Industry blasts 'draconian' ban on letting agent fees

Theresa May had voted against it, housing minister Gavin Barwell called it a “bad idea”. Phillip Hammond thought it was a good idea and today announced that he would impose an outright ban on letting agent fees charged to tenants in England.

Related topics:  Landlords
Warren Lewis
23rd November 2016
Gov
"A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market"

As predicted, the industry was quick to react. Here's what they're saying:

Richard Lambert, Chief Executive Officer at the National Landlords Association (NLA), said: “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.

There’s 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 won’t 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”.

David Cox, Managing Director, Association of Residential Letting Agents (ARLA), had this to say: “A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market. 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.
 
Most letting agents do not profit from fees. Our research shows that the average fee charged by ARLA Licenced agents 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. 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.”

Russell Quirk, CEO, EMoov, had this to say: “Today’s announcement on rental fees is nothing more than opportunistic tokenism and surprisingly is stolen straight from Labour’s manifesto. Interestingly the Chancellor’s own Housing Minister, Gavin Barwell, described banning lettings fees as “a bad idea” as recently as September.

It is ironic that the Government should be turning its guns again on the private rental sector, given that the absence of Government action in building affordable homes to rent in the social housing sector has led to private landlords having to fill the gap on their behalf.

A ban on tenancy referencing fees is great on the face of it but the reality is that the agent will make their money regardless and this will be passed onto the landlord and in turn the tenant through higher rents. We’ve seen the same thing happen in Scotland whereby the landlord must charge more to the tenant in rent to cover the increase charged by the agent, you would think the Government would have known this.”

Richard Price, Executive Director at the UK Association of Letting Agents (UKALA) said: “Arbitrary bans sound appealing as a quick fix, 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”.

Bob Young, Chief Executive Officer of buy-to-let lender, Fleet Mortgages, said: “The problem we have here is that some letting agents are indulging in poor practices which have highlighted this as an issue. Listening to the debate, and from my own experiences, there seems to be a wide range of charges for tenants so some standardisation would be useful. It seems that some letting agencies charge what they can get away with which must put off some people from renting and that can't be good. Letting agents can also be conflicted as they charge both the landlord and the tenant; not many firms have this as a business model.

Given the likelihood these charges will now have to be paid by the landlord, they will be able to offset letting charges against tax. I’m not completely convinced these measures will result in an increase in rents as typically landlords charge what the market will take and that may not allow an increase.

Overall the private rental sector has good landlords, good tenants and good letting agents. Unfortunately it also has poor landlords, poor tenants and poor letting agents and these latter elements need to be dealt with.”

Paul Smith, CEO of haart estate agents, said: “Today’s news of a ban in letting agent’s upfront fees is yet another unwelcome and haphazard government intervention in the rental market, which will sadly only lead to a backdoor rent rise for tenants. The cost of administration such as references and inventories that tenant fees would have previously covered are now likely to be passed onto the tenant through their rent. We estimate that rents will on average increase by £21.25 per month, which is an extra £255 a year, as a direct result of this change – with tenants in London likely to be much worse off.

This measure represents yet another government blow for landlords, following the 3% stamp duty surcharge on second homes, the end of mortgage relief and the new rules on lending relative to rental income that have already come from the government in the last year. Landlords are already abandoning more expensive cities such as London because of the costs, even though this is exactly where more rental properties are desperately needed – this announcement is hardly going to persuade them to return.  

The buy to let market is suffering, with haart data showing that the number landlords registering to buy has fallen by 25% annually across the UK, and by 60% in London. We’re creating a time bomb for Generation Rent by pushing landlords out of the market, as well as undermining housebuilders’ pipelines by cutting demand.  The government should concentrate on getting the market moving again, not penalising landlords, and we cannot wait until the situation on the ground reaches a crisis point.”  

Nick Leeming, Chairman at Jackson-Stops & Staff, said:  “While the announcement of the abolishment of lettings fees appears to be good news for renters, experience shows that any savings to the tenant will likely be passed on to the landlord who in turn could then pass them back on to the tenant through increased rent as they seek to cover their costs. This legislation is short sighted and is yet a further challenge to landlords who have faced a barrage of increased costs over recent months, including the additional 3% SDLT levied when they purchase a rental property and also the abolishment of mortgage interest rate relief which is set to commence in April next year.

While the ban on lettings fees still requires a Government consultation before it is implemented, its impact on the UK housing market could be far reaching. Affordability issues which surround purchasing homes means that for many, the only option is to rent. We’ve seen a consistent reduction in the number of landlords buying investment properties since April this year which means that fewer rental properties are now coming on to the market to serve the growing rental population.

A better solution would have been to create a more competitive fee environment and ensuring that landlords are not further discouraged from the market.”

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