Letting agents should be preparing now for the incoming ban in England on upfront fees charged to tenants by streamlining their processes, rental payment provider PayProp has suggested.
It said it is now time for agents to consider alternative revenue streams, streamline their financial processes and adopting business platforms that allow them to scale efficiently.
A ban on letting agent fees charged to tenants is expected to be implemented in England sometime during 2018. Currently a consultation on a fees ban is taking place in Wales. Meanwhile, a similar consultation was carried out in Northern Ireland earlier this year and fees have been banned in Scotland since 2012.
It’s clear that the vast majority of letting agents will lose a significant proportion of revenue when a ban is introduced, according to the firm. Indeed, as part of its consultation, the Welsh government reports that fees charged to tenants account for around 19% of an agent’s income.
Meanwhile, a separate study undertaken by software provider Eurolink calculated that the fee ban could cost a single office agency £85,000 and over £850,000 for a multi-branch network.
Neil Cobbold, chief operating officer of PayProp, said: “It’s clear that we could soon reach a point when upfront letting agent fees charged to tenants are banned in all of the UK.
“That’s why it’s important that agents begin to plan now for how they are going to replace lost revenue, whether through alternative revenue streams, optimisation of business processes for better efficiencies, or through low overhead growth.”
Concerning the first point, Cobbold pointed out that the most common reaction is to increase landlords’ management fees and partnering with preferred suppliers to generate additional commission.
But while these may seem like no-brainers, PayProp suggests that streamlining financial processes may be a better option as it can help agents to generate new revenue streams, manage cash flow and become more efficient.
Cobbold added: “Automating the rental payments process, for example, could free up more time for agents to explore alternative revenue streams and generate more business. It can also help to improve day to day cash flow and ultimately improve client retention thanks to reduced rental arrears and increased landlord satisfaction.”
He also said he believes that it is not necessarily all bad news for letting agents in England, Wales and Northern Ireland. He said: “Fees have been banned in Scotland since 2012 and the lettings market north of the border remains in good shape.”
He suggests that agents in other parts of the UK seek out their Scottish counterparts and gain advice on how they have replaced lost revenue over the last five years. “The ban on letting agent fees is all about a changing market and effective adaptation. The agents who plan their strategy now are likely to be most successful when a ban is finally introduced,” he added.