In his Autumn Statement, the Chancellor of the Exchequer, Phillip Hammond announced that tenants can no longer be charged fees associated with the arrangement of a tenancy. This appears to include the cost of referencing, inventories and the like - so if you have charged for anything of this nature in the past when letting a property, you will now no longer be able to do so (depending on the precise wording when this becomes law).
This is obviously a vote winner - no one enjoys handing over hundreds of pounds to an agent for no apparent benefit and outlawing it, on the surface, appears to please many and cost nothing.
Unfortunately, there are costs involved. Landlords will need to increase rents to recover these fees during the term of the tenancy, tenants will have to pay more as the increase will stay with them for the life of the tenancy rather than just the 6 or 8 months it takes to recover these costs and the higher rents will feed through into an increase in the 30th percentile rent level which Housing Benefit is based upon, so the government will see its £25Bn Housing Benefit bill increase accordingly.
As David Lawrenson of Letting Focus puts it, "Banning all tenant fees is a draconian step. However, the letting agency business in particular only have themselves to blame. Too many agents charged rapacious levels of fees, which were frequently far in excess of the actual costs. Also, we are convinced that too many agencies engaged in the practice of hiding fees and only revealing them at the last minute when the tenant was committed. It is ridiculous that the previous law did not require property portals such as Rightmove, Zoopla etc. to display tenant fees in their property listings. Correcting this would have given greater clarity to tenants."
If anyone benefits, it will be letting agents whose fees are built into their commission as a percentage of the rent, so as rent increases so do their fees. However, it is because of letting agents we have this announcement. In our view - too many agents evict tenants at the end of a contract period in order to generate more fees and the practice of charging a sitting tenant these fees when the contract comes to an end rather than just letting it become periodic is scandalous and we hope it will be
outlawed with this change. We also believe that some agents 'win business" by charging a low percentage 'management fee" and make up the shortfall with these fees. In the future, they may pass the fees on to landlords directly or by increasing their percentage commission. Either way, the end result is that tenants will pay more in rent.
This change brings England into line with Scotland, where upfront fees have been banned since 2012. Unfortunately, there is strong evidence that many Scots letting agents still charge upfront fees and in the absence of any enforcement action coupled with potential tenants scrabbling in a market with very constrained supply, this is perhaps not surprising and is probably likely to be the case here too. Government too often introduces regulations like this, without funding of or consideration for the cost of the necessary enforcement to ensure the desired changes occur.
Whereas most tenants go to letting agents, we have always supported our members in developing the skills and encouraged them to find the time to self-manage their properties and we see our key value add as being able to help them do that. This benefits landlords as no one else will look after their property as well as they do, others are more likely to take risks or cut corners. Tenants can also benefit from the direct relationship with the owner
These changes will reduce our competitiveness - it may be harder to undercut agents - but we hope potential tenants are still able to see the advantages of dealing direct.
Our one ongoing concern is that if we can no longer charge to check the references of a potential tenant (which can range from £20-40 a time), as a result we may suffer from having to pay the cost of checking completely unsuitable tenants as there is no cost to the tenant of persistently applying for properties, failing the checks due to credit history, rent arrears and CCJ"s and applying for the next property that comes onto the market - so we will need to look carefully at ways of identifying and avoiding such problem tenants.
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