Do you believe if you repeatedly ignore bad news, it might go away? Are you utterly convinced that the Government will see sense, backtrack and allow you to continue charging tenant fees? Perhaps you have been far too busy (or hiding under a rock) to notice the avalanche of industry alterations that threaten your profitability.
No one wants their business to capitulate as a result of the changes but it is a stark reality among the underprepared. Every week we’re speaking to letting agents and property managers who are not fully aware of what lies ahead and many others are underestimating the impact the modifications will have on their income. Thankfully, those we speak to come away with a sense of relief and a strategy for actually improving profitability.
If you have buried your head in the sand up until this point, you should be planning to address the following as a matter of urgency:-
Ban on tenant fees
This is the biggest threat to your profitability as the fees you charge tenants now will become illegal when the ban comes into force. Face up to the fact you won’t be able to bill the tenant for referencing, check in, inventory costs and administration fees. These tasks will still need to be undertaken to ensure a smooth running, legally compliant let but you’ll take the financial hit. Agents and managers will benefit from exploring economies of scale and cost-saving delegation in a bid to balance the books.
Mortgage tax relief
We’re approaching the first anniversary of incremental changes to the tax relief landlords receive. From April 6th 2018 to April 6th 2019, the percentage of finance costs deductible from rental income will drop from 75% to 50%, and the percentage of basic rate tax reduction rise from 25% to 50%. Even though the restriction will not fully be in place until April 6th 2020, landlords are already facing higher tax bills – reducing and even wiping out profits. This is deterring new landlords from entering the PRS, discouraging investors from growing portfolios and forcing many to cut back costs – all will have an impact on your revenue, profits and pipeline. Being able to refine your fee structure and package up an irresistible portfolio of services is key to retaining landlords and inviting new business.
New EU-wide data protection rules come into force on 25th May 2018 and by then, all your data pertaining to clients – past, present and future – must be securely held and cleansed. Client details must be encrypted moving forwards – this means how much money a tenant owes needs to be held on file as a reference number rather than by a tenant’s name, for example. Scale that up and it’s a massive task! Even web-based contact forms will require a greater level of security, so you’ll have to request back office changes too.
It’s a detailed and ongoing process, and you may have to redirect resources in order to hire a data specialist or create a Data Protection Officer role within your company. Data breach penalties will be eye-watering – up to €10 million or 2% of annual global turnover from the previous year – so looking at cost-saving measures within your agency may be necessary to free up time and monetary resources for GDPR.
Better efficiency, lower overheads and the release of vital funds can be achieved even in this changing marketplace. For details on how to future proof your agency and improve profit margins, contact ARPM Outsourced Lettings Support.