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Full report and survey results
2022 – out with the old, in with the new?
It was a year of two halves for agents across the UK. With the COVID-19 pandemic restrictions all but ended by July, new economic threats culminated in an interest rate hike that was both unexpected and almost unprecedented in size. It presented an economic fire storm that helped take the wind out of the sales market, leaving rentals as a more stable and reliable source of income for combined agencies across the UK.
But the more things change, the more they stay the same. Just as in 2021, our survey shows that the biggest issue facing agents was a lack of stock. And as happened then too, the majority of agents passed on higher-than-normal rental price increases to tenants – probably as a result.
While this may have meant increased rental commission income for agencies, the combined effects of lower sales commission, increasing utility and business costs and upcoming legislative changes may have contributed to a fall in optimism among property professionals, as revealed by our survey.
However, we have often seen that business confidence in the private rented sector is linked to wider consumer confidence in the economy. When a cost-of-living crisis hits consumers, property professionals feel the effects too. But the signs are that this crisis will start to ease during 2023, increasing consumer and business confidence.
There are positives to take from these circumstances for the industry too – especially agencies that offer both sales and lettings. Agents that have built strong relationships with their tenants and landlords are in a unique position to help tenants looking to buy, and to offer a professional commission-based service for any of their landlords looking to sell.
The outlook for 2023 looks brighter, as the challenges of 2022 are seemingly coming to an end. While new ones have taken their place globally, central banks are doing all they can to manage inflation, and we hope this will bring it down to more manageable levels.
With rent controls in Scotland easing and signs that Westminster is listening to concerns about the English private rented sector (covered in the Regulation section of this Index), there are reasons for agents to be positive in 2023.
No matter what challenges or opportunities 2023 may bring, PayProp is here to help and support you and your business; helping you get more out of work and more out of life.
Neil Cobbold
Managing Director
PayProp UK
In late 2022, we invited our clients and other property professionals from across the UK to participate in our annual survey, the results of which can be seen in this annual report.
The objective of this survey was to gather insights into the perceptions and experiences of participants regarding PropTech, the state of their businesses and the rental market in general. Below, you can read the highlights of how property professionals saw 2022 and how they plan to approach 2023.
Are you a PayProp user?
Yes
85.8%
No
14.2%
What is your gender?
Male
55.8%
Female
44.2%
Approximately how many properties do you/does your agency manage?
Are you part of a franchise group or are you an independent agency?
How old are you?
Which of the following
best describes your job?
What services does your
agency offer?
Services
combinations
PropTech priorities
Participants ranked the PropTech selection criteria in order of importance.
Interpretation: 80.6% of participants ranked safety of funds in their top 3 criteria for selecting PropTech
The survey results provide insights into the attitudes and opinions of estate agency owners, letting agents and professionals working in lettings administration towards technology and automation.
It is clear that those surveyed are looking to tech solutions to ease their concerns about compliance with strict rules of handling client money.
Compulsory client money protection (CMP) rules were brought in for English agencies by the government in April 2019 and valid CMP insurance is a legal requirement in Scotland and Wales as well. They apply to any agent that handles client money.
The prospect of hefty fines for any breach of the complex rules in place has clearly had an impact on letting agents, as the survey results show.
The majority of respondents (80.6%) ranked the safety of client funds as a top priority when choosing PropTech, followed by system security (60.0%) and functionality (38.1%).
When given the chance to air their views on technology and automation, the majority of respondents said they believe that increasing automation is more productive (64.6% agree or strongly agree) and cheaper (65.1% agree or strongly agree) than increasing the workforce. As we will see further along, this attitude can help agencies unlock growth opportunities without adding to their headcount.
The results also indicate that respondents view property technology as a worthwhile investment, with 80.7% either agreeing or strongly agreeing. However, a significant minority of respondents (47.7%) did not expect to pay more for technology that allows them to grow their business, suggesting that PropTech providers need to give business owners more compelling reasons to sign up for their service.
What impact do you think automation will have on your job in the next five years?
Are property professionals seeing the effect of automation on their jobs? In 2022, the majority of respondents (68.4%) were positive or very positive about the ongoing impact of automation on their job over the next five years. In 2023, we have already seen some agents around the world take advantage of the rapid development of AI to enhance their performance. With more legislation in the pipeline for the PRS, being able to automate labour-intensive tasks such as banking and compliance will help relieve some of the burden agencies will face in getting up to speed with new legislation.
Positive business impact
Overall, the survey results suggest that UK property professionals are positive about the impact of technology and automation on their industry and believe that it is a worthwhile investment. Prioritising the safety of client funds and system security as PropTech selection criteria suggests respondents are serious about repaying the trust tenants and landlords place in them to look after their funds. The preference for automation over increasing the workforce clearly indicates a desire to maximise efficiency and reduce costs in a highly competitive industry that has seen a recent number of mergers and acquisitions.
Your tenants
This year, the rental increases that you have
implemented have been:
How were tenants affected by respondents' business decisions in 2022? Some 72% of participants implemented higher-than-usual rental increases. This is a big change from the previous year, when only 56.6% of respondents passed on higher-than-usual increases.
Possible reasons for this continuing trend include higher landlord costs due to inflation and high competition among tenants for vacant stock due to a supply-demand mismatch. In addition, there has been a reversal of pandemic trends, which saw rents fall in major cities as people moved out.
This significant rise in the number of participants reporting higher-than-usual rent increases may increase the call from tenant lobby groups for rent controls. Already in Scotland, the rent increase landlords can make is restricted to a percentage set by the Scottish government. While landlords in England, Wales and Northern Ireland don’t face the same restrictions, there are calls from across the political spectrum to bring in rent controls across the rest of the UK.
This year, tenant arrears have been:
But while rents are rising, it’s encouraging to see that property professionals have not seen a proportionate rise in arrears. In fact, 4.5% fewer respondents saw higher-than-usual arrears in 2022 than in 2021, despite the higher-than-usual rent increases.
This points to agencies managing the payment process professionally, ensuring that tenants know when and how much rent is due, as well as managing arrears effectively. It also shows tenants are managing their finances well, even as some leave the market to become homeowners, as we see below.
Why are tenants moving?
Participants could choose up to 3 options
We asked survey participants to rank why tenants are moving, and the biggest change in 2022 was the drop in those moving to find a home with office space – the top reason in 2021, but just the sixth in 2022. This is most likely in reaction to businesses across the UK compromising on a hybrid work arrangement, rather than the pandemic norm of fully remote work for office employees.
What may surprise readers, given the high mortgage rates on offer, is the high number of tenants that bought a home in 2023. However, it’s important to remember that in 2022, interest rates only increased over pre-pandemic levels in May and a stamp duty discount was still in place, perhaps making a mortgage more affordable than renting.
Also, tenants may have managed to save up more for a deposit during the pandemic, reducing the size of the mortgage they needed to take out and pay interest on. How former tenants who didn’t fix their mortgage rate will fare in 2023, with interest rates currently at 4%, remains to be seen.
This trend of tenants buying presents a clear opportunity for agencies that do both sales and lettings. Keeping those lines of communication open during a tenancy and ensuring a happy working relationship between tenants and landlords means your agency will be one of the first ports of call when a tenant starts looking to buy.
Less of a surprise, given the higher-than-usual rent increases, will be the high number of tenants moving to more affordable properties. While office work may not be as flexible as it was during the pandemic, fewer days at the office may make longer commutes more viable, putting better value properties within the range of tenants who would need to travel only a few days a week. We may also see this trend play out among those agencies that have seen tenants relocate to a new area.
Have you received more tenant enquiries for properties with a high Energy Performance Certificate?
Yes
16.9%
No
57.7%
Not sure
25.4%
Throughout 2022, the cost of energy never strayed far from the headlines. Yet the worry over gas and electricity prices did not seem to translate into a clamour for properties with a high Energy Performance Certificate (EPC).
Only 16.9% of professionals surveyed were getting more enquiries of that ilk, suggesting that more work needs to be done in promoting the benefits of good EPC performance, but also that, when housing supply is tight, good energy performance may be considered more of a ‘nice to have’ than an essential.
This year, the number of vacant properties on your book has been:
Basic economics can help explain what respondents are reporting in this survey. If demand for rental properties is constant and supply is low, prices will rise. While some tenants may have moved into home ownership, there was undoubtedly still high demand for rental properties throughout 2022, which has seen agents and landlords benefit from fewer void periods.
This ties into two trends we have seen in the results. Firstly, almost 70% of respondents reported having lower-than-usual vacancies, up from 65% in 2022.
How long does it usually take to find a new tenant for a property?
Secondly, almost 40% of those vacant properties were snapped up by a tenant in less than a week of being on the market. These two trends, plus the higher-than-usual rent increases reported elsewhere in this survey, point to a shortage of supply in the market. But the positive is that landlords and agents are experiencing shorter void periods, so both are experiencing fewer gaps in income. But is the industry attractive enough to encourage more landlords to enter the market? Read on to find out.
Your landlords
We asked participants to give insight into the discussions they were having with landlords across the UK in 2022, and the responses won’t come as a surprise to anyone who reads the news.
Do you expect landlords to increase, decrease or maintain current rental prices in the next year?
Increase
64.3%
Maintain
23.4%
Decrease
12.3%
In 2023, most of those surveyed expect to see more increases from landlords. With interest rates stubbornly high, landlords with buy-to-let mortgages may have little choice if they’re making low yields and their mortgage rate is increased. Landlords with small mortgages or renting out homes that they own outright have more scope to maintain prices, but with high demand for rental properties from tenants, they may also be tempted to raise the rent.
However, with interest rates on mortgages declining, more landlords may be tempted into the market and current landlords may be encouraged to acquire new buy-to-let properties as house prices fall. This could potentially bring more choice for tenants and more stable rental prices.
What are your landlords' current
plans and activities?
For the first time ever in our Rental Confidence Index, respondents are reporting that more landlords are selling their properties than maintaining or adding to their portfolios.
However, this presents an opportunity for the more than 50% of agencies represented in our survey that offer both sales and lettings. Not only can you help with the sale of the property and earn commission, but you can also ensure all of your landlords that are looking to expand their portfolios are aware the property is for sale. As a result, you may be able to earn commission on the sale and the continued management of the property as part of another landlord's buy-to-let portfolio.
Have you lowered your commission due to cost pressures to keep a landlord as a client?
Yes
18.3%
No
81.7%
Agents have had to protect their income in 2022, but it is good to see that over 80% of respondents have not lowered their commission to keep a landlord. This shows that, on the whole, they know the value of the service they offer and won’t succumb to a ‘race to the bottom’ where price is the main deciding factor on who a landlord lets their property through.
Do you feel that landlords have a good understanding of the current rental market?
Yes
54.0%
No
46.0%
Finally, it’s encouraging to see that over half of landlords have a good understanding of the market, which could be down to agents providing valuable insights to help landlords make informed decisions.
Currently, our team is
According to the survey results, the majority of those in the PRS are currently working in the office full-time (61.7%). Meanwhile, 30.2% of respondents reported a hybrid/flexible work arrangement, and 8.1% reported working remotely.
These results suggest that while some professionals have adapted to remote work, most still prefer or are required to work from the office.
What is your agency's main
priority at the moment?
In 2022, the biggest focus for letting agencies was signing more landlords, with 40.6% of respondents reporting this as their main priority. This is not surprising, as finding new landlords and rental properties is crucial to growing a letting agency's business. Monthly commission payments also provide a stable income for property businesses when the sales market is down.
Meanwhile, 21.3% of respondents reported that finding more ways of generating revenue was their top priority, indicating that some businesses are looking for new streams of income to grow their business. Improving the customer experience and reducing administration time were also priorities for some. 12.9% of respondents chose both options.
What is the most challenging part of the letting process in your business?
Finding new rental properties was by far the most challenging part of the lettings process for respondents, selected by 42%. This suggests that competition for rental properties is high, and that agents need to be creative and proactive in their search for new properties at a time when a high percentage of landlords are reportedly selling up.
Finding quality tenants as well as hiring and staff training were also cited as challenges. This was cited by 12.6% and 10.5% of respondents, respectively.
On the other hand, the vast majority of those surveyed were having no trouble complying with the raft of regulations that affect the PRS, including client money protection. And as we’ve seen in the tenant section, arrears were less of an issue for more letting agencies in 2022 than in 2021.
Looking ahead to 2023, getting new landlords/rental stock was identified as the biggest concern, with 44.6% of respondents selecting this option. This is closely followed by portfolio growth and profitability, cited by 39.9% and 39.2% of respondents respectively. New regulations and increasing interest rates were also identified as concerns for 38.5% and 35.8% of those surveyed, respectively.
Two standouts that rank low on the list of worries in 2023 were finding tenants and competition, showing that the majority of those surveyed are confident they can attract landlords away from self-management and the competition.
How would you increase profit in your agency?
To increase profitability, the majority of respondents reported they would increase the number of managed rentals (70.3%). This makes sense, as managing more rentals can lead to increased commission revenue for letting agencies, a reliable source of income. Offering additional services and products and using PropTech to increase productivity were also identified as strategies for increasing profitability.
As noted earlier on, leveraging the positive impact of PropTech automation is something property professionals see as a positive impact on their jobs, which in turn can free them up to focus on other growth strategies, such as increasing the number of managed units. It is also encouraging to see how almost 99% of survey participants see the value of the staff they employ. Those that combine their current staff with growth-enabling PropTech should see a return on their investment.
It is also encouraging to see how almost 99% of survey participants see the value of the staff they employ. Those that combine their current staff with growth-enabling PropTech should see a return on their investment.
In the past year, have you considered selling your agency?
Yes
20.2%
No
79.8%
In the past year, have you considered buying another agency?
Yes
35.2%
No
64.8%
In the past year, have you
bought another agency?
Yes
15.1%
No
84.9%
Finally, the survey results also suggest that most respondents (79.8%) have not considered selling their agency. Perhaps this is an indication of seeing an opportunity in recent and upcoming legislative changes to the PRS in England, Scotland, Wales and Northern Ireland. Good agents will see it as a chance to empower landlords through a fully managed service and to earn a steady income through a regular commission.
While a minority (20.2%) reported that they have considered selling, a bigger share of respondents (35.2%) reported that they have considered buying another agency, and 15.1% followed through in 2022. These results suggest that more agencies are keen to expand through acquisition than those that want to sell and exit the market.
Are you aware of the recent legislative proposals and changes to the industry in Scotland/England/Wales/Northern Ireland?
Yes
91.6%
No
8.4%
As one might expect with a professional industry, over 90% of professionals surveyed said they were aware of the changes and proposals entering the PRS in 2022.
To summarise, English agents finally got sight of the UK government’s proposals to reform the industry in the form of the “A fairer private rented sector” white paper. In Wales, the PRS awaited The Renting Homes (Wales) Act 2016, which took effect on 1 December 2022. The Scottish industry had to contend with temporary legislation preventing landlords from raising rent and restricting the grounds for eviction, while the Northern Ireland PRS underwent substantial changes with the introduction of the Private Tenancies Act (Northern Ireland) 2022.
How do you feel about those
proposals and changes?
Giving much-needed pause for thought to those in power, only 9% of respondents view the changes or proposals positively, suggesting more work needs to be done in framing the reforms as beneficial for all and/or modifying them to take account of industry views.
But perhaps 2023 will change opinions: In England, one of the most universally embraced yet contentious proposals of 2022 (due to be implemented this year) was the abolition of Section 21 ‘no fault’ evictions. It attracted cross-party support and was welcomed by tenant groups, but one objection was frequently raised – the fact that the alternative Section 8 eviction process is too slow.
But in a recent report published by the Levelling Up, Housing and Communities Committee, a group of MPs who scrutinise government proposals and examine the impact they could have on the industry, suggested refinements that take account of agents’ views.
While the committee acknowledges the broad view that Section 21 should be repealed to prevent unfair evictions, it points out that the current court system itself needs to be reformed before the industry will have confidence in the Section 8 process. As a result, the committee proposed that the removal of Section 21 should only go ahead once reforms have been made.
First, it was proposed that some mandatory grounds for eviction be expanded. Secondly, courts must be equipped and enabled to process Section 8 claims for rent arrears and antisocial behaviour faster, in the interests of making the PRS more viable for landlords.
In addition, the committee also pointed out the adverse impact of withdrawing tax relief on mortgage interest under Section 24 of the Finance Act 2015, saying that the Act and increased regulation around, for example, HMO licensing have led to a reduction in the number of privately rented properties. This is something that politicians across the UK will have to keep in mind when planning reforms to the PRS moving forward.
Who do you feel is currently favoured by government?
Finally, with such a trend of ‘tenant-friendly’ reforms in 2022 and included in proposals for 2023, it comes as no surprise that those surveyed feel that tenants are favoured the most by politicians, while agents are viewed as dead last. Only 1% of respondents feel the government has put their interests first.
But perhaps the industry needs to look at this in a different light. According to the most recent English Private Landlord Survey, only 18% of landlords surveyed used an agent for management services. This can be viewed in one of two ways.
The constructive way to see it is that it presents an opportunity to target the 82% of landlords that either don’t use a letting agent or only use them to let the property, as those landlords will have to deal with any legislative or compliance changes on their own without the support of a managing agent.
By demonstrating or broadening their knowledge and experience in dealing with previous legislative changes while remaining compliant with the rules, agents can offer landlords vital peace of mind to ensure the industry’s continued viability, no matter what new rules and regulations impact the industry.
What the future holds
How optimistic are you about the future of the rental industry?
After another tough year for the industry in 2022, how do property professionals feel about its future?
Our results show an almost 30 percentage point decline in positivity, from 76.7% in 2021 to 47.1% in 2022, plus an almost 10 percentage point increase in pessimism (from 7.5% in 2021 to 17.4% in 2022).
The silver lining is that almost half of those surveyed are still optimistic about the industry and the 35.5% that remain neutral are there to be swayed by those that set the rules that govern the PRS.
How likely are you to be working in the property industry in five years?
We also asked respondents how likely they were to be working in property in five years' time. Over 70% of those surveyed affirmed they were, despite their perceptions. Compared with 2021, there has been a 10 percentage point drop in those planning to still be working in property over the next five years. But this may not be indicative of the whole industry, as those close to retirement or over retirement age make up more than 20% of property professionals surveyed.
Across the economy since the pandemic, those aged 50-64 make up the largest section of economically inactive workers – with some of them no longer looking for work due to illness and confident of their pension provisions being able to meet their needs in retirement. Losing this experience at a time of change in the industry will be a worry for property professionals. But experienced retirees can pass on their knowledge and mentor the next generation of letting agents, ensuring a strong and capable industry for years to come.
