How will the proposed letting agent fees ban impact the market?

October 25, 2017

Following the announcement of proposals to ban tenant fees in the Queen’s speech earlier this year, we consider the impacts the planned legislation is likely to have on different parties in the buy to let market.

Positively

The Tenant’s Fees Bill has been proposed to promote a greater level of transparency in the housing market.

Currently fees are paid by tenants to the letting agent for taking references, getting credit checks or investigating immigration status. The average amount paid is currently £223 according to government figures, however housing charity Shelter found that one in seven renters pays more than £500 and tenants in London have complained about fees of up to £2,000.

The disparity between these figures provides an indication in to the hugely varying amount that tenants are charged. Separate research by Citizens’ Advice found that 42% of people paying letting agents’ fees had to borrow money to pay them.

With rents continuing to increase, tenants are in tight financial situations and the removal of the additional burden of paying letting agents fees would be welcome news for those renting in England. 

Letting agents fees to tenants have already been banned in Scotland. A report by Shelter suggested that despite the worries of how the ban could have a negative impact, rises in rents had been ‘small and short-lived’ in Scotland. Furthermore, landlords in Scotland were no more likely to have increased rents since 2012 than landlords anywhere else in the UK.

Campbell Robb, Shelter’s chief executive, has said that banning them elsewhere was welcome.

“Millions of renters in England have felt the financial strain of unfair letting agent fees for far too long, so we are delighted with the government’s decision to ban them. We have long been campaigning on this issue and it is great to see that the government has taken note,” he said.

The ban is not one sided however and is also being considered to prevent landlords being hit with dubious fees. The effort to create more transparency means landlords can easily shop around for an agent to provide the quality of service they want at a reasonable price. This in turn will lead to an increase in competition between letting agents and hence could lead to a fall in prices – a positive for both landlords and tenants.

Negatively

Some experts argue that a ban on letting agents’ fees means that landlords will be required to cough up for the extra costs and that this is most likely to be through higher rents.

Many individual landlords already have a number of costs, including mortgage payments, insurance, service charges and tax changes and the addition of extra costs incurred because of the letting agents’ fees ban could be a deterrent to those considering investing in the private rental sector.

As a result, it is predicted that rents could rise by £103 per tenant per year and there are claims that the ban contradicts the Government’s aim to encourage longer term tenancies.

The industry has reacted strongly to the proposed ban with many arguing that administration has a cost. There has been an alternative suggested in the form of stronger consumer protection through regulation of the sector rather than an outright ban.

Furthermore, ARLA Propertymark has found that the new rules could cost up to 4,000 jobs.

There are also concerns that the ban in England could lead to unintended consequences such as tenants on low income being impacted if agents choose to only reference potential tenants who are a ‘safe bet’ due to taking on these costs themselves.

David Cox, managing director of the Association of Residential Letting Agents (ARLA), said: “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.”