United Kingdom

Are councils undercutting local letting agencies?

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A person looking at property advertisements in a letting agency window

York Council’s letting agency grabbed headlines last month by offering landlords a generous package of perks – but local letting agents have reacted angrily at being undercut.

Landlords who let their homes through YorHome will receive a year’s rent up front, guaranteed rent for five years, free home improvements, and no fees for services like inventories. They will also only be charged a 9% fee for all-inclusive management – 3% below any other agency in York, according to YorHome.

Private sector letting agents have reacted angrily to the news, saying councils are using taxpayers’ money – including the business rates paid by high street agencies – to undercut them.

Could council-run letting agencies push out professional letting agents?

YorHome isn’t the only council-run letting agency in the country. Similar schemes exist in areas like Salford, Wigan and County Durham.

Schemes like YorHome don’t cater to the whole rental market. Instead, they tend to focus on tenants with lower incomes. York Council says it sets rents “as close as possible” to Local Housing Allowance (LHA) rates, while Wigan Council treats the LHA rate as the maximum.

LHA rates were reset to cover the cheapest 30% of local properties this April, but availability of affordable rented homes has been a persistent issue over the past few years. A study by estate agency Savills earlier this year found that just 10% of properties were affordable on LHA, and unless rates are updated next year and every year after that to keep up with rental growth, it may not be long before that happens again.

Besides targeting tenants with different incomes, council-run letting agencies are restricted to housing tenants at risk of homelessness or in need of refugee resettlement. Councils are setting up letting agencies and guaranteed rental schemes as a response to the social housing shortage, not as a way to muscle out professional agents.

It's also not clear how many landlords are taking up councils on their offers. Even with guaranteed rent and lower-than-average fees, it could still be a tough sell for a landlord to accept a below-market rent for five years. Landlords are also often reluctant to rent to tenants who receive LHA or other benefits. Without offering lower rates than private agencies, councils might struggle to get any landlords at all – and the generous perks on offer could be the clearest acknowledgement of that.

Generous or not, landlords at the more affordable end of the market could struggle. And expert agents also warn that councils’ schemes may not be sustainable. According to John Redden, Partner at Belvoir Hexham & Tynedale, YorHome is “a massive loss waiting to happen. You simply cannot do the job at 9% with every fifth year free. That works out at 7.2%, which hardly covers salaries, let alone inflation-linked pensions”.

Other landlord headlines

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Landlords take council to court over ‘rapacious’ licensing fee – LandlordZONE

Suspended jail sentence for landlord after 11 trapped in burning building – Landlord Today

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