Tenure type rising
The latest English Housing Survey1 for 2016–2017 demonstrates the continuing increased reliance in the UK on the PRS, which now represents 4.7 million households, 13 million people, or 20% of the total households. In London, this is more significant with 30% of households now privately renting.
Looking at the demographic detail behind this trend, those in the age groups of 25–34 and 35–44 seem to be the biggest cause of this shift. The decline in home ownership has been particularly pronounced for these age groups, leading to a significant increase in the PRS for that same group. In 2006–2007, 38% of the 25–44 age group were privately renting, which increased to 75% in 2016–2017.
Growth in the PRS for this key age group in particular is likely to be for various reasons. With the deposit needed from first-time buyers averaging £48,591 (mean), affordability is likely to be a major factor in this shift away from home ownership. Also, an increasing number of people are choosing to rent as the freedom that comes without being tied to a mortgage better suits their lifestyle. The need for flexible or temporary accommodation is also prevalent for groups such as professionals, students and migrants.
Trends in tenure, households with a HRP
aged 25–34 or 35–44, 2006–2007 to 2016–2017
Base: all households with a Household Reference Person (HRP) aged 25–34 or 35–44.
Based on the age of the HRP. The HRP is the person in whose name the accommodation is owned or rented.
2003–2004 to 2007–2008: English House Condition Survey, full household sample.
2008–2009 onwards: English Housing Survey, full household sample.
Trends in tenure (proportions), 1980 to 2016–2017
1980–1991: DOE Labour Force Survey Housing Trailer.
1992–2008: ONS Labour Force Survey.
2008–2017: English Housing Survey, full household sample.
The information presented below demonstrates the changing face of today’s tenant. As a result the PRS is becoming increasingly important for families as well as single households. With regard to renters’ economic status, 74% of private renters were working, with 63% in full-time work and 11% in part-time work. In addition, 9% of private renters were retired, 6% were in full-time education and 4% were unemployed.
The average length of tenure for private renters remains unchanged at 3.9 years, showing that many renters are looking for a long-term, stable home.
In 2008, Belvoir started producing its Rental Index based on data from the Belvoir network, gathered and analysed quarterly by an independent party. This Rental Index is one of the longest running of its kind and crucially one of the few to pre-date the property market crash of 2008/2009. The Belvoir Rental Index, taken together with other industrywide data, gives us a more accurate picture of the industry within which we operate and enables us to make more informed business decisions as a result.
Our data shows that rents are increasing but at a slow, steady and sustainable rate. The average rent for the Belvoir network in 2017 was £798, which is 2% up on the average rent charged in 2016. Rental increases have stalled during 2017 which is possibly due to an increase in negative focus on our industry to support upcoming changes in Government legislation.
England, Scotland and Wales – Average rent by quarter including all new offices
The last few years have seen a marked increase in the rules and regulations introduced to our industry. These changes include stricter health and safety regulations, and the additional administrative tasks associated with identifying the eligibility of a tenant to live in the UK as part of Right to Rent. Reputable lettings agents will usually carry the burden of this extra work for their landlords and as such we expect to see more private landlords start to enlist the services of a lettings agent. A recent announcement by Communities Secretary, Sajid Javid2, detailed proposals for potentially introducing compulsory membership for private landlords to a consumer redress scheme which would also encompass certain additional regulations to adhere to. This would further improve a tenant’s experience of the PRS ensuring they receive adequate support in a dispute regardless of who they rent from. This would also help to level the playing field between lettings agents and private landlords, making it even more beneficial for a landlord to use a lettings agent.
The 2016 announcement of the proposed ban on tenant fees is probably the biggest challenge for our industry. Although not due to come into force until 2019, the impending ban has forced letting agents to rethink their business plans and income streams in order to offset the costs associated with carrying out the necessary checks and administrative tasks associated with placing a tenant. For some agents this cost may be passed onto the landlord, some may need to increase the rent charged to the tenant and some may be able to find new opportunities or efficiencies within their own business in order to absorb the additional cost.
The PRS clearly has an important role to play in providing homes for an ever increasing section of the UK population. With long average tenancies and fair steady growth in rents, tenants can feel secure in their home and the PRS can continue to remain profitable for lettings agents and landlords.
Increased regulation for landlords can only help to make the PRS a more reliable sector for tenants. Banning of tenant fees, while less favourable in our opinion than a cap on fees, will help to rid the PRS of less reputable lettings agents who may have abused this revenue stream in the past. Ultimately a safer, fairer, more transparent PRS can only be a good thing for the perception of our industry as a whole.
Some smaller, independent lettings agents without the support of a national brand, legal expertise and business development planning are now struggling to maintain a profitable business. This is leading to continued consolidation in our industry, which is creating more opportunities for our franchisees to buy competitors’ lettings portfolios to add to their existing businesses.
Residential property transactions have remained fairly static throughout 2017 potentially due to continued economic uncertainty and static wages. House prices, however, are still faring well with a modest increase of 5.2%3 year on year. This is likely due to a simple case of supply and demand. Government figures report net migration of 244,0004 compared to 154,2205 new builds completed for the year to September 2017, which is only adding to the existing housing shortage.
Contrary to elsewhere in the UK, house prices in London actually fell for the first time in eight years according to mortgage lender Nationwide. House prices in London fell by 0.5%6 making it the weakest performing region for the first time since 2004 with a greater number of people in the capital unable to afford to buy a home.
The Belvoir Group has been largely immune to the effects of a suffering London housing market as our coverage in the capital remains low with less than 5% of our franchisees’ revenue derived from the London area.
Total UK residential property transactions
With our Belvoir and Northwood networks being relative newcomers to estate agency, this market still represents more of an opportunity than a risk to us. Despite a challenging sales market in 2017, as a Group, our network revenue from sales increased by 20% yet, as shown in the graph below, sales still represents only 20% of our total revenue meaning there is still the potential to increase this further.
The acquisition of Brook in July 2017 also presents an opportunity for increased revenue from sales once integrated into our franchisees’ business operations. The existing, smaller Newton Fallowell’s mortgage business was transferred into Brook at the start of 2018 resulting in 29 financial advisors with a target to grow to 50 over the next two years. The Brook advisors are already fully supporting the Newton Fallowell network and during 2018 will start to integrate with the Belvoir and Northwood networks offering franchisees the opportunity to benefit from this additional revenue stream. Typically a franchisee will earn around £300 for simply introducing a customer with no ongoing costs or charges. This will be an extremely welcome addition to its income particularly when faced with the probable withdrawal of tenant fees in 2019.
Total Group MSF income
The upcoming tenant fee ban has been a concern for our franchisees and we have estimated that our network revenue could be affected by around 13%.
As with all setbacks in business, the level of impact is somewhat controllable if you evolve and develop in other ways to compensate. Our Belvoir Doncaster franchisee, Chris Duffy, is a prime example of this. Six months ago Chris decided to get ahead of the upcoming ban on tenant fees and started to work on a series of changes in an attempt to mitigate any future loss in revenue.
Through moving to a more cost-effective business premises, upgrading some of his technology for greater efficiency, improving his processes and putting more emphasis on selling the best level of insurance products to his landlords and tenants, Chris has completely compensated for all loss in tenant fees when the ban comes into place meaning Chris will go forward with a better performing, more efficient business as a result.