Could a cheaper pre-tenancy process still benefit landlords and agents?

Warren Lewis
1st February 2018

The move towards making the pre-tenancy process more affordable for renters, exemplified by the upcoming ban on letting agent fees, could benefit all parties involved in the rental transaction.

This is according to tenant referencing provider FCC Paragon, which says that even without fees to pay, many tenants will find it difficult to afford hefty damage deposits.

The firm explains that if tenants have fewer barriers to moving, this could kickstart the market and encourage landlords to become more active.

Bryn Cole, Managing Director of FCC Paragon, had this to say: “Landlords have been discouraged from investing in property due to controversial tax changes and the introduction of a stamp duty surcharge.

If tenants are incentivised to move and the private rental sector gets a boost, this could encourage landlords to think about expanding their portfolios again.

A more affordable marketplace for tenants to move between rental properties could also have wider benefits for the housing industry.

Cole continues: “If tenants have more money to save, combined with the recent stamp duty cut, this could help to shape the next generation of first-time buyers and subsequently contribute towards fixing the 'broken' housing market that the government is desperate to fix."

Now that it has been confirmed that the ban on agents’ fees won't be introduced until spring 2019 at the earliest, FCC Paragon says agents have time to prepare but they still need to act quickly.

“Alternative products, like deposit-free options, which complement the fees ban and improve affordability for tenants could be one way forward for agents.

Come 2019 when fees are banned, agents will need to recoup lost revenue and therefore they need to explore various different options and determine what approach best suits the needs of their business.” says Cole

FCC Paragon says that in the wake of the fees ban and changing attitudes towards renting, tenants, landlords and letting agents must start to consider alternatives.

Cole says: “With an increasingly transient population – many of whom can't afford substantial deposits – it may not always be suitable to side with the norm and take the traditional, expected route.

There is estimated to be almost six million households privately renting by the end of 2021 and with the sector growing so rapidly, there is an increasing need to provide different solutions which cater to tenants’ varying needs.”

According to FCC Paragon, one of the biggest obstacles for tenants looking to relocate is having to wait for their previous deposit to be released. This can have a subsequent impact on their chances of being able to afford the deposit for their next rental home.

This could, in turn, have a knock-on effect of more unwanted void periods for agents and their landlords.

For the last ten years, FCC Paragon has been offering a product to help tenants, landlords and agents approach renting differently.

Smart Deposit does not require tenants to pay an up-front deposit. Instead, once they have passed the referencing process, renters commit to a one-off fee of £145 + VAT. FCC Paragon then provides landlords with an insurance warranty valued up to two months of the rental price which covers them for damage to the property and rent arrears.

Cole explains: “This is an affordable solution for tenants - they don't have to pay a large deposit up-front and if they are moving between properties, they don't have to wait to receive their previous deposit before relocating.

As our product has been around so long, it has a good track record and is proven in the marketplace. We know it works, and the uptake from landlords and tenants is increasing all the time as the rental sector continues to evolve.

There are also benefits for agents, who will receive commission for every Smart Deposit policy they sell, something which could be invaluable as they look to increase their earning power to replace lost revenue once fees are banned.

Cole concluded: “We believe this solution benefits all parties, offering peace of mind for landlords, a more affordable option for tenants and an opportunity for letting agents to increase revenue."

Related articles
More from Landlords
Latest from Financial Reporter
Latest from Commercial Reporter