Why has the government proposed to ban letting fees and how will it affect landlords and tenants?

Why has the government proposed to ban letting fees and how will it affect landlords and tenants?

29th Jan, 2017

In November 2016, Philip Hammond delivered his first and last Autumn Statement, making his mark on economic policies and paving the way for Brexit discussions.

One of the Chancellor’s plans that stood out to us was his pledge to ban letting fees for prospective tenants — the charge for the application and administration of reference and credit checks.

Over the years there has been much talk around whether letting fees are deemed fair on the tenant, with some agencies hiding their highly-inflated prices, particularly in our nation’s big cities such as Manchester and London. Historically, there were no laws in place to force letting agents to disclose these fees publicly, until it was time for the tenant to pay.

But in May 2015, the Consumer Rights Act changed that. The new legislation laid out the law, requiring agents to publish all their fees on their website. And if they didn’t comply, they could be fined up to £5,000.

So why did Mr Hammond change the policy further in 2016?

Well, some lettings agents remained non-transparent. According to rental charge expert Letting Fee, 14% of companies still weren’t listing their fees, with the average rate at £386 for a two-person household. Some charges even soared above £700.

For the majority of agents though, great expense and effort was made to comply with the new regulations and so we ask, is it really fair to penalise all when it was just 14% who didn’t comply?

How will the new policy affect both tenants and landlords?

On the face of it, the ban may seem to benefit tenants. There are over 4.8 million households who now rent from a private landlord — all who would welcome a lower fee. And, coupled with the government’s announcement to raise the National Living Wage by 30p an hour to £7.50 from next April, it would seem that renters — generally lower income individuals and families — would be better off.

But, the issue lies with the fact that the administrative tasks and tenancy checks will still have to occur, and can often take up hours of time per tenant. Over the past few years, for example, the agent has been given extra responsibilities such as completing rigid immigration checks on all prospective tenants, using only approved referencing companies to carry out credit checks in order to comply with many landlords’ insurance policies, and doing extra checks on all smoke alarms before any tenancy can commence.

Despite the increase in the role of the letting agent, the majority appear not to have increased their processing fees over recent years, in order to stay locally competitive. The letting fee ban, however, will inevitably mean that costs will now have to be passed on to landlords, who will have to make up the money somehow.

Many of the proprietors we’ve spoken to over the past few weeks have  reached the same conclusion; that this, as well as the rising cost of insurance and the new rental tax law, will lead to higher rents.

What do we think?

At Applegate Properties, our fees have always been below the National average. We pride ourselves on excellent customer service and going the extra mile for both tenants and landlords, to ensure that checks are carried out thoroughly and efficiently. We therefore believe that our charges have been reasonable and justified. Our administrators put in a lot of work behind the scenes – chasing complete employment references, landlord references and even just liaising with the prospective tenant themselves, can take up hours of time in total!

Amy Wray, managing director of Applegate Properties said: "A ban on letting agent fees is a strong measure to take, and will have a ‘swings and roundabouts’ effect on tenants.

“I cannot stress enough how much work now goes into organising any tenancy and without the income to cover this work, we simply cannot do it. I am afraid to say that all this means is that the tenants will end up paying these fees in some way, and if this is via an increase in rents, then it is likely to cost them an awful lot more that the initial £150 - £200.

“It may also mean that more tenants pull out of prospective contracts at the last minute – they’ll be able to apply for multiple properties at one time, due to having no financial commitment, which will have a negative impact on landlords. We would therefore argue for stronger consumer protection through regulation of the sector, rather than a total ban on fees. However, our main priority is to ensure that our current and future clients understand what impact the change will have on them.”

View all posts by Amy Wray

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