Using a letting agent vs letting a property without an agent
With over 400 rules and regulations governing the letting and managing of property in the UK, choosing whether to use a letting agent or to self-manage your property is a decision that should not be taken lightly.
Property expert Kate Faulkner explores the pros and cons of lettings agents and shares her advice for finding a good agent.
- Rules and regulations for letting property in the UK
- Letting a property without an agent - top 3 pros & cons
- Using a managing agent - top 3 pros & cons
- How much do letting agents charge?
- The best letting agents
- Letting agent regulation
Rules and regulations for letting property in the UK
Many of the rules for landlords concern the health and safety of tenants, and the penalties for breaking the law – even unintentionally – can be severe. For example:
- If you don't maintain the property as you should, your tenant can take you to court
- Your local authority has the power to fine you up to £30,000 for each regulation breach without even going to court
- In the most serious cases, you could receive
- an unlimited fine
- a banning order preventing you from ever letting property
- prison time
Importantly, everyone involved in the industry must be able to stay up to date with both new legislation and changes to existing laws. In just two years, from April 2018 to April 2020, 14 pieces of lettings legislation came into force – there always seems to be something under consideration by the government. And during the Coronavirus stay at home measures, the government introduced 21 pages of guidance, including a temporary extension of eviction notices.
So, if you're trying to decide between self-managing and using an agent, the legal side of things should be one of your biggest considerations.
But there are many other things to think about as well. Here are our top 3 pros and cons for letting and manging yourself versus using an agent:
Letting a property without an agent - top 3 pros & cons
- You're in control. Some people like the idea of being able to choose the tenant themselves and build a relationship with them. If you're making the periodic checks and handling issues yourself, you'll always know what's going on with your property investment.
- You don't have to pay agent fees. Price packages will vary, depending on the level of service you choose, but you can expect to pay between 12% and 20% of the total annual rental income for a full letting and management service. So, if your property is let for £800 pcm, that's between roughly £1,150 and £1,900 you could save every year by going DIY from a 'gross' perspective. But don't forget, letting fees are tax deductible, so this saving is 20-40% lower, depending on the tax bracket you are in.
- It could become a rewarding career. If you take the time to learn everything required to operate a professional let, you'll naturally build a local network of contractors, suppliers and other landlords. That could lead to a variety of opportunities within the industry (subject to fulfilling any necessary registration, training, licensing, accreditation and insurance requirements, etc.).
- It can be very time-consuming. You've got to advertise, handle enquiries, conduct viewings (and not all tenants turn up!), administer the let, then deal with all the property maintenance and management issues. That can take a huge amount of time and effort, particularly when it's things you haven't done or come across before. If you put a price on your own time, it could end up 'costing' you more than using an agent and if you work full time, it may not be practical.
- You're entirely responsible for being legally compliant. You must be able to keep up with all the latest legal changes regarding letting and managing a property. You've got to know about the laws, understand what you need to do and be able to implement them as required. And if you get them wrong, it could prove expensive for you.
- Evictions are not straightforward! There are specific processes – paperwork and timescales – that must be adhered to if you need to evict a tenant. Any errors on your part could mean you have to start the process again from scratch or you may even find you're not legally able to evict the tenant at all. And these rules changed temporarily during Coronavirus and are due to change in the coming years, making it harder to evict tenants.
Using a managing agent - top 3 pros & cons
- They are experts. Qualified letting agents that belong to a trade association are letting and managing properties day in, day out. The best ones are experienced, well-trained and supported by professional industry bodies, so you can be confident your property is always legally let at the best market rate and properly managed. (See The best letting agents below.)
- They have solid systems and procedures. Good agents know exactly what needs to be done, when and how, and will have a reliable network of suppliers and contractors. They can generally deal with things much more quickly and efficiently than an individual landlord.
- You've got an objective 3rd party between you and your tenant. If there are problems during the let, an agent who's experienced in negotiating and dispute resolution can act as a buffer between you and your tenant.
- The cost. While the best agents are worth every penny, you've got to pay for their service. In addition to a percentage of the monthly rental income (commonly between 12% and 20%), there may be an initial set-up fee, a fee for tenancy renewals and possibly further separate charges, such as for Right to Rent checks. (See How much do letting agents charge? below.)
- Repair and maintenance works may have an added premium. Some agents charge a fee for arranging repairs and some apply an additional charge to third-party services, such as Energy Performance Certificates and Gas Safety Certificates.
- You're reliant on them doing their job properly. If you're not careful about choosing your agent and they get things wrong, you may not find out until there's a major problem with the property or the tenant, which could put you in a difficult position, legally and financially.
How much do letting agents charge?
Letting agents are legally obliged to clearly advertise the fees they charge. The cost can vary considerably, depending on where you are in the UK and how individual agents choose to structure their fees.
For a full letting and management service, you should expect to pay:
- An initial set-up fee for marketing the property and securing the tenant – commonly the equivalent of one month's rent
- Somewhere between 12% and 20% of the monthly rent for ongoing management (including rent collection), depending on where the property is and what's included
You may also be charged separately for:
- Right to Rent checks
- Deposit protection
- Arranging repairs
- Third-party service premiums
So, make sure you understand exactly what's included and, importantly, whether VAT is included. And check how they keep up with letting legals, be very wary if they are not qualified and don't belong to a recognised trade association.
Whatever fees and charges you're quoted, it's always worth negotiating. Lettings is a competitive market and every agent wants your business, so don't be afraid to haggle!
The best letting agents
Although there is currently no regulation of letting agents in England (see below), most agents – and certainly the best ones - are members of one of the three main self-regulatory industry bodies:
- Association of Residential Letting Agents (ARLA)
- UK Association of Letting Agents (UKALA)
- Safeagent (formerly the National Approved Lettings Scheme)
Member agents are held to a code of practice and are supported in training their staff and keeping up to date with legal changes. All the industry bodies have legal helplines should agents need any advice.
In addition, by law, all letting agents must:
- Have Client Money Protection (CMP)
- Belong to one of the two government-approved redress schemes
The COVID-19 crisis put the property industry under a huge amount of financial pressure, so it's never been more important to make sure that your agent has CMP. If they go bust mid-tenancy, you've got to be sure the money they're holding for you and your tenant is protected.
And with letting agent regulation in England on the horizon (see below) and private tenancies now lasting more than 4 years (EHS 2018-19), you've got to make sure whoever's looking after your investment is qualified, professional and protected. So, check that your agent is a member of an industry body, has CMP and belongs to a redress scheme. If they don't tick all three boxes, then move to an agent that does.
Letting agent regulation
In July 2019, the Regulation of Property Agents (RoPA) - a working group of professionals and businesses within the property industry, that had been convened by the Housing Minister - presented a report to the government recommending that:
- All agents should have to be qualified
- All agents should have to follow a Code of Practice
- A regulator should be created to ensure all agents comply with the rules and what is legally required of them.
Regulation is likely to be introduced shortly, but no date has been confirmed yet.
Since November 2015, all letting and managing agents in Wales have had to be licensed and complete approved agent training. As a minimum, they must also have:
- Professional Indemnity insurance
- Membership of a consumer redress scheme
- Client Money Protection insurance
You can check the register of agents via the Rent Smart Wales website.
Under the Letting Agent Code of Practice legislation, it's been a criminal offence since 1 October 2019 for letting agents to operate without being on the Scottish Letting Agent Register.
The Code of Practice requires that agents:
- Are deemed a 'fit & proper person' to let and manage property
- Identify who within the business requires the specified qualifications and training
- Belong to a Client Money Protection (CMP) scheme
- Hold Professional Indemnity insurance
Agents must also put their unique letting agent registration number on all their communications and advertising. If your agent isn't displaying their number, you can search the Letting Agents Register to make sure they're on it.
Kate Faulkner is one of the UK's leading, independent property experts and regularly features in major newspapers, on the BBC and ITV, as well as regularly co-hosting the Property Show on LBC.