The rental market can be highly profitable to letting agents, but no doubt there is a whole lot of change. However with change, comes opportunity. To stay profitable & capture avenues of growth, marketing, prices and the ability to stay on top of regulation is vital.
There’s lot of worries for agents in 2020 that will impact the market in many ways. Some of the worries can be turned into opportunities. This article explores a few of those.
- New hybrid letting agents
- Letting agent marketing
- Regulation in the rental industry
- Rogue landlord database
- Electrical checks
- Other things letting agents may need to worry about… maybe
New hybrid letting agent franchises
There’s a burst of new letting agent franchise opportunities for individuals looking to enter the property market.
Firms such as Accommodation.co.uk & Open House estate agents are offering people the opportunity to help get setup as property agents. The franchise owners cover IT systems, training, landlord leads and even stationary. Therefore with it becoming easier for people to enter the market, it could mean even more competition for existing agents.
As there’s no need for premises purchased under these types of franchises and lower overheads in general, lower prices are on offer to customers.
Furthermore, this doesn’t only impact the traditional high street agents. This also impacts the new wave of online agents too. Online agents, capturing customers through lower prices, may see a wave of new competition at similar prices.
Letting agent marketing
Letting agent marketing is always at the forefront of getting new business.
There a large reduction in footfall on the high street. Relying on a high street presence is increasingly being seen as an outdated model by some industry experts.
Obviously, digital advertising is paramount. Having a strong Google ranking, social media presence & paid online advertising is becoming more essential than ever. However, letting agent digital marketing is not easy to manage and the quest to show yourself as the best letting agent is tough.
A lot of focus is required with persistence realignment.
A few of actions letting agent marketing requires are:
- Persistent social media posts
- Regular blog posts on the local property market
- Tailored online ads, usually dominated by Facebook & Google
- Websites that are optimised for search engines
- Strong ratings on review sites
Landlord lead generation sites are becoming ever more useful as part of letting agent marketing strategies.
Rentround is seeing an ever growing number of letting agent subscriptions.
They simply allow landlords to compare letting agent fees, services & ratings. For landlords the service is free & is proving extremely successful in reducing their rental costs.
For letting agents, they get selected by landlords running comparisons therefore get more leads and instructions.
There is a monthly subscription to pay, but when leads convert, agents keep 100% of their commission.
IR35 impact on the property market
IR35 is a regulation that’s been around for 20 years. This year there was a major change in the regulation, that was then postponed to 2021 due to the Covid-19 outbreak.
The change will impact the income of thousands of freelancers or those operating under a private limited company (contractors).
Previously in the private sector, it was the freelancers/limited companies decision on whether their engagement with a company is inside or outside of the IR35 regulation.
However that decision now moves to the employing company, along with responsibility of paying fines & back tax if an incorrect decision is made.
If the engagement is inside, it means the freelancer operates on a PAYE basis. Therefore this means a whole lot more tax needs to be paid to the HMRC.
Whereas If the engagement is outside, the engagement will not be on a PAYE basis. Instead the engagement is through a limited company.
However due to the tax risk to big companies, tech, banking and construction firms are deeming everyone inside IR35.
So how does this impact the rental market?
Commonly, freelancers or those operating under a private limited company have a high value of cash in their business accounts.
This is because over a certain threshold, taking money out of these accounts is taxed at a high rate. As many are adverse to the high tax rate, a common action is to buy property with the cash that cannot be withdrawn, under a subsidiary business (as an asset).
More so this gives the benefit of the cash being put to use and generating a rental income.
However as these types of workers face being deemed inside IR35, a lot are closing their business accounts down.
Alongside the closure of accounts, such employees are also facing an income loss of between 35%-40% due to higher tax.
As there’s less cash for these individuals, so are their pots of money to buy property for buy to let purposes. This means the demand for letting agents from this target audience takes a hit.
There’s an estimated 350,000 people impacted by IR35 in the UK, meaning the impact could be a big one for the rental industry.
IR35’s impact on the rental industry – Is there a solution?
There is expected to be a high amount of turmoil in the employment market because of the regulatory change.
We have already seen a high volume of employee turnover in lead up to the changes. One school of thought is many will be deterred away from the agency/contractor type work.
Instead they will seek permanent employment. However large companies still need contractor type engagements.
Therefore to make it worthwhile, they may need to increase rates for contractor type employment. If so, then the impact to people’s income will not be as bad as initially thought. In addition the house of lords and the government continue to review the regulation based on public outcry.
However any major changes are unlikely due to the regulation changing in April 2020.
Are letting agents impacted directly by IR35?
Potentially so yes. If a letting agent is within scope of the legislation criteria, the way the letting agent hires employees will be impacted.
Letting agents need to ensure any roles for agency staff/contractors are IR35 assessed.
Furthermore, ensure they are taxing these types of work fair and correctly.
Regulation and the rental market
Regulation continues to grow across the property industry. This year the phase out of tax relief on mortgage interest will hit many landlords.
As the environment becomes difficult to operate in, many landlords may look to invest elsewhere:
The government has been phasing out tax relief on mortgage interest since April 2017, with the proportion you’re allowed to deduct slowly being reduced each tax year. This will come to a head in April, at the start of the 2020-21 tax year.
From then, you’ll only be able to subtract a flat credit of 20% of your mortgage expenses from your rental income when filing your tax return.
These changes to tax relief are controversial, and have long been cited as one of the primary reasons landlords are selling their buy-to-let.
The tenant fee ban in 2019 caused a lot of complication and business change. Letting agents had to decide whether to absorb costs or pass them onto landlords.
There’s a balance still being determined between increasing costs to landlords & losing business, or face a loss on margins.
Rogue landlord database
A database of naughty agents & landlords is a great idea on paper.
Tenants and other interested parties can run checks on the landlord or agent they may be going to work with to understand their past behaviour.
The government launched a consultation into reforming the database, which closed in October. The results are currently being assessed.
The results could mean more changes and policies to be created for agents.
For instance if there’s a landlord they are working who’s listed on the database, do they still work with that individual? If an agent is on the list themselves, how do they improve that stance?
A lot is yet to be worked out but letting agents need to keep a keen eye on developments.
The requirements to conduct electrical checks every 5 years have been announced since 2018, however not yet implemented.
This change will require a new set of rules for letting agents to implement and monitor for properties they are managing.
Furthermore, the cost of conducting more checks will need to be addressed. Similar to the tenant fee ban, will letting agents pay themselves or more likely pass costs onto the landlord
As always, we aren’t quite sure how BREXIT will impact the market. What we do know is that there will be change. The scope is wide. Regulations, interest rates & foreign investment rules may all change.
The labor market has already seen a downturn in terms of the number of workers available. As EU workers worry about their future prospects in this country, alternative countries to work in are being looked at.
Stamp duty increased for landlords in 2016, with a 3% buy-to-let stamp duty surcharge.
There is rumoured to be an increase on stamp duty for foreign investors. Higher costs could impact further investment from individuals impacted by the market. Which would effect house prices, sales volume & rental businesses