To make it through the next few months, landlords and agents may have to borrow an idea or two on how to circumvent challenges in the rental market by looking at safeguards already in place in the mortgage market - namely affordability checks.
PropTech can quickly carry out affordability checks thanks to Open Banking and it may also be a solution to issues surrounding social distancing, with successful companies like Airbnb already facilitating secure and transparent private access to short-term rental properties via technology.
With hundreds of thousands of UK workers becoming unemployed as a direct result of Covid-19 and many others facing dramatic pay cuts, landlords and agents are at risk of having tenants’ default on their payments. Affordability checks seem like a reliable tool for safeguarding.
They exist in the mortgage market and car financing market but are surprisingly not required in the rental market – where it is on average 1.25 times more expensive to rent a property per month than pay a mortgage.
In fact, one would argue they should have existed prior to the pandemic, with the 2018 English Housing Survey showing that 51% of private renters do not find paying rent fairly easy. Of those surveyed, 9% said it was very difficult, 4% were in arrears and 5% had been in arrears in the past year.
Prior to the introduction of affordability calculations on the UK mortgage market, around 7% of all mortgages were in arrears. This figure has fallen to 1% in 10 years since these checks were put in place.
Affordability differs to a referencing check, because it considers the current income and expenditure of an individual and assesses if a potential tenant has the capacity to meet their monthly financial commitments. Whereas, reference checks just look at previous CCJ, IVAs, credit scores, and bankruptcy and do not take a renter’s current financial circumstances into consideration.
Affordability checks are easy to do with Open Banking, allowing PropTech apps access to data through more transparent banking options – this inevitably requires the industry to embrace technology.
It’s not a secret that the UK has been slow to adopt PropTech; a 2018 KPMG report asked if the real estate industry is “all talk and no action” when it comes to utilising new technologies. While the British Property Foundation has said the UK could be a global PropTech leader but needs real estate agents on board.
Now more than ever, technology can help those struggling in the industry get ahead. Since launching CubicLease on June 22, we have been inundated with queries from estate agents and landlords who require a robust system to vet prospects.
CubicLease’s platform has partnered with all the major UK banks and challengers to carry out reliable affordability checks.
Not only does this prevent things from getting complicated when a tenant cannot make the rent, but it saves landlords and estate agents money in the short-term, too, by carrying out these checks before viewings take place.
Our technology enables affordability tests to take place prior to a potential tenant viewing a property – which means less time is spent by the landlord or estate agent. It is estimated that an letting agent on average shows one property seven times before it’s successfully let.
By vetting people beforehand, you can help to reduce that ratio, saving time and money. With a cost of over £25 per property viewing when you factor in all the associated costs, these figures rack up over time; the letting of just one property can cost an agent at least £195.
Social distancing strains
Our technology also allows for accompanied and unaccompanied viewings of properties. The latter has proven popular given the current circumstances as prospective tenants do not come into contact with anyone.
With social distancing requirements in place until a vaccine is found, some landlords and agents are finding it difficult to let their properties.
Prospective tenants are fearful of showing up to viewings and even cancelling at the last minute because they are concerned about safety precautions.
While some landlords and agents were initially cautious about the security of their property, our transparent service has proven foolproof and our clients are happy in the knowledge the viewer has been fully vetted and their property is in safe hands.
Once a landlord or agent signs up with CubicLease, their property is added to our platform. They receive a viewing link to their property – which can be shared on social media or on sites like Gumtree.
Interested viewers who see the property in-app through the viewing link, where they are verified and can pick up keys to the property at a secure CCTV, keysafe location near the property (they are normally in places like a local convenience store).
They have the option to message the landlord or agent at any stage throughout the viewing to ask questions about the property. They then return the key and make an offer. The whole process is tracked through location data, providing complete visibility at all times.
So, at this pivotal time in the history of the UK property sector, will you be an IBM or that other company we used to use that no one can remember the name of?
*James Owusu is founder of CubicLease