It was a year that saw many changes but one that stood out for letting agents in particular in 2016 was the ban on tenancy fees announced by Chancellor Phillip Hammond in his Autumn Statement.
A move aimed at benefitting tenants in England and Wales because it means letting agents won’t be able to bill them for the administration/credit checking charges etc involved in a new tenancy, it could also affect landlords. That’s because landlords will be forced to increase rent to cope with the fact letting agents will pass those ‘banned admin’ fees onto them, insist many property analysts.
However, none of these changes will take place until at least 2018 due to the need for a consultation on the banning of letting fees and then an Act of Parliament to pass the legislation in the first place.
One way of predicting how the ban on letting fees will affect tenants and landlords in England and Wales is to look at the Scotland example. Letting agent fees were banned there in 2012. And the result?
The homeless charity Shelter claimed rent hasn’t risen in Scotland as a result of a ban. However, the property web portal City Lets (similar to Rightmove in England) begs to differ. They say rents have risen disproportionately in Scotland compared to England and Wales over the past three years – by 15.3 per cent compared to 10 per cent in London (the highest increase in England) according to figures released by the Office of National Statistics (ONS).
What do the letting fees cover?
Letting agents say the fees cover such services as ensuring the Tenancy Deposit Scheme is adhered to, carrying out gas safety checks, smoke alarm checks (in the case of HMOs), credit checks, reference checks and Construction (Design & Management) Regulations 2007 compliance.
Some unscrupulous landlords, however, have been charging for this twice – both the tenant and the landlord.
Benefits of the proposed ban on letting fees for landlords
Tenants will benefit from the ban – at least in the short term by not having to pay a lump sum up front which, in turn, means landlords could benefit from the fact tenancies are more affordable (at least initially).
Landlords charged by unscrupulous firms could find that by moving to a ‘more respectable’ letting agent they won’t be out of pocket at all. In other words, they’ll be forced to look for a better deal elsewhere. This means online letting agents in particular may benefit by picking up landlord custom from high street agents with far higher overhead costs.
Former Royal Institution of Chartered Surveyors residential chairman Jeremy Leaf put it best when he said: “The problem with fees charged by letting agents to tenants is that landlords have a choice as to which agent they use whereas tenants generally don’t,
“Landlords can go to another agent so the agents will have to absorb the cost and get it from somewhere else.”
The result is that landlords may not necessarily lose out and neither will tenants. The biggest losers may indeed be, as the government intended, those unscrupulous letting agents who double charge for admin charges – meaning the government may just have got it right this time, after all. Fancy that!
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