a raft of legislative changes. We’re not talking about unscrupulous ‘cram them in, pile them high’ or rogue landlords, but self-managing property investors who are genuinely unaware of their legal obligations.

While compiling our ‘Why let-only is a losing game for London letting agents’ report – a free-to-access paper compiled with input from independent industry expert, Kate Faulkner – we uncovered an increasing need for professional property management amongst landlords.

In fact, 80% of landlords contacted admitted to finding it impossible, very difficult or quite difficult to keep up with constant regulation changes in the Private Rented Sector.

Research from Market Financial Solutions also highlighted how the UK’s landlords are struggling to keep up with new legislative and regulatory reforms. According to its survey of 400 UK landlords, 30% do not understand the changes to House in Multiple Occupation licensing, which came into effect in October 2018, while 28% are not aware of the proposed abolition of Section 21, announced earlier this year.

Additionally, more than 27% are uncertain about the Tenant Fees Act and a further 19% say they understand the new legislation but are unsure how it will affect them.

Add to this that there are almost one million landlords who only use letting agents for tenant find services or do not currently use the services of a letting agent at all, and that’s a massive untapped market of confused and possibly unknowingly unlawful landlords who are self-managing and would benefit from the guidance and professional help of a letting agent.

Legislation is only likely to increase. Property commentators and professionals are holding their breath as to what may come next now we have a new Prime Minister, with the possibility of a snap General Election and a potential change of government still lurking on the horizon.

Letting agents need to take advantage of this uncertainty and promote their in-depth knowledge of the sector and how they can assist landlords in staying compliant.

The professional limited company landlord

Since the changes to mortgage interest tax relief (Section 24) in 2015, there has been an upward curve in the number of landlords switching from private buy-to-let ownership to a limited company model.

In 2017, buy-to-let-mortgage lenders saw a huge rise in applicants listing themselves as limited companies and fast forward to 2019 and current analysis by Hamptons International reveals more than one in ten rental properties are now let by ‘professional’ company landlords.

That’s 12% of buy-to-let properties owned by a limited company – up from 9% in 2015 and the highest level since 2011. What’s more, limited company status isn’t a trend that’s going to ebb away – it’s becoming a serious option for an increasing number of landlords.

It’s also been reported that, among landlords who intend to buy more investment properties in 2019, 64% with four or more properties, and 44% of those with smaller portfolios, will do so through a corporate structure.

Next year is a milestone in buy-to-let ownership, with the mortgage interest tax relief reduction taking full effect and corporation tax rates reducing to 17% by April 2020.

Landlords will feel the full effects of punitive measures for the first time and with income squeezed, the thought of limited company status will be more appealing than ever.

Changing to a limited company ownership structure isn’t a simple switch and it needs careful management. This is where letting agents can help. Arming yourself with the knowledge and skills needed to help transitioning landlords can generate new business and allow agents to specifically target a growing sector in the PRS.

Agents can work with a financial advisor and/or accountant to create a full ‘limited company landlord’ package, as mortgages can be harder to secure and more expensive under a company structure and different paperwork to complete and accounts to file.

We’re in a lettings age where expecting business to come knocking isn’t an option. Proactive agents who monitor trends and shape their agency according to modern landlord needs will enjoy the most success.

*Simon Duce is Managing Director of ARPM

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    The 'blissfully ignorant' landlord is hardly an untapped market. If they wanted to use an agent, they would have done. In my experience, the majority of self managing landlords see everything as a cost, think agents are a rip off and think they know the lot. Many others simply don't care about legislation because they think it's box ticking that is never enforced, and as they've been lucky enough to get away with before, it won't affect them in the future. These are people who spend all day driving around looking for the cheapest paint and paintbrushes, then bodging the job themselves rather than getting a painter, so they can save 100 quid. They don't understand the meaning of time value, or passive income. All they see is cost and need to control. Even if you could convert this 'untapped' market into clients, I don't think I'd want them.

    Paul Barrett

    It is more a question of good LA persuading these cost conscious LL to come under full management so that they are fully compliant with regulations.
    Doing so will provide a viable and legal business for the LL and an income stream for LA.

    There must be many LA that knowingly tenant source and manage for properties they know are not being managed legally.
    From an illegal HMO to a non-EPC compliant property.
    LA need to stop participating in fraud and require their potential clients to become legal.
    So almost to the point of becoming consultants to non-compliant LL and then taking on the full LA role for that property.


    As has been mentioned there are a lot of LL that don't know what they are doing.
    Clearly this is where a professional LA is worth having.
    But LA must stop taking on LL property that they know is contravening regulations.

     
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