Ban on Tenant Letting Fees Will Result in Rising Rents

Posted: 24/11/16 11:43 AM


Philip Hammond announced today in his Autumn statement that letting fees charged by Estate Agents will be banned in England as soon as possible.

As an Estate Agent, I’m unsurprised by this response by the government to some more unscrupulous agents charging excessive fees to prospective tenants without guarantee of a tenancy.  At our agency, it has always been our policy to refund tenant fees if the landlord changes their mind about letting the property, but not if the applicant fails referencing due to adverse credit history or negative landlord reference.  On the other end of the scale, I have heard stories of local agents taking holding deposits for up to five applicants on a single property and no-one got a refund once a decision was made as to who would progress to referencing. This is the kind of reprehensible behaviour which has led to our government into taking such drastic measures to regulate our industry.

Mr Hammond’s exact words in the Autumn Statement were:

“In the private rental market Letting Agents are currently able to charge unregulated fees to tenants.  We’ve seen these fees spiral, despite attempts to regulate them, often to hundreds of pounds.  This is wrong. Landlords appoint letting agents and landlords should meet their fees. So I can announce today that we will ban fees to tenants as soon as possible.”

So what’s the impact of this decision going to be in the long run?  As the Chancellor himself intimated, with a ban on tenant fees in place, the lion’s share of the costs will have to be appropriated to the landlord. What Mr Hammond failed to mention is that landlords will in turn will pass this on to the tenant by setting the rent higher at the beginning of the tenancy.

So, is that good for tenants?  Well I guess it depends on your point of view.  The tenant will no longer need to save up for their admin fees in advance of applying for a property, just the rent and the deposit which are payable on the day they move in; however they’re very likely to end up paying extra every month for the duration of the tenancy.  So long-standing tenants will lose out more than short-term tenants.

The Office of National Statistics stated that there was no direct evidence that rents increased after lettings fees were banned in Scotland, however the numbers tell a different story. Here’s a breakdown of how much rents have really increased in Scotland compared to other English regions since 2012.
screen-shot-2016-11-23-at-17-33-37So the long term outcome is that rents will increase across the board where the ban of tenant fees is put in place.  The only good news for tenants is that these rises tapered off after the market adjustment was complete.

We wait patiently whilst the government work out the logistics of making these changes in the market.

Other news in the Autumn Statement included:

  • The expectation of a new Housing White Paper shortly
  • 2.3 billion Housing Infrastructure fund to improve road and rail networks to land earmarked for house-building
  • £1.4 billion towards creating additional affordable new homes
  • Large scale pilot of Right To Buy for Housing Association tenants

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