Lettings agent association warns of economic impact of fees ban in England

The proposed ban on letting agent fees in England will cost tenants who stay in properties the longest hundreds of pounds, it is claimed.

According to the Association of Residential Letting Agents (ARLA Propertymark) it is loyal tenants who will be hit the hardest but it also believes that there are 4,000 jobs at risk if there is an outright ban.

The consultation on how the ban will work is due to start shortly and it is likely to have an impact not just on letting agents but on tenants, landlords, the private rented sector and the wider economy, the association’s latest research suggests.

The analysis, done in conjunction with research consultancy Capital Economics reveals that 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, it says and 41% of landlords expect to pass on a portion of the inflated cost to tenants.

The research says this could push rents up by £103 on average per year and 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.

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 10 year period.

The research report points out that the lettings sector employees around 58,000 people across the country and if letting agents take the full hit of the letting agent fee ban some 16,000 jobs will be at risk. It’s more likely, however, that agents will pass on 75% of the costs to landlords but this could result in job losses of around 4,000.

As landlords try to recoup the costs passed on through increased agent’ fees, they will implement several coping mechanisms, the research found with 27% not buying any more rental properties, 20% selling some rental properties, 8% reducing their use of letting agents and 7% spending less on property maintenance.

It also points out that private landlords are an important source of investment in the housing market, and a worsening of their financial position will result in less investment, adding that the rental market is already under huge pressure to increase housing stock to offset rising demand. And it suggests that 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.

According to ARLA this has resulted in many agents carrying out less of the tasks they were doing previously and one in four said they no longer do credit checks as standard.

The research also looks at the impact on the wider economy. The report says that the Exchequer is currently in receipt of £400 million in employee taxes from letting agents which is at risk if there is a hit to employment in the sector.

It says that 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, the analysis estimates 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.

The fees charged by UK letting agents are lower, compared to other major economies. In France, for example, higher end agency fees are at €12 per square meter, or £416 for a 40 square metre Parisian apartment, and in the United States fees equate to a month’s rent of $1,404 or £1,132 on average.

‘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,’ said David Cox, ARLA chief executive.

‘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,’ he explained.

‘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,’ he added.