The new PayProp Rental Confidence Index has lifted the lid on what letting agents charge for their services – along with the risks and opportunities of various fee structures.
Our nationwide poll of lettings professionals shows that commission structures don’t vary much overall. 92.6% of agencies charge a percentage of rent, while just 5% opt for a fixed fee.
Almost half of all agents polled (49.5%) charge 10% of rent, with slightly more charging above 10% (26.2%) than below (24.3%). The lowest commission reported in our survey was 5%, while the highest was a whopping 25% of rent collected.
Letting agents are extremely limited in the fees they can charge to tenants, but they can add to those fees with fixed landlord fees for services like setting up a tenancy agreement, registering a deposit or conducting inspections.
How could agents’ fee structures change this year?
Agents may find it tough to maintain their fee structures this year as competition for landlords heats up. More than half said landlords are selling properties and that most rental properties are being sold to first-time buyers, taking them out of the private rented sector.
As the number of landlords shrinks, 32.2% of respondents said their agency had lowered their commission rate to keep a landlord client in the past year, compared to 18.3% in the previous Rental Confidence Index.
More agencies are also trying to make renting less risky for landlords. 40.3% of respondents said they offered guaranteed rent on at least some of the properties in their portfolio. In London, where tenants spend more of their income on rent than anywhere else in the country, guaranteed rent is offered by over 50% of survey participants.
With the cost of living increasing, it could be difficult to drive growth by increasing rents. Nevertheless, three quarters of agents said they had passed on bigger rent increases than normal in the past year, but 27.4% reported higher than normal arrears compared to 21.9% last year – suggesting they are hitting an affordability ceiling.
Other paths to profitability
Despite the difficulties with finding more landlords or increasing fees this year, the Rental Confidence Index shows agents have other options for increasing their profitability.
After signing more landlords, the most popular profitability strategy for 2024 was offering additional products and services (cited by 14.3% of respondents). This has promise – offering add-ons at a fee can help letting agencies to upsell their existing clients, and potentially also attract more landlords.
Technology can also improve profitability. More than two thirds of agents said increasing automation was more productive (68.5%) and cheaper (70.2%) than adding to their workforce. And a solid majority (58.1%) said that automation had increased in their business over the last year.
For more on letting agents’ growth plans, landlord and tenant relationships, and market confidence, download the PayProp Rental Confidence Index.
