Ban on Letting Agent Fees – Should I be worried?

Ban on Letting Agent Fees – Should I be worried?

MARLA and MNAEA qualified City Lettings director, Phil Shaul takes a look at the recent ban on letting agent fees, exploring who should be worried and whether City Lettings will be impacted.

I suppose the simple answer to the question, “should I be worried about the ban on letting agent fees?” is that it depends on who you are.  If you are a landlord you will have a different view to a tenant, or to a letting agent or to the government.  In a brief blog I will try to take a quick view point from all four.

Letting Agents

Letting Agents are worried.  A total ban on tenant fees will be disastrous for some agents, particularly the ones who charge too much and are heavily reliant on the tenant fees within their business model.  These agents will struggle to adapt and may even go out of business as they will have the same administration to do but with less income.

Industry specialists and the press say agents will pass the tenant charges on to landlords and landlords will pass it back to the tenants in the form of higher rents, but there will be a point where some landlords will say enough is enough and decide to do things themselves.  In this instance the letting agent may not only find their business model under pressure but also their business volumes.  It is testing time for agents and many will have to adapt or go out of business.

The good news for City Lettings customers is that we have historically been one of the cheapest agents for tenant fees in Norwich and our business model is not as reliant as most and we are confident that we can thrive in a market place where most will struggle and we see this as an opportunity to grow our business not shrink it.

Landlords

Landlords are worried.  In 2016 they have been hit with changes to taxation, stamp duty on buy-to-lets, more legislation and now the prospect of agents charging them more.  I believe one thing is correct if more charges are passed to landlords then rents will rise.

I enjoy my maths and I have worked out that simply by putting up rents by £25 per month the annual income for the landlord would increase by £300, spookily this is the equivalent to what City Lettings charge two joint tenants in application fees.  Therefore if this charge were passed on to landlords and the agent can get the landlord £25 per month extra in rent then both the agent and the landlord should be happy.

Tenants

Some are over the moon and some are worried.  Shelter and other bodies campaigned hard to get this ban and I commend them on their efforts, however, I have a saying, “be careful what you wish for”.  As I said earlier industry experts and the press say rents will rise, why would tenants be happy about this?  I keep seeing that the ban in Scotland has had little affect and then I see that rents are rising faster in Scotland than anywhere else.  Who should we believe?

You can see from my maths above that it doesn’t take a big increase in rent for the fees to be clawed back and if I were a tenant I would rather pay £300 every 18 months or 2 years (the average length of tenancy) than an extra £25 per month for the duration of the tenancy.  This time you do the maths!

I think tenants who are over the moon are being naive and perhaps are not seeing the bigger picture.

The Government

They must be feeling great, they have announced a real crowd-pleaser amongst a gloomy Autumn Statement, a money saving scheme for 5.4m households, a vote winner!  Well may be not all the government are feeling great, Gavin Barwell, the Housing Minister described a ban on letting agent fees as a “bad idea” only as recently as September.  Did Philip Hammond consult with him before announcing the ban?

I am not sure the government are seeing the bigger picture.  The private rented sector props up housing in the UK.  Without the millions of rental properties in the UK the housing market would collapse overnight and with the government struggling to meet its new homes targets then are they simply “biting the hand that feeds them” by making it harder to manage rental properties.

In addition, as stated earlier if agents try to pass fees to landlords then some landlords will decide to do things themselves.  Now here’s my problem with that and it has nothing to do with me losing business.  I have letters after my name and get regular legislation updates from my professional body, legal helplines and through ongoing training and despite this I struggle to keep track of all of the changes and myriad of red tape we come across on a daily basis when letting a house.  How the hell will a private landlord with no training comply with all the legislation, will he be able to get someone out on a Sunday night when water is coming through the ceiling, will he inspect the property regularly, serve the correct legal notices and will he carry out the Right To Rent checks? Put simply the government has failed to realise that letting agents do a valuable job which unfortunately comes at a cost and by banning fees they will be contradicting one of their objectives which was to raise standards in the industry.  As I said earlier, “be careful what you wish for”!

In Summary

We don’t quite know how this will pan out but there are lot of anxious people about.  Surely the government should have announced a “review of letting agent fees”, the word “ban” is rather final! Hopefully common sense will prevail and the tenant fees will be capped at a level which keeps the agents in business and stops tenants being ripped off by rogue agents.  As always, when choosing an agent, always choose an ARLA (Association of Residential Letting Agents) licensed agent to ensure the best possible professional standards.