Opinion is divided over whether or not the decision to ban letting agent fees in England is a good move for the private rental market.
The announcement by Chancellor Philip Hammond that the ban will be introduced as soon as possible was met with dismay by letting agent and landlord organisations who warned that agents will pass the cost of administration onto landlords who will in turn pass it onto tenants in the form of higher rents.
Some experts pointed out that when a ban was introduced in Scotland it led to higher rents while others said that it did not lead to direct rent hikes. This issue aside, some other pertinent points have now emerged such as landlords possibly avoiding using letting agents which is not always advisable if they are not aware of current legislation and short cuts being taken in terms of tenant checks to keep costs down.
Charles Curran, principal at Maskells, pointed out that lettings agents do incur costs in setting up a new tenancy such as credit checks. Landlords are also now required to check that a prospective tenant has the right to live in the UK so there is paperwork involved.
He also pointed out that a lot of questions remain to be answered. For example, there are costs involved in carrying out checks and if fees cannot be charged it is not clear how these costs will be paid for.
‘We do expect landlords to seek to increase rents to take into account any additional costs. We will have to see the language of any proposed law before making our final analysis,’ he said.
While it is known that there are unscrupulous lettings agents who may be charging more than the average of £220 in fees for a new tenant, Mark Pollack, director at Aston Chase, said that the majority are reasonable.
‘We believe our charges are reasonable in comparison to many of the larger corporate agencies who also charge their landlords an administration fee. Indeed, we have always considered it surprising to charge for a tenancy agreement that we already have on file, although this is an industry norm. However, the reference fees are a cost that we have to pay to a third party so under the new legislation, in the future agents would presumably have to pay for these themselves,’ he added.
Ali Carter, head of lettings at Russell Simpson, believes there is no place for some of the high fees that are charged. ‘Letting agency fees are in place to cover the cost of drawing up a tenancy agreement. This cost is split between the tenant and landlord. The tenant will also be charged a fee for their reference check,’ he said.
‘This could be a good opportunity for us, as well as other agents, to say that they are no longer charging an administration fee which is usually £150 plus VAT from today. Quite often we will promote a particularly property with a no admin fee tagline. In general we don’t charge the landlord their portion as they are paying us a fee already so we’ve always felt it was unjustified to ask for anything else on top. Overall, we’re quite in line with Hammond’s thinking,’ he added.
Others in the industry believe that regulation of letting agents might have been a more positive view. ‘I can’t help but feel that this is an issue of overall high rental costs and lack of trust in letting agents that do little to earn the respect of their tenants,’ said Bevan Smith, director of BPM Estates, which has offices in central London, Barnet and Potters Bar.
‘Rather than the removal of fees entirely, we would have liked to have seen stricter restrictions on what can and can’t be charged for and what fee levels are justified. This would have helped to put a curve on the immoral practices without punishing the honest, reputable agencies,’ he added.
Sarah Bush, director of Cheffins Residential Lettings, also things regulation would be a better option. ‘The Government needs to focus on the regulation of agents rather than banning upfront fees in their entirety. Rogue agents charging astronomical fees create the headlines and subsequently all agents are deemed guilty by association,’ she said.
‘Fees that are charged by reputable agents can be accounted for and justified at every step of the letting process. The banning of fees across the board will ensure that the costs are passed directly to the landlord, who in turn will increase rental prices to cover their respective costs,’ she explained.
‘A prohibition by the government on fees, combined with mortgage interest relief, will stifle a housing market that is already at breaking point and landlords are likely to leave the private rental sector en-masse. By trying to help tenants and pour cold water on the private rented sector, in reality the Government is doing nothing but heating up the situation for both tenants and landlords alike,’ she added.
Lucy Morton, head of agency at JLL, flagged up that the ban could lead less scrupulous agents to cut corners. ‘It is essential that agents do not cut corners and fail to carry out stringent referencing checks. At JLL and W.A.Ellis we have always advocated complete transparency of all charges made by agents to both landlords and tenants. We have also historically campaigned for the Government to regulate letting agents which it still fails to address,’ she said.
Paul Shamplina, founder of Landlord Action, warned that there could be a surge of landlords opting to self-let and manage and he believes that this would have a detrimental effect on rental property standards.
‘Agents will need to be forward thinking about how they can absorb some of this cost and the loss through other areas of their business. It has never been more vital for agents to educate less experienced landlords on the importance and benefits of a managed service, making sure they are compliant with industry legislation and preventing them from exiting the sector altogether,’ he added.
