What the letting fee ban means for Purplebricks and the lettings franchisors

Some thoughts on the newspaper view that Hammond is about to ban letting agent fees in England and Wales. Firstly, PB’s letting business is tiny compared to its estate agency business – about 300 properties for rent vs 9,000 for sale so any impact to numbers will likely be equally small. That said, I expect PB will need

PB will need to increase its prices to landlords like everyone else to cover the loss of letting fees charged to tenants. This increase is likely to be much lower than the bricks-and-mortar competition – one of PBs USPs was already how low the cost of its add-ons are increasing the price differential between hybrid and traditional agents.

The increased transparency in the cost to landlords of an agent will highlight a key selling point for PB, it’s lower cost, and should be a benefit.

Remember it is landlords, not tenants, who choose which agent to use and they can be expected to be attracted to the lower cost of a hybrid service. So overall I see an incremental positive for PB.

And good traditional agents should be able to weather this relatively unscathed. If fees are 20% of an agent’s income and 80% is the charge to landlords. If we assume that charge to landlords is six weeks’ rent, that’s 11% of the annual rent. And the fees to tenants are about 2.2%. For an agent to dodge the bullet of a loss of income all it would take is something like tenants seeing an increase in rent of 0.7% and landlords losing about 1.6% of income. That doesn’t look impossible for a trained, charming letting agent to negotiate.

So hybrids and good traditionals are best placed in this change, perhaps after a small initial shock, so hold fast.

The agents charging aggressively high “hidden” fees will be dragged into the sunlight and market action will force them to justify or drop those fees. Personally I find that hard to argue against.

 

 

Belvoir: adjustment necessary; it’s been through it before (Scotland)

Belvoir is lettings led so clearly is in a different position. BLV franchisees get about 13% of income from fees- that’s among the lower end in the lettings industry where independents get anywhere between 20%-30%.

If fees were to be banned it would require adjustment but would just mean agents moved all their fees from the rent paid to landlords. I’ve actually advocated that in the past as making sense. It would improve transparency and allow easy comparison of fees charged by different agents e.g. 4 weeks of rent vs 5 rather than 4 + different fees as is the situation now.

Some direct fees, such as for credit checks paid directly to referencing agencies would potentially still be passed on to the tenant so some of the 13% would be refactored rather than absorbed in the fee charged to landlords.

Remember BLV has already been through this in Scotland and it didn’t lose any franchisees.

If the change in E&W goes similar to Scotland my first estimate is for a maximum impact to the Belvoir Group network income of about £400k which they would try to recover over time.

Changing regulation has in the past driven agents and want-to-be agents towards the franchisors so they may pick up a franchisees as a result. Also note, Gavin Barwell, the housing minister for England and Wales, has previously said (tweeted) that banning letting agent fees was not the right answer so let’s see how developed the plans are.

So a change in the industry which is always a bit of a pain when caused by regulation but Belvoir relatively well placed.

Have a great day

 

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