BBC’s Watchdog programme this week is set to focus on private lettings. While the precise nature of the programme is not known, sources say that researchers for the programme, due to go out at 8pm tomorrow, have been looking into letting contracts which insist that tenants use certain utility companies, with the agents picking up lucrative payments from the firms.
The sources say that among those due to be implicated by the programme are well-known agency names, including chains.
It is known that some utility firms focus on the private rented sector and have, for example, exhibited at ARLA conferences and advertised in various trade magazines. Some business models are based on rewarding agents and landlords to persuade tenants to sign up with them.
Agents or landlords trying to insist on tenants using a particular utilities firm is not a new issue: last summer, we reported claims that one in ten tenants are being illegally stopped by their landlords or agents from switching utility suppliers.
Energy regulator Ofgem says: “Landlords maintain the right to choose the energy supplier only when they are directly responsible for paying for the gas or electricity.
“Tenants should be made aware by landlords and letting agents of any tie-ins with specific suppliers and should receive appropriate details at the outset of applicable tariffs and charging details.
“If the tenant is directly responsible for paying the gas and/or electricity bills, they have the right to choose their own energy supplier, and the landlord or letting agent should not unreasonably prevent this.
“Landlords or letting agents should not sign up tenants with preferred suppliers without the tenants’ full knowledge of, or agreement to, such arrangements.”
The makers of tomorrow’s Watchdog programme make no mention of the utilities issue, but are flagging up the episode with a celebrity angle.
Actor Nigel Havers will, it says in the blurb, be revealing “how he was cheated out of money by a rogue lettings agency and shows how millions of tenants could also fall victim – despite government plans to regulate the property rentals sector”.
This is how we reported claims about utility suppliers and rental contracts last August.
http://www.landlordtoday.co.uk/news_features/One-in-ten-tenants-illegally-stopped-from-switching-utilities
Comments
Actually you jumped into a discussion with a House Price Canute who was actally making a valid point about how gross yields can be misleading. The other poster was making the point that net yield takes into account all of the expenses of renting and are a known result that is established by accounts and that if a net 6 % yield is being quoted it includes things like fees and voids.
The particular HPC is probably right to sound off if your developer mates are making exaggerated claims which hold no water. It is little wonder the public have little faith in the industry when Agents with 16 years experience condone the practice of quoting gross yields as a sales ploy.
Actually @james I am not blaming anyone. This discussion originally stemmed from another post in which a comment was made that all yields are quoted net. I foolishly pointed out that developers and corporate agents quote gross.
The use of the developer figure is as an example to support my statement above and not an attempt to place blame, so you can keep what you no doubt thought was terribly clever legal jargon to yourself.
I have yet to see a poster provide me with a company that is quoting net yields as a headline figure and indeed how they can do this without knowing an individual's circumstances. If we take the example I wrote below but I now confirm that the purchaser is in fact buying in cash, is the negative yield still correct? No. It was based on supposition only.
However I do accept that providing a net yield is certainly more useful (though no more factual). If investors wish to proceed we do sit down and work out the entire cost structure of the investment providing them with netted out figures.
While I do enjoy a discussion, it's pretty clear how this one will continue on so I will leave it there. Let me head off the inevitable 'now James isn't saying anything he is admitting guilt/error/corruption/rogue tendencies/ blackmail' by confirming I will not be reading any more posts on this page.
Befehl ist Befehl? Its not us it is the developers. Weak
Carry on mate you obviously condone you developer clients and can not explain the 6% they are quoting and you introduced into the discussion.
The example I have given used two random figures. I am not sure what you mean by blanket gross yields of 6% nor even why this figure seems to be relevant. I only brought up 6% to mention the guaranteed gross yield being offered by some developers around the South East in specific units on any given scheme. Every other property we deal with will have entirely different gross and net yields.
We provide a gross yield figure to allow investors a snapshot comparison of gross ROI between properties. Bearing in mind that we do not sell property to investors nor provide financial services it's pretty clear that we are not out to pull the wool over our client's eyes as we want to deal with them long term.
The gross yield is a calculation of the annual return on an investment prior to taxes and expenses. Is this a fact or not?
If you were told the gross yield on that scenario is 6% is that correct advice? (Simple yes or no will do)
This isn't about mud slinging or point scoring, you are simply not correct to quote gross yields of 6% across the board when as in this case the gross yield average is closer to 5%.
Irrespective of your tax regime there will be agent’s letting fees & commission both plus VAT, there will be maintenance and the inevitable voids due to marketing, stamp duty,Solicitors fees, searches and land registry fees.
It is quite easy to identify £5000 of fees in the first year of letting excluding any finance charges. That £5000 is a full 3% of the gross yield. Your true gross yield of 5.2% is now down to 2.2% net of finance charges, another £4000 (3%) on an 80% BTL interest only mortgage pulls off another 2.4% of yield and hey presto "6% Gross is twice what you can get from the bank" becomes a liability some landlords, evidently some experience agents and all developers can't fathom or choose to turn a convenient blind eye to.
Please come back and justify why you will still use 6% gross yield as a sales pitch knowing full well you could be luring less experienced landlords into a negative yields situation that allow for no maintenance and only 1 month in 12 of voids.
What you and your firm is doing is openly misrepresenting the facts, the beneficial thing about this dialogue is that you might stop to consider what you lot are doing is wrong.
Ok I'll bite. I'm buying a house for £165,000 and you've advised me the likely rental will be £725pcm.
I have not decided what deposit ill be putting down nor have I selected a mortgage product or chosen a solicitor. You have no idea what my personal tax allowance is or whether I intend to proceed on a joint ownership basis. I presume you will somehow know whether I will be using depreciation or maintenance to reduce my tax liability.
What is the net yield?
I am perpetually disappointed that comment sections seem geared to point scoring and being offensive rather than a discussion which could prove beneficial to interested parties.
We quote a gross yield and will then help our investors work out what costs will then need to be considered. The gross yield helps them to decide whether they even want to bother looking into a potential opportunity. Are you suggesting that you have Landlords that make a purchase simply on a yield % quoted by an agent that does not know their own financial circumstances?
I'll be interested to hear more unless you propose to continue with your non factual mud slinging in which case lets just leave it at that.
Incidentally I have been in this industry for over 16 years and have an excellent relationship with our investors. I have assisted with the purchase and sale of several portfolios. Your perception that we are a business at any cost agent could not be further from the truth.
Come back James, most of us can only guess who you work for despite you giving us more clues than you needed to.
Next time you are sat there in a corporate training / let more sell more session just ask if it is ethical to ever quote a blanket gross yield that ignores all the basic costs of getting into property as an investment.
You could suggest someone bones up on the RICS Red book to see what they have to say about this widespread corporate/developer practice.
All this call for regulation? Pah let's start by telling the truth, it always cost less in the long run.
Without the specific knowledge of each circumstance one is left with current averages; £162,000 for a property value, £700 pcm for rent, 12% ( inc vat) commision on rent
£8400/£162,000 is only 5.14%. By the time known (expected) commision is out of the equation (£1008 inc VAT) known yields are down to 4.56%
It seems a bit cavalier to be quoting 6%.
Perhaps you could explain how Corporate agents and developers justify a standard 6% gross yield when it clearly is not. Where does 6% gross yield come from?
I am sure the negative equity landlords you mentioned might be interestd in this discussion if they have invested based on a sales pitch which quoted seemingly exaggerated gross yields.
Correct. We provide gross yield figures as does every corporate agent and developer in the UK.
Naturally if an investors decides to consider a deal we sit down to discuss all the costs, void periods etc that will impact on the gross yield but the headline figure is gross.
I might be missing something but presumably to work out a net figure you need to know a fair bit about the individual circumstances of a deal. We provide the support for a number of national developers quoting 6% gross yield deals. Perhaps you should be advising them of their unprofessional nature?
When we worked for ARLA board director he made all tenants sign up with the Hallmark Utilities before they was allowed the keys
I bet they don't mention that on the telly!
Is this the same Nigel Havers who played the part of the conman that flecced Gail of all her savings in coronation Street??
Is this the same James who bumps up yield figures by deliberately leaving out the standard costs of ownership of rented property?
If it is how does that fit with this notion of you working for a professional firm?
These non- regulated Agencies, belonging to RICS or NFOPP doesn't mean you are actually regulated in the legal sense just part of a trade body that is meant to give you credibility. Are you saying that a 40% reduction in your fees is bad for the landlords or just bad for your firm's profit?
I think you just let the cat out of the bag why the trade bodies have been pushing so hard for legislation that would create a barrier to entry into the lettings industry.
James I totally agree with you but you also missed out another Agent said "I do not need wired in smoke alarms" "turn a blind eye to HMO use no one will know" " I am not registered for Overseas Tax so you do not need to register" " we do not take deposits but 3mths rent in advance" and by the way we are 5% cheaper than our competitors!!
It will be a sad day when the small local agents have been swallowed up by the large corporates. Sure they may be more sensitive about some of the silly tricks the small operators sometimes employ because regulation will sort them out but the standard of service provided to both landlord and tenant will be compromised. Smaller well run local firms can and do provide a better service as long as they are reputable and only licensing can really sort that one out! It just staggers me how under the cosh we are at the moment during this ridiculous witch hunt. I just wish the average Joe knew how hard our job is compared to many other sectors. It isn't fair. Shut up and bring on regulation then leave us the hell alone.
A lot of the negative press regarding letting agents could be mitigated if the stats regarding customer satisfaction rates with letting agents were more widely publicised.
Some sensible comments made already here. We also used a utility company for a short period who were sponsoring NAEA & ARLA events, don't use them any more. Hope the chappy from Rogue Traders is dealing with it. Can anyone remind me why he doesn't ride a motorbike again.....
The fees we can charge a Landlord have dropped by some 40% in the last five years. This is driven by non-regulated agents undercutting professional ones. All too often we are greeted with comments from Landlords like "Well the other agent told me I don't need an EPC and they're not worth the paper they are printed on, you are trying to con more money out of me"
Naturally these same agents need a way to make some money and that is where add-on income comes in. Charging on top of maintenance works is common as is exorbitant tenant charges etc etc.
Then we get to hear how shit we all are in the press and on forums all over the web. Certainly makes for a compelling reason to run a professional agent I don't think. We get screwed over by the unregulated agents and then judged by their example.
We were one of the first companies to use the utility provider I suspect will be showcased this evening. However, we used it not just for a commission payment but because they took over the administration burden and promised to beat any standard tariff on the market. Our contracts still provided tenants with the right to switch supplier at any point. Unfortunately the company proved to be useless and caused our tenants no end of problems so we dropped them years ago. A remarkable suggestion that an agent would look at customer service rather than profit I fully appreciate.
Still another witch hunt will be great fun. I look forward to the usual unbiased reporting we see on TV these days.
I keep hearing that it will be wonderful news for tenants when big companies take over the private lettings industry.
Any one one who believes this tale must be half barmy. The more I get to know about the lettings (landlord) the more dodges and tricks I discover.
This site keeps banging on about lousy agents and tricky landlords. If it is ever hard up for news have a good look at leasehold property purchases and the fees and scams perpetrated there by the freeholders taking over from major development companies once the buildings are erected. This is relevant to lettings since most flats are leasehold even if a private landlord appears as the owner of a flat. A lot of the problems that a tenant ascribes to landlords and agents are down to the flat freehold owner.
These Utility Companies have also designed automatic feeds for the large Property Management software suppliers used by many National Regulated Agents.
'Large Corporate Letting Agent chain makes secret profit' Nothing unusual there then!