"For many tenants, buying a property simply isn’t an option, and they must depend on the private rented sector to provide security, good standards and fundamentally, a home"
ARLA Propertymark has worked with leading research consultancy Capital Economics to explore the impact a ban on letting agent fees would have on rent costs, letting agents, the private rented sector and the wider economy.
Impact on rents
Letting agent fees account for around a fifth of letting agents’ revenues, and cover the cost of vital checks required to set up a tenancy agreement. If they are banned outright when the Government publishes its consultation, agents will need to pass the costs on to landlords through higher agents’ fees. Two in five landlords (41 per cent) expect they will need to pass on a portion of the inflated cost to tenants, and the research finds they will most likely push rents up by £103 on average per year. If landlords were to pass on the entire uplift in agents’ fees, tenants would be hit harder, typically seeing rent increases of £275 a year.
This will hit long-term tenants the hardest. Based on an average rent increase of £103, those in tenancies 10 years or more will lose out by £755. However, those who move every six months will pocket £4,463 over a ten year period.
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Net impact on savings for tenants over a ten-year time period, by how often they move |
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Frequency of moves, every …. |
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|
6 months |
1 year |
2 years |
5 years |
10 years |
|
|
Saving (as not paying fees) |
£5,493 |
£2,747 |
£1,373 |
£549 |
£275 |
|
Rise in rent (if increase £103 per year) |
£1,030 |
£1,030 |
£1,030 |
£1,030 |
£1,030 |
|
Net impact on savings |
£4,463 |
£1,717 |
£343 |
-£481 |
-£755 |
Impact on letting agents
The lettings sector employees around 58,000 people across the country. If letting agents take the full hit of the letting agent fee ban, 16,000 jobs will be at risk. It’s more likely however agents will pass on 75 per cent of the costs to landlords, which would result in job losses of around 4,000.
Impact on the sector
As landlords try to recoup the costs passed on through increased agent’ fees, they will implement several coping mechanisms, including:
• Not buying any more rental properties (27 per cent)
• Selling some rental properties (20 per cent)
• Reducing use of letting agents (eight per cent)
• Spending less on property maintenance (seven per cent).
Private landlords are an important source of investment in the housing market, and a worsening of their financial position will result in less investment. The rental market is already under huge pressure to increase housing stock to offset rising demand; any further hits to limited stock will put more upward pressure on rents as competition between prospective tenants heightens.
In Scotland, letting agent fees were banned in 1984 and officially clarified in the Private Rented Housing Act of 2011. This meant that tenants were only accountable for the rent and deposit, and everything else would be charged to the landlord. However, this has resulted in many agents carrying out less of the tasks they were doing previously. Worryingly, one in four said they no longer do credit checks as standard.
Impact on the wider economy
The Exchequer is in receipt of £400m in employee taxes from letting agents which is at risk if there is a hit to employment in the sector.
Further, letting agent activity supports a huge range of jobs through spending with suppliers, such as maintenance firms and legal firms, which will all be put under pressure if activity falls. Using Government data, we estimate that letting agents spend around £1.4 billion annually on goods and services such as accountancy and legal fees, building supplies and Government services. Overall the spending on suppliers supports around 17,000 jobs indirectly across the UK and £1.1 billion of value added.
International comparison
The fees charged by UK letting agents are lower, compared to other major economies. In France, higher-end agency fees are at 12 Euros per square meter, or £416 for a 40 square metre Parisian apartment, and across the pond in the USA, fees equate to a month’s rent – $1,404 or £1,132 on average.
David Cox, Chief Executive, ARLA Propertymark commented on the findings: “The lettings sector is worth about £4 billion and employs around 58,000 people all over the country. The Government’s Autumn Statement announcement that it plans to ban letting agent fees was the third big blow in as many years for agents, and exacerbate the threat to the private rented sector; an increasingly important tenure on which millions of people rely.
For many tenants, buying a property simply isn’t an option, and they must depend on the private rented sector to provide security, good standards and fundamentally, a home. Our findings show that landlords are likely to raise rents as a result of the ban on fees. Those tenants who move least frequently, which tend to be lower income families, will be worst hit by rent rises. This is ironic and shows that there will be unintended consequences to what, in effect, is a crowd-pleasing, populist policy.”
