Banning letting agent fees is bad for Landlords and Tenants

Chancellor Philip Hammond in his Autumn Statement has announced that fees letting agents charge to tenants for referencing and setting up tenancies will be banned.  On the face of it, this is a good step towards helping those struggling to get on the property ladder, but on reflection, it will actually end up hurting those it was in fact designed to help.

Let’s be clear, there are some letting agents in the industry charging many hundreds of pounds in referencing and administration fees, which clearly are disproportionate to the marketplace and the level of some of these fees is indefensible.

However, for most letting agents, tenant fees are part of their wider business model, which fairly balances against the fees they charge to their Landlords. Removing the fees these agents charge to Tenants will inevitably lead to them being levied in turn against the Landlord, as the industry looks to recoup this lost income from the only source available.

The vast majority of new Landlords we have seen in our business over the last 12 months are single property Landlords, fed up that their lifetime of savings is doing nothing in bank or building society accounts and their options for a decent return on their investments to see them through old age are diminishing.

The government have stated that this is a group they didn’t want to target with all their previous measures – such as the introduction of an additional Stamp Duty levy on investment property and the phased introduction of restrictions to mortgage interest tax relief, which starts to come into force next year – but they are precisely the group that are suffering the most as a result.

The problem is simple: many Landlords are not savvy property investors and are not necessarily experiencing strong returns as it is. Once letting agents start charging Landlords more for their services, which is inevitable given the government’s decision, there is even less incentive to stay in the marketplace and may well leave altogether.

Tenants are already struggling with a lack of credible housing supply to choose from, they may well find this choice becomes even more limited as a result. For those Landlords who remain, increased costs will lead many to look to recoup this through rental increases, further exacerbating the problem.

Rather than ban letting agent fees altogether, I believe the government should have introduced a cap on the fees agents charge, or alternatively introduced a standard fee rate throughout the industry which was bound into law. Through following either route, they could have ensured that fair administration could have been taken into account whilst preventing unscrupulous agents from charging excessive and unwarranted rates.

Ultimately, the government has chosen in its wisdom to remove tenant fees without any prior industry consultation. The worrying sign is that the very sector of society that the government is looking to help with this measure will in fact be placed at greater risk of being penalised in the medium-long term, as a result of potentially fewer available rental properties and higher rents being asked for those that remain.

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