“Smart regulation provides a fair and level playing field for all and enables the market as a whole to thrive.”
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It’s probably fair to say that the political establishment has been preoccupied with Brexit at the expense of key policy oversights such as housing, and estate agencies have been put under multiple new strains.
Over the last few years, numerous changes to industry regulation and tax have piled pressure onto agents at a time when the market is already incredibly competitive, and margins are tighter than ever.
Where have these changes left today’s estate agents, and perhaps more importantly, what can the government now do to retroactively redress the damage that’s been done?
Stamp duty
Stamp duty is a hot topic amongst most of the agents and industry experts I speak to. Penalties on second homes, and increased stamp duty payable on homes valued over £937,500 have drastically stifled market activity.
“Many owners of more expensive homes have been deterred from trading up given the financial outlay a purchase would demand, which has impeded those in the mid-tier from being able to upsize to a larger property,” claims Lisa Simon, head of residential at Carter Jonas.
“In many instances, homeowners are now electing to extend or renovate a property as moving can prove costly, with stamp duty regarded as wasted expenditure.”
As Simon explains, a property priced at £950,000, prior to autumn 2014, would have commanded £22,000 in stamp duty.
Today, under the new stamp duty legislation, that same property would require £38,750 in stamp duty, or £67,250 if the buyers owned property elsewhere in the world–an increase of £45,250.
“Anecdotally, one buyer likened it as going into 7% negative equity on day one,” Simon adds.
“Recalculate at £1,750,000 and this is over 10%, so it is no wonder in a flat market that discretionary buyers are sitting back.”
Mark Homer, Co-founder of Progressive Property, adds, “surely the time is now right for government to reform the stamp duty regime: to reduce headline rates, which ironically have reduced the treasurers SDLT receipts, especially at the top end which many believe is the primary reason residential property price falls as much as 25% have been experienced in prime London areas.”
Current regulations are clearly doing no favors for buyers, sellers, estate agents, or even the government, and this point about London is a particularly interesting one.
In the capital especially, where the average house price is so high, legislators should really be considering those that are reluctant to “down-grade” or equity release for the fear of being penalized by the current tax system.
The Conservatives have attempted to mitigate the situation through a recent relaxation of planning laws–which for some, will potentially mean they don’t need to move. But this is an incomplete solution.
The sales market has to be flexible to work at its most efficient, and stamp duty will have to be addressed directly for this to occur.
To improve activity in the sales market, perhaps the government can also look to reform help-to-buy, which has to date, only really helped house-builders.
Allowing Help to Buy on resale properties and allowing investment companies to set up property funds to Help to Buy are two ideas that spring to mind.
Tenant Fees Ban
At the moment, tenants can be charged admin fees–such as tenancy renewal fees, referencing fees and credit check fees–by landlords and letting agents. However, with the introduction of a new law on June 1 this will no longer be the case.
Considering U.K. agency fees are already some of the lowest in the world, most agents see the legislation as a mistake.
“We wait to see what the reverberations of the Tenant Fees Ban will be but we can expect a minimum of hard-working property professionals to lose their jobs and at worst, I fear some businesses will just not be able to survive the drop in revenues, which are coupled with continued pressure on fees we can charge through online and cheap agencies who really can’t offer the service required at these fees,” explains Mark Noble of Castles Residential Sales & Lettings.
“I think it is clear within our industry that nobody is opposed to a fair fee structure but to virtually abolish the need for a tenant to contribute towards renting a property is a step too far.”
Noble expects a downturn in new landlords entering the market place, with existing landlords exiting the sector.
“The government, in their efforts to help tenants, are likely to hinder them as there will be fewer properties to choose from and ultimately, the landlord will pass any cost inconvenience back on to the tenant with increases in rent.”
Standards for estate agents
With the government planning a huge overhaul of the industry and sales process–including mandatory qualifications for agents and greater transparency about referral fees when passing on client leads to solicitors, surveyors and mortgage brokers–there’s a concern that this could be detrimental to the industry.
“These measures were introduced to professionalize the market, designed to end “rouge management agents,” but some consider that it’s also throttling some of the freedoms estate agents had prior and putting the entire industry at risk,” explains Mike Patterson, CEO of We Buy Any House.
But not everyone sees the prospect of additional regulation of agents as a wholly negative thing.
“Ideally, when the Brexit storm settles, what we’d like to see the government do to support the real estate industry is take more measures to penalize rogue agents who are not behaving ethically or fairly,” says Finlay Brewer’s Paul Cosgrove.
Bruce Burkitt, Founder of Property Experts, is inclined to agree, although he suggests that some agencies may be negatively impacted.
“By creating the need for individuals to study and obtain a qualification this will not only help deter opportunists from entering the industry but will improve the general public’s perception of the Estate Agents and provide greater protection against any sharp practices.”
“With the necessity for estate agents to become qualified and or licensed there would undoubtedly be an initial reduction in the number of agencies,” adds Burkitt. “However, this, in turn, would lead to a better level of service and the ability for agents to charge respectable fees.”
Housebuilding
The issues surrounding the state of Britain’s housing are well known, and of course, low supply negatively impacts buyers who have to pay a premium for a limited choice of properties.
But it’s easy to forget that poor supply also negatively impacts agents.
Property Experts’ Bruce Burkitt proposes a couple of solutions. One involves “enforcing the implementation of planning permissions granted. Currently, any planning permission granted must be implemented within a three-year period or the permission expires.”
“By reducing the implementation period to two years this would encourage more projects to be built quicker and create a greater supply of homes for agents to sell and let.”
Burkitt’s second solution is to reduce “the current number of stealth taxes levied on new build and conversion projects such as CIL and carbon tax contributions.”
“This, in turn, would make schemes financially viable and would bring more stock to the market.”
Speed and fairness
Another solution to boosting volumes, less frequently discussed, involves improving the efficiency of property transactions themselves.
“The government needs to follow through on its commitment to improving the buying and selling process,” says Tim Purnell of Move & Save. “By making it easier and less stressful for consumers to move home, this will, in turn, provide more business opportunities for estate agents.
Craig Vile, director of The ValPal Network, representing over 800 estate agency brands, makes a similar argument. “Overhauling the antiquated conveyancing process, which is responsible for lengthy delays and many fall-throughs every year.”
“Any solutions aimed at making this process more efficient should be championed and the government can help the industry by supporting any PropTech start-ups working in this space.”
Besides speed and simplicity, perhaps there’s also a point to be made about fairness.
After all, in England and Wales, for example, an offer isn’t legally binding until contracts are exchanged. This has created the potential for gazumping–that is, making a higher offer for a house than someone whose offer has already been accepted by the seller.
In my view, it makes sense to back a Scotland-style model whereby offers are treated as legally binding. This prevents buyers from being exploited.
Final thoughts
Importantly, the government needs to realize that its policies don’t have to take sides. Good legislation for the property sector isn’t about prejudicing landlords, tenants or estate agents so that a certain group can benefit.
Smart regulation provides a fair and level playing field for all and enables the market as a whole to thrive.