Letting fees ban ‘penalises loyal tenants’

ARLA Propertymark (Association of Residential Letting Agents) and Capital Economics conducted the research into the potential impact of the letting fees ban on tenants, agents and landlords.

The report said fees charged for letting activities reflect real work to be undertaken and, if the ban on fees goes ahead, the costs will need to be recovered. Letting agent fees account for around a fifth of letting agents’ revenues, and cover the cost of checks required to set up a tenancy agreement.

Landlords are likely to pass on higher agents’ fees to tenants in the form of higher rent. Two in five landlords (41%) said this would be the case.

In the most plausible outcome, the report suggested letting agents will lose £0.2bn in turnover, landlords £0.3bn in income and tenants will pay an increased rent of £103 a year.

Although renters will benefit from a reduction in up-front fees, the report said tenants who remain in their properties longer will pay more in increased rent than they save. For savings to accrue to tenants from the change in policy they would need to move as often as every two and-a-half to three years. Those least likely to move frequently are lower income families.

David Cox, chief executive of ARLA Propertymark, said: “The lettings sector is worth about £4bn and employs around 58,000 people all over the country. The government’s Autumn Statement announcement that it plans to ban letting agent fees was the third big blow in as many years for agents, and exacerbates the threat to the private rented sector; an increasingly important tenure on which millions of people rely.”

He added: “For many tenants, buying a property simply isn’t an option, and they must depend on the private rented sector to provide security, good standards and fundamentally, a home.

“Our findings show that landlords are likely to raise rents as a result of the ban on fees. Those tenants who move least frequently, which tend to be lower income families, will be worst hit by rent rises. This is ironic and shows that there will be unintended consequences to what, in effect, is a crowd-pleasing, populist policy.”

The report added that, on a comparable basis, fees for letting a property are lower than buying a house in the United Kingdom, while they are also lower than in some other major economies. It predicted the impact on letting agents is likely to result in a loss of 4,000 jobs.

In Scotland, letting agent fees were banned in 1984 and officially clarified in the Private Rented Housing Act of 2011. This meant that tenants were only accountable for the rent and deposit, and everything else would be charged to the landlord.

However, ARLA said this has resulted in many agents carrying out less of the tasks they were doing previously. One in four said they no longer do credit checks as standard.