We are facing a new world in the lettings industry, with the proportion of households in the private rented sector (PRS) to rise to 22% by 2023.
Forecasts by Frank Knight show that the total capital committed to professionally-managed PRS accommodation will also rise significantly to £75 billion by 2025.
This exponential growth is also bringing a significant shift in tenant demographics, with increasing numbers of 21-35 year old professionals choosing to rent. This age group is also expected to show the largest growth in households in the private rented sector over the coming years, as millennials – aka ‘generation rent’ - continue to face difficulty in obtaining a mortgage to buy their first home.
Many assume that the majority of millennials are ‘biding their time’ until they can save up a deposit. However, further research shows that tenants actually prefer the benefits of renting and just 42% are interested in buying in the near future. The findings, recently produced by lender Landbay, examined the mindset of 2,000 private renters across Britain.
The findings show that ‘flexibility’ is the key reason why tenants didn’t want to step onto the property ladder. Many want the freedom to move as their employment changes, especially the growing number of tenants in the booming ‘gig economy’, which has doubled in size over the past three years, now accounting for 4.7 million workers.
The good news for landlords and letting agents is that there is strong supply of people wanting to rent their properties. In light of these trends, agents and landlords need to be looking at tenants through a new lens - as ‘customers’ rather than ‘tenants’ and should be asking themselves, ‘how can we provide a better service?’ and ‘what can be done to build trust amongst landlords and tenants to build a happy and stable relationship?’
For example, let’s take referencing. Currently there are 15 million renters in the UK market who move every 12-18 months and each time, they need to secure a new reference.
Historically, this comes from a starting place of ‘I don’t trust you’. The current referencing system is extremely invasive, stressful and time-consuming for tenants.
Any agent or landlord that has had to deal with millennials will know that they have little patience and rely heavily on technology to get things done. According to 'The Instant Gratification Nation' report, by Fetch in collaboration with YouGov, more than half (52%) say they are more impatient today than five years ago.
In fact, most (81%) millennials say that improving the speed of undertaking daily tasks was the reason they investigated new technology. This impatient generation has placed huge trust in brands like Uber, eBay and Amazon which offer ‘one click’ services and they have come to expect ‘instant’ services, via their smartphones.
So how can the rental industry keep apace with the changing demographics and behaviour of this new world?
Open Banking - the regulation that has released the financial data of consumers from the banks’ ownership and into the hands of consumers - can automatically verify income and past rental payments and pass this on to agents and landlords.
Innovative technologies such as Rental Passports which access Open Banking data, can provide proof of an individual’s rental and credit history and their ability to pay rent promptly, allowing agents and landlords to know immediately if a tenant is suitable for a property.
Rental passports give tenants control in the application process, offering them a portable, digital rental identity which help them to improve their credit score. They also can reduce the back-office costs historically associated with the screening of prospective tenants and reduce the risk of rental arrears. This facilitates a trust-based relationship between all parties involved and enables ‘generation rent’ to become property owners quicker.
Referencing is not the only process that need to be drastically improved. Securing a rental property can be very challenging for many prospective tenants, especially when they are waiting for their previous deposit to be returned, at the same time as trying to secure and pay for a new property.
Deposits continue to be a major problem for tenants, with a Which? Survey last year showing 43% relied on overdrafts, credit cards, loans or borrowing from family or friends. Many tenants can’t cover the cost of even a single deposit on their own. Around two-thirds of private renters say they have no savings, according to the English Housing Survey, carried out by the government.
Rent rises have not only made it harder to save for a deposit, but also pushed them higher, despite a government cap at five weeks’ rent in 2019. Recent official figures show UK rents have increased by 8.3% since 2015, with median rent in England reaching a record high £700 and London rents reaching £1,450 a month in the year to September 2019.
Agents and landlords should be adopting cash deposit alternatives, such as deposit-free insurance, which provides landlords and renters with the same protection as a traditional deposit, is a one-off policy premium, paid by the renter which covers both parties for a tenancy period.
Tenant referencing and deposit handling costs can be eradicated with the latest, sophisticated fintech products, which can also bring huge improvements to the rental application and management process, making it a quicker and smoother experience for tenants.
Agents need to work with ‘best-in-class’ tech partners to build trust, not only for renters, but also for landlords. Eliminating tenant referencing costs is a first step towards that goal.
The industry needs to come together and build a rental ecosystem that will help millions of renters to achieve better rental and financial health.
It is vital that we connect the disparate strands of rental housing journey into a seamless process. We need to look past pure profit maximisation and consider the bigger picture of building a better and more inclusive rental society.
*Tahir Farooqui is CEO of Canopy