Full report and survey results
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.
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.
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.
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.
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.
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.
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.
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