Ban on letting agent fees will push rents up, industry warns

Yesterday’s announcement on a ban on letting agent fees by Chancellor Philip Hammond could well lead to a sharp rise in rents, according to the property industry.

Mr Hammond claimed in his Autumn Statement that this ban will assist 4.3 million households in private rental housing by preventing upfront fees. Citizens Advice state that these fees average out at £337 and according to Shelter, one in seven pay upwards of £500.

Passing on fees

However, the National Landlords Association feels that these fees will now be absorbed by landlords, who in turn will pass them on to tenants in the form of higher rents.

Richard Lambert, chief executive officer at the National Landlords Association, 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 show that, like his predecessor, he lacks an understanding of how the whole sector works.’[1]

‘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,’ he added.[1]

Ban on letting agent fees will push rents up, industry warns

Ban on letting agent fees will push rents up, industry warns

Rent rises

Richard Price, executive director of the UK Association of Letting Agents, also feels that rents will rise as a result of the changes. He feels those with landlord insurance on a property will be left with little alternative.

‘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,’ Price observed.[1]

John Eastgate, sales and marketing director of OneSavings Bank, agrees: ‘Letting fees have inflated beyond reason in certain parts of the country, so scrapping them has all the markings of a good policy. However, renters will inevitably pay for the further cost on landlords through increased rents, so it’s hard not to see the move as two steps forward, one step back for housing policy.’[1]

Consultation

The ban on letting agent fees still requires a formal Government consultation before it is implemented. However, it is feared that the move could see a further squeeze on the number of landlords purchasing property moving forwards.

Eastgate observed: ‘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.’[1]

John Goodall, chief executive officer of Landbay, offers the situation in Scotland as a possible indicator of what the future holds for the English rental market. He points out that since letting agent fees were banned in Scotland in 2012, rents have grown faster in the country than in any other in the UK.

Goodall said: ‘Landlords will have little choice but to absorb letting agent fees themselves and, in time, will pass these on to tenants. Rents are likely to rise faster than house prices over the next five years, so the overall outlook for tenants is still bleak.’[1]

‘What would really help those just about managing to climb onto the property ladder, is a bold but realistic commitment to encourage the expansion of rental housing, which would help maintain affordable rents,’ he added.[1]

[1] http://www.propertywire.com/news/europe/letting-agent-fee-ban-will-lead-higher-rents-industry-warns/

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