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How the removal of letting agent fees will shape the rental sector – Marketwatch

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  • 30/11/2016
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Philip Hammond's announcement that letting agents would no longer be free to charge up-front fees to tenants during his first inaugural Autumn Statement as Chancellor this month was met with mixed reception from the industry.

With a consultation yet to be launched by the government, it’s still unclear as to when letting agents will be prevented from charging tenants these fees.

This week our panel discusses how the change is likely to impact the private rental market; whether it will leave landlords out of pocket and what can be learned from Scotland, which has already abolished letting agent fees.

Stephen Smith, director of Legal & General Housing Partnerships, welcomes the government’s move, which he does not believe will be to the detriment of landlords and will benefit tenants in the long run.

Tim Douglas, policy and campaigns officer for The Association of Residential Letting Agents (ARLA), is critical of the Chancellor’s ban on letting fees, adding that the fees will need to be recouped by landlords, a trend he says has been identified in the Scottish property market.

Rob Bence, landlord and co-founder of The Property Hub, believes a growing demand among consumers to transact online has made the traditional letting agent model obsolete.

 

Stephen SmithStephen Smith is director of Legal & General Housing Partnerships

Last week’s decision by the government to scrap arbitrary upfront letting agency fees has been met with mixed responses, but the fact that renters will no longer face unjustifiable and outrageous charges from some rogue letting agents is clearly good news. While the majority of lettings agents have largely been acting well, the lack of progress in driving the poor behaviour out of the industry has rightly driven the government to act.

The change will also help to relieve the financial pressures that many individuals face in their search for affordable accommodation, with renters due to save an average of £350 each time they move property. As a result, we believe that the decision to eliminate these fees will mark the beginning of a new and more egalitarian era for the rental market. Clearly, there may be some upward pressure on rents, as a result of the real costs needing to be covered somewhere, by the landlord initially, and then by the tenant. But for regular movers, for example students and young people, this is more than likely to be offset by the saving on the often unexplained charges made by poor lettings agents.

Scotland has already paved the way for this legislation after clamping down on letting agency fees in 2012. Contrary to some reports, research from Shelter has found that landlords in Scotland were no more likely to increase rents than anywhere else in the UK. We are therefore optimistic that the roll-out of these changes in England and Wales will be as successful. Good agents and good landlords are unlikely to be discouraged by this change.

For this reason, we don’t believe that this new policy will dampen buy-to-let activity, but will instead help to shape the market for the benefit of everyone, since many lettings agents will cover the loss of these levies by introducing other value-added services. The buy-to-let market is a growing sector; there still is and always will be a great demand for rented accommodation. Despite the current uncertainty of some around these changes, we firmly believe that the rental market will continue to flourish and remain an essential part of the housing industry.

 

Tim Douglas ARLATim Douglas is policy and campaigns officer for The Association of Residential Letting Agents (ARLA)

The Association of Residential Letting Agents (ARLA) is extremely disappointed that the Chancellor announced in the Autumn Statement on 23 November 2016 to ban letting agents’ fees to tenants.

Most letting agents do not profit from fees. Our research shows that the average fee charged by ARLA Licenced agents is £202 per tenant, which we think is fair, reasonable and far from exploitative for the service tenants receive. These costs enable agents to carry out various critical checks on tenants before letting a property.

If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents. This is what we have seen in Scotland with the Scottish government’s own figures saying that rents rose by 4% in the first 12 months after they introduced a ban, while in England average rents decreased by 0.7% in the same period. The banning of fees will end up hurting the most, the very people the government intends on helping the most.

This measure represents yet another government blow for landlords, following the 3% Stamp Duty surcharge on second homes, the end of mortgage interest relief and the new rules on lending relative to rental income that have already been announced by the government in the last year.

We don’t know what type of ban the government will enforce. This could be a ban on all fees to tenants, some fees – such as when granting, renewing or continuing a tenancy, or a cap on fees. What we do know is the Department for Communities and Local Government will consult on the matter in the new year and ARLA will be taking an active and effective role in this process to ensure that our member’s views are represented at the heart of government.

 

Rob BenceRob Bence is a landlord and co-founder of The Property Hub – a forum for property investors

I believe the scrapping of rental fees will result in the rise of the online agent. The estate and lettings agent market is outdated. People don’t buy or rent houses by looking in estate agents’ windows any more. In fact, there is very little reason for these agents to have a high street presence at all. This antiquated model just results in pricey overheads which the agents have to recoup somewhere – hence hefty fees for things like ‘admin’.

There is a danger that agents will hike the fees they charge landlords in order to make up the shortfall from the lettings fee ban and these landlords could try to increase rents to mitigate this, but ultimately the market will decide what level rent will be set at. As such I think what is more likely is we will see landlords reconsidering their choice of letting agent. Some may choose to manage the properties themselves, though this can be time consuming, particularly for those with large portfolios. Instead I think we will see more looking toward online agents who are able to offer a more cost efficient service since they don’t have many overheads.

It won’t dampen buy-to-let activity. Landlords have enough to deal with at present, this move is just another small hurdle to overcome. Property investors are a resilient bunch – indeed, they’ve had to be over the last couple of years and as always they’ll adapt and move on.

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