June 17 (Bloomberg) -- Managers of apartment blocks in Scotland became the third aspect of the U.K. real-estate market to be probed by the nation's antitrust regulator in the last five months.

The Office of Fair Trading said it's investigating the competitiveness of the property managers, known as factors in Scotland, after a complaint from the Scottish Consumer Council. The London-based regulator will look at how factors are chosen and the services they deliver, as well as the redress available to their customers.

"This study will take a detailed look at Scottish property management services, consider how well they are working for homeowners, and take a view on any recommendations which might bring positive outcomes for consumers,'' said Heather Clayton, the OFT's senior director of infrastructure, in an e-mailed statement.

The property market is under increased scrutiny as regulators examine the impact of the credit crunch on consumers. The Justice Ministry said in May that U.K. home-repossession claims by mortgage lenders rose 16 percent from a year ago in the first quarter, the steepest rise since the early 1990s.

There are 330,000 owner-occupied apartments in Scotland and an additional 85,000 rented, according to OFT statistics. The majority of the occupants deal with a private property manager. The average annual fee paid to factors is £100 pounds, said OFT spokesman Jonathan Marciano. They do work such as maintenance of stairwells and roofs.

House Prices

The Property Managers' Association Scotland Ltd., whose members manage as many as 150,000 properties, said it supports proposals to introduce regulation or accreditation.

"PMAS does not believe that choice is restricted given the ability of owners to terminate appointments,'' said Jamie Millar, the association's secretary, in an e-mailed statement. He said the association received approximately 200 complaints each year, ``most of which are mediated.''

House prices in Scotland are holding up better than elsewhere in the U.K. as homeowners are less leveraged. Prices at April 30 are 11.6 percent higher than a year earlier, according to Lloyds TSB Scotland, with values rising 1 percent in the six months to April 30. Donald MacRae, chief economist at Lloyds TSB Scotland, said he thinks prices won't fall in 2008.

The OFT's former head, Bryan Carsberg, said in a separate report released yesterday that real-estate brokers, renting agents and residential property managers should be licensed and hold special qualifications.

"I'm not surprised the OFT is doing this now,'' said Nigel Parr, head of competition at London law firm Ashurst LLP. ``Carsberg's report has just come out, signaling a need for more regulation, and the last time the OFT looked at estate agents in general it applied only to England and Wales.''

OFT Foxtons Court Case

The OFT's study, which will be issued by the end of the year, comes as the regulator is scrutinizing the U.K. sale and lease-back market, where homeowners sell their property at a discount on the condition they can remain as tenants. It also sued Foxtons, a real-estate broker, over rental contracts that require landlords to pay commissions even after the expiration of an initial lease agreement. The case is expected to reach court next month.

The regulator investigated real-estate brokers across England and Wales in 2004. Scotland, where the OFT opened an office last year, has different property laws. It doesn't have the leasehold system found in England and Wales, where apartments are leased to homeowners on long-term contracts that can run as long as 120 years.

"The SCC has expressed concerns about the current system of Scottish property factoring and welcomes the OFT's announcement,'' said Douglas Sinclair, chairman of the Scottish Consumer Council, in an e-mailed statement.

OFT market studies are general investigations into an industry it suspects may be uncompetitive. They can lead to formal probes, where the regulator pursues named parties.

Now they are staring into the abyss: on the one hand, rising mortgage costs and the disappearance of cheap remortgage deals are making it even harder for them to cover their costs through rental income alone, while, on the other hand, property values are tumbling below the prices paid, trapping them in negative equity.

Fears have also been voiced that small landlords facing falling capital values would decide to take the profits of recent years' strong price rises and leave the market, or simply panic and dump their properties on the market - either way further depressing property prices.

Digging in

But evidence on the ground suggests that, while speculative investors and some private landlords may be trying to get out, the great majority intend to remain in the market and ride out the downturn.

According to the review and index for the first quarter of 2008 produced by the Association of Residential Letting Agents (Arla): "Nine out of 10 investment landlords continue to state that they have no intention of selling their investment properties, should house prices fall. This majority proportion is virtually unchanged on the last quarter."

That's perhaps not so surprising, given that 80 per cent of the UK's private rental stock is owned by just 16 per cent of large landlords, according to the government's latest English House Condition Survey. Professionals with multiple portfolios built up over the years are relatively untroubled, and indeed "have weathered tougher storms" in the past, according to Steven Hilton of the National Landlords' Association (NLA).

They are not too worried about dips in the property market because they have already built up substantial capital gains within their portfolios. They tend to have strong ongoing relationships with their mortgage lenders, too, so they are able to get funding if they want to restructure or add to their holdings.

Small landlords may be more vulnerable, for instance if they borrowed most (or even all) of the cost of the property and cannot remortgage, or if they bought in an area of oversupply and rents do not cover the mortgage. But Arla spokesman Malcolm Harrison emphasises that most small landlords are doing okay because they are inherently cautious investors. Arla's data indicates that less than a quarter of landlords have loans to value (LTV) of more than 75 per cent, and the average is under 60 per cent.

And, adds Mr Harrison, most buy for the long term, holding their properties on average around 17 years. "Those with one or a handful of properties think of them as a pension or savings plan," he says. They want the property to cover its own costs, but their investment aims are focused on the long-term capital appreciation available.

"There may be some belt-tightening necessary if they have to get a new mortgage at a higher rate - profits could be eroded, and some landlords might even have to supplement the rent with other income to cover monthly payments," agrees Mr Hilton at the NLA. "But I guess most will take a long-term view and weather it.

"Vulnerability is not to do with the size of landlords' portfolios so much as their attitude." He points out that the casualties are likely to be the speculative investors who bought into "riverside schemes in northern cities" a couple of years ago (in many cases having been seduced by property clubs promising sure-fire returns). They borrowed almost the whole value of the property using the high LTV mortgages that have since evaporated from the market, charged high rents, and are now short on tenants and struggling to renew their mortgage deals.

New build is vulnerable, though

Hilton's view is supported by the results of a survey of 12 major cities conducted by property market data analyst Hometrack, highlighting the differences in rental increases according to location within the UK. Particular difficulties are faced by those who have invested in central developments in certain cities where an oversupply of new-build residential schemes is pushing both prices and rental income down. Liverpool and Nottingham, for instance, have seen rents fall by 2 or 3 per cent over the year to the first quarter of 2008.

Yet landlords in Manchester, Birmingham, Oxford and Cambridge have all enjoyed average rent rises in double digits over the past year. The survey found a 9.6 per cent increase in rents from the first quarter of 2007 to the first quarter of 2008. Other sources report even bigger increases in rent levels. According to data from specialist lender Paragon Mortgages, for example, rents rose 15 per cent over the year to March 2008.

Demographics offer support

In general, pressures on the UK rental market as a whole continue to work in landlords' favour. In part, rent levels are being pushed upward by demand from people who would otherwise have bought but prefer to stay out of the market in the current uncertainty; they may hope that prices fall further or that mortgage availability will improve.

So far, there has not been a huge slump in average property values; the March Halifax house price index shows that they are still marginally higher than they were a year ago. But, says John Heron, chairman of Paragon, this change in consumer sentiment towards the owner-occupier market has had a marked effect on the rental market.

Because the private rented sector is not huge - totalling around 2m dwellings - and people tend to stay in their rented accommodation for around 18 months on average, the pressure on the rental market is likely to continue to grow through 2008, says Mr Heron. He forecasts "probably the fastest increases in rent since the early 1990s". Richard Donnell, head of research at Hometrack, is somewhat less bullish, but he suggests rents could rise by 4-5 per cent this year as a result of increased demand.

There are other, more fundamental imbalances supporting rental growth. Despite the market correction, says Mr Heron, "the UK housing market continues to have a serious excess of demand over supply, bolstered by inward migration, by demographics such as the trend towards smaller households, and by a growing student population. None of those factors has gone away."

The combination of a strong rental market plus the opportunity to pick up new properties at good prices in this buyers' market are two good reasons why established landlords are unlikely to leave the market. Indeed, as Richard Donnell says: "Cash flow, in the shape of rental income, is king at the moment, so landlords are busy streamlining their portfolios, minimising the risk of void periods by taking profits on any properties that have proved hard to let, and reinvesting where they have had most rental success."

Spots to watch

Mr Donnell suggests that landlords looking to enter or re-enter the current soft market should avoid new-build properties because of the risk of oversupply. Crucially, they should look in areas with strong economies where the gap is greatest between average rents and comparable house prices: "The greatest potential for rental growth is in areas where rents are lowest compared with buying; once rents rise above 90 per cent of mortgage costs, tenants start to buy rather than rent at higher cost," he explains. Good options in this respect include Worthing, Hove, Brighton, Harrow and south Oxfordshire.

Loan supplies squeezed

Buy-to-let mortgages have certainly been brutally hit by the banks' new ultra-cautious attitude, according to Margaret Saunders from financial data provider Moneyfacts. "July last year seemed to be our peak number of buy-to-let products, when we were listing over 3,600. Today, we have just under 600 products."

"There are buy-to-let deals out there, but the lending criteria have been tightened," Mr Heron observes. "Most notably, the 90 per cent LTV deals that could be found before Christmas have all disappeared. The top LTV available is now 85 per cent." And lenders are continuing to reduce the proportion they're willing to lend. The latest Moneyfacts-listed lender to tighten up was Platform, which previously lent up to 85 per cent but will now only lend up to 75 per cent. But many others have already taken the same steps.

Other criteria have also become steadily tougher. Minimum rental calculation requirements have slowly been increasing, there are fewer specialised products and fees have been gradually increasing, says Ms Saunders. "Some lenders have also reduced the size and maximum advance on borrowers' portfolios," she adds.

Established landlords are much more likely to be in a position to meet lenders' stringent requirements; and they are the only ones still lending in this unsettled market - although many continue to sit on their hands and wait. "It would be an odd time for newcomers to jump in, although they may be watching and waiting for signs that prices are bottoming out," says Mr Heron at Paragon. Of course, calling the bottom of any market is notoriously difficult.

The bottom line, however, is that, notwithstanding the disaster stories, landlords are not flooding out of the market; and, in due course, those with access to funding may go bargain-hunting in a buyers' market. "The fundamentals, in terms of tenant demand, remain good," stresses Mr Hilton at the NLA. "But we don't want the increase in rental demand to be seen as carte blanche for the rise of irresponsible landlords."

Speaking at the AGM of the ARLA Essex Region recently Ian Potter, Head of Operations, said, "Until we have a licensing regime that covers every letting agent, it is for ARLA members to educate the public into the dangers of losing rents and deposits and the possible mismanagement of valuable properties.

“There is too much money, heartache and property at stake for this to be left any longer.”

Potter pointed out that ARLA has been lobbying successive governments to introduce licensing for many years.

He added: “So far, government has been content to leave it to ARLA to self-regulate the Private Rented Sector. We cannot do all this alone. We can only regulate out own members and lead the way by example.”

At the Essex area AGM, held at the County Hotel, Chelmsford, Potter listed the questions that every landlord and tenant should be taught to ask a letting agent.

He said they should ask: “Are you members of a professional body? Do you maintain separate client accounts? Are you bonded? Do you hold professional indemnity insurance? Are your staff qualified? Are you joined to a tenancy deposit protection scheme?”

Potter continued: “Tell every landlord and tenant that they must ask these questions of their letting agent and to only use them if they can answer yes to all these questions.”

He said that it is down to every ARLA member to step up their efforts to educate the public in their own locations and to ask their landlords and tenants to lobby their MPs for the licensing of letting agents.

“We must get the public to join in the fight for the licensing of letting agents,” Potter concluded.

With the global credit crunch and housing market slowing down, times are hard for estate agents. But given their reputation - will anyone actually care?

"Sympathy" and "estate agent" are not words often found in the same sentence.

Characterised as pushy and insincere, the good ones, just like journalists and politicians, are viewed as the exception rather than the rule.

But given the doom and gloom headlines about the housing market, how badly are they suffering?

As they depend so directly on sales, the fall in mortgages does not make happy reading. Between November and February, the monthly figure for mortgages on new homes fell from 80,000 to below 50,000, according to the Council of Mortgage Lenders (CML).

It's tough out there, says Peter Bolton King, chief executive of the National Association of Estate Agents, but save your sympathy because it's only the bad ones who are going to the wall.

"Estate agents offering a good service, qualified people who know what they're doing and employ quality people, they always rise above others in this kind of market. The cream rises to the top.

"So far the people closing offices and laying off staff, the feeling I'm getting is it's not our members - it's not the older established agents - it's those who set up in the boom period and thought 'Anyone can sell property'.

"I don't have massive sympathy for those who aren't doing a proper job."

Knowledge base

Overall it's a mixed picture with agents in some areas prospering and some not. Lettings are doing well but the corporate sector has wielded the axe, with big names like Countrywide among those closing offices in this sector.

They may be taking home less money than they need to pay the mortgage, with the obvious irony that entails Henry Pryor, ex-estate agent

"A lot of estate agents haven't seen this sort of slower market before, and it will come as a shock to them. But it shouldn't because it means it's a proper negotiating, selling market when you have to know what you're talking about."

He is confident the market could pick up again soon because - unlike in the crash of the early 90s, when interest rates and unemployment were high - there are plenty of people eager to move.

A bleaker picture is painted by Henry Pryor, a former estate agent and housing expert, who says that with sales falling so dramatically, it's a desperate situation for people dependent on commission.

"A lot of estate agents are paid a basic salary and a performance bonus.

"Through no fault of their own, they will not be doing the business they would expect to be and this will have very serious repercussions on relationships and marriages because they may be taking home less money than they need to pay the mortgage, with the obvious irony that entails."

HOW MANY ARE THERE? It's unlicensed so no set figures About 35,000, excluding those working in administration About a third are members of National Association of Estate Agents Will mortgages queues return?

And with banks reluctant to lend money and withdrawing products, even if an estate agent does his job and matches a buyer to a seller, it's still in the lap of the gods whether it goes through, says Mr Pryor, because the buyer may not get a mortgage.

Although some expect this tougher climate to soften the approach of agents, he expects they will actually become even keener to close deals.

"But it's highly unlikely we will change the public perception of the industry just because we should feel sorry for them. That would be a Damascene experience."

And we shouldn't forget the other professions affected, he adds, like removal firms, builders and joiners.

Glass half-full

But estate agents are such optimistic people (or great actors), says property blogger Ben Brandt, that you won't find any of them feeling sorry for themselves.

You quickly forget what they've done for you when you sign on the dotted line Ben Brandt Property blogger In defence of estate agents

Despite that, he says, it might be time to reassess their reputation because it's unfair.

"You quickly forget what they've done for you when you sign on the dotted line and then you're faced with the huge commission bill."

Make it up to them. If you see an estate agent this week, smile.

Add your comments on this story, using the form below.

We tried to buy in Hertfordshire, but the agent lied to us about the property and then did not pass information to the sellers (turned out they didn't own their garden and our offer was conditional on this being sorted out - estate agent told us it was being sorted out and didn't tell vendors there was a problem. Tried to buy a property 200 miles away, arranged appointment. Estate agent didn't bother to tell us that buyer had accepted another offer, so we travelled to a house that was already sold. Fortunately we'd also arranged another appointment for the house we ended up buying with another agent. They're not getting much sympathy from me.
Nathan Phillips, Utley, Yorkshire, UK

Having an estate agent on your side is a fantastic asset. Buyers have to understand that in order to get the estate agent working for you you have to also invest in the relationship. They also need your trust and see that you're not just a timewaster. I have an estate agent to thank for looking out for me.
Josh Dhaliwal, Brighton, UK

I have no sympathy for the vast majority of estate agents. Unscrupulous agents are responsible for vastly inflating the cost of housing simply to line their own pockets. Why should I feel pity for them because the bubble they helped to create has burst? Also, I used to have to deal with estate agents regularly in my work for a training company and many were among the most arrogant and unpleasant people I've ever met. That said, some agents are reliable, honest and hardworking - hopefully these agents will be the ones to survive.
Stevie Bee, London, UK

I shed no tears for Estate Agents who are now not getting as much commission. In the same way that self-employed people will put money to the side for leaner times, so should anybody largely relying on commission. They've earned loads of money in the last 15 years: they should have invested it, rather than blowing it on flashy cars, strutting around with ridiculous expensive haircuts and bling "Yeah, it's a real diamond in the earring" (and I'm just talking about the fellas!).
Steve Lockwood, Norwich

No, they are partly to blame for excessive house prices by years of over-valuing. They are now going to reap what they have sown.
Char, London

We all have to make a living some how, few people leave school and think - I know I'll be an estate agent! It's just one of those things you fall into out of necessity. Estate agents are onto a looser from the off - caught in between buyers that generally lie to drive a good deal and sellers that use them to do their bidding (which is fine that's what they pay for) however ridiculous the demands. It's easy to be a hard unreasonable negotiator through a third party - which is often where the problems begin - and of course the blame is always laid on the estate agent. so....HUG AN AGENT TODAY they need all the love you can give them.
James, Tring

I have no sympathy at all for estate agents. When house prices were rapidly rising they didn't drop their percentage so have been making thousands of pounds more from each sale purely due to a bouyant market. We've just sold our house and the agent took 1.65% for doing barely anything - a complete rip off.
Michelle, Cardiff

From my experience - five house purchases and four house sales since 2000 - estate agents are an expensive irrelevance. In every move, my wife and I have done the lion's share of the chasing, dealing, and indeed negotiating with our buyers and the people we were purchasing from. We have never engaged the same estate agent twice - what does that tell you? And we have always gone for the "established estate agents" - members of the National Association of Estate Agents. So don't come the old china with us. I know some estate agents socially and as a species they are simply out there to cream off a slice of cash when house buyers and sellers are at their most vulnerable.
Chris E, Southampton