Phillip Hammond delivered his first Autumn Statement as Chancellor of the Exchequer on Wednesday. One of his announcements was of particular interest to our property lawyers – the proposed ban on upfront fees charged by letting agents “as soon as possible”.
It’s a saddening fact that homelessness in the UK is rising dramatically, with many arguing that the upfront letting agent fees are unfair on less affluent tenants and act as a bar from them being able to rent property.
They claim that the fees are unwarranted, and removal of them could bring about wider benefits to the housing market, arguing that:
- The two key tasks undertaken are contract negotiations and credit checks, however, they are often simply printed in a matter of seconds.
- It is also common for the fees to be levied on sitting tenants who simply want to remain in their home for another year.
- As rent prices continue to rise, evidence from Scotland suggests that the ban on fees kept rents lower than during the same period in England.
- The move could spur competition as landlords, unlike tenants, can shop around for the cheapest agent;
- It could be argued that agents have a monopoly on the situation, leaving tenants paying fees for the same basic service ranging from £40 to nearly £800 according to Generation Rent research. Because tenants have no say over which agent the landlord appoints to manage the tenancy, agents have a captive market that they can charge whatever they like.
However, many within the rental sector feel that these fees are justified, and a ban on them would do little to help tenants in the long run, arguing that:
- It takes an average of 17 hours per tenant to carry out the administration required, therefore the fees are entirely justifiable.
- Fees will simply pass to the tenant by other means – i.e. through higher charges to landlords who will pass on to tenants as rent.
- Fees acting as a bar from being able to rent a property is a relatively moot point when you consider that tenants are commonly required to pay one month’s rent and a deposit equivalent to one and a half months rent. Less well-off tenants can’t afford this anyway, regardless of the agent’s fees, which are a drop in the ocean in comparison.
- Unless letting agents are willing to ‘stomach’ the fees themselves it would not make any difference to how much tenants will end up paying.
It is also worth noting that the rental market is already expecting a substantial shake-up with new tax laws being phased in from 2017. The law will see landlords being taxed on their turnover rather than profit – essentially meaning that tax will be payable on non-existent income.
This, on top of the agent fees being transferred to the landlord, could result in many private landlords turning their back on the business and selling up. Ultimately it could reduce the number of rental properties available the result of which would force rents up anyway.
Speaking on the potential ban on letting agent’s fees, David Cox, managing director of the Association of Residential Letting Agents said;
“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.”