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Posted on November 29th 2016 by admin-movingin

Letting agents will not have to write off income stream after fees ban, says City analyst

Original Author: Rosalind Renshaw

Rents would rise 2% to 3% across the UK next year if letting agent fees currently charged to tenants are passed in full to landlords.

The prediction comes from City analyst James Fletcher at Cenkos Securities, who yesterday gave a ‘buy’ rating to The Property Franchise Company – formerly Martin & Co.

Fletcher said: “Should landlords decide not to pass these costs back to tenants through higher rents, we do not believe this change would materially affect a landlord’s decision to let a new property or renew an existing tenancy.

“However, combined with upcoming changes to mortgage interest offset and the already imposed BTL Stamp Duty this year, political interferences are making life as a landlord increasingly a less attractive proposition.”

Fletcher said that for franchisees, tenant fees make up around 16% to 18% of annual lettings income, and 11% of total income.

The entire Property Franchise Company network is expected to earn £57.1m in lettings revenue this year, with tenant fees equating to £9.1m to £10.3m of this.

In Scotland, Fletcher noted, the ban had a positive effect on the firm’s franchisees.

He said that overall, the ban led to higher income returns for landlords, and higher landlord fees for agents. The latter more than offset the removal of tenant fees, almost offset in the first year following the ban.

Scottish franchisees saw their total lettings income increase 4% overall in the year following the ban. While this growth was attributable to higher instruction numbers (5% growth), the ban only impacted underlying fee income by 1% in year one.

Set-up fees increased from around £200 per landlord at the start of the ban to £400 currently.

Most startling, said Fletcher, was that franchisees’ monthly management commissions increased by 11% of total lettings income in the first year after the ban. Over half of this growth was attributable to higher rents which resulted from passed-on tenant charges. The remaining growth was from franchisees winning more landlords’ instructions to let properties.

Fletcher’s note concludes that the ban in England and Wales will not mean a write-off of an income stream, but rather a change in who pays the fees.