Letting agents and landlords warn of higher rents if Chancellor Philip Hammond pushes ahead with a draconian ban on letting fees for tenants in England in his Autumn Statement, as reports suggest he will. Instead, the government looks set to transfer the burden of fees to landlords.
Renters can face letting fees running into hundreds of pounds. There are 4.3 million renting households in England, and 76% of them have lived in their home for fewer than five years, suggesting many move often, paying fees each time
The English Housing Survey shows the median letting agent fee in 2014-15 was £223, up 60% over five years. But research by the Citizens Advice Bureau found letting agent fees as high as £700.
Fees cover a wide range of administration costs and services, such as inventory and reference checks, and drawing up a tenancy agreement. Critics accuse letting agents of jacking up fees arbitrarily for their own gain, exploiting tenants.
A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market, said David Cox, managing director of the Association of Residential Letting Agents (Arla).
It will be the fourth assault on the sector in just over a year, and do little to help cash-poor renters save enough to get on the housing ladder. This decision is a crowd-pleaser, which will not help renters in the long-term. All of the implications need to be taken into account.
Cox claimed most letting agents do not profit from the fees they charge, citing Arla research showing the average fee charged by its members is £202 per tenant which we think is fair, reasonable and far from exploitative for the service tenants receive.
These costs enable agents to carry out various critical checks on tenants before letting a property, Cox said. If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents. The banning of fees will end up hurting the most, the very people the government intends on helping the most.
In its campaign against letting fees, the Citizens Advice Bureau argued landlords are better placed to pay the fees than renters, who are under pressure to secure a home quickly and so cannot shop around as easily, encouraging competition.
Landlords are better able to choose agencies based on performance and cost and it should therefore be landlords paying letting agent fees, not tenants picking up these rising costs, said Gillian Guy, chief executive of the Citizens Advice Bureau.
But Richard Lambert, chief executive of the National Landlords Association (NLA) accused the chancellor of failing to understand the private rented sector. The new chancellor is clearly aware of the pressures facing those living in the private-rented sector, but in attempting to improve affordability he has shown that, like his predecessor, he lacks an understanding of how the whole sector works, Lambert said.
Theres no doubt that some unscrupulous agents have got away with excessive fees and double-charging landlords and tenants for far too long. Banning letting agent fees will be welcomed by private tenants, at least in the short-term, because they wont realise that it will boomerang back on them.
Agents will have no other option than to shift the fees on to landlords, which many will argue is more appropriate, since the landlord employs the agent. But adding to landlords costs, on top of restricting their ability to deduct their business costs from their taxable income, will only push more towards increasing rents.
Arbitrary bans sound appealing as a quick fix, said Richard Price, executive director of the UK Association of Letting Agents (UKALA), but the problem of affordability in the private-rented cannot be addressed by preventing legitimate businesses from charging for their services.
A ban on agent fees may prevent tenants from receiving a bill at the start of the tenancy, but the unavoidable outcome will be an increase in the proportion of costs which will be met by landlords, which in turn will be passed on to tenants through higher rents.
UKALA agents strive to provide a premium service which represents excellent value for money and this ban will place in jeopardy hundreds of professional businesses in order to deal with the few unscrupulous.
Letting fees for tenants are already banned in Scotland. Research commissioned by the housing charity Shelter into the impact of the ban concluded that Scottish landlords were no more likely to have increased rents since 2012 than landlords elsewhere in the UK and that only one landlord in 120 surveyed said they had noticed an increase in agency fees and had passed this on in full to their tenants.
But parliaments Communities and Local Government (CLG) Committee found in a 2015 report that the impact of the ban was unclear. Even if a ban is shown beyond doubt to lead to higher rents, it should not be ruled out, said Clive Betts MP, chairman of the committee.
It may enable people to spread the costs of renting more comfortably across the duration of their tenancy. But the impact on rents is just one factor to consider. A decision whether or not to recommend a ban on fees should depend not only on its impact on rent, but on benefits in terms of consumer confidence and market transparency.
