ARLA Propertymark explore the impact of a ban on letting agent fees

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According to a new report issued by ARLA Propertymark, the Government’s ban on letting fees will cost loyal tenants hundreds of pounds.

ARLA Propertymark in association with Capital Economics have explored the impact the ban on letting agent fees will have on rents, letting agents, private rental sector and the wider economy.

Impact on rents

Letting fees make up a fifth of letting agents’ revenue and cover the cost of necessary checks required when setting up a tenancy agreement.  If the Government confirms a ban on fees, agents will most likely pass these costs onto landlords who will in turn pass the costs onto their tenants through higher rents.

Research has found that 41% of landlords expect they will have to increase rents by approximately £103 per year to cover a proportion of the inflated costs they will endure from higher agent fees.  However, if landlords pass on the full cost from their increased agent fees, tenants will typically see rents increase by £275 per year.

Impact on letting agents

There are approximately 58,000 people employed in the lettings industry across the UK.  If a ban was introduced and agents passed on 75% of the costs to landlords, around 4,000 jobs could be at risk.

Impact on the lettings sector

Landlords will no doubt try to recover the costs passed onto them through increased agent fees by employing a number of coping mechanisms such as; not purchasing any more rental properties, selling off some of their rental portfolio, leaving their letting agent, or reducing the amount they spend in maintaining their properties.

Private landlords are a vital source of investment in the housing market.  If their financial position was to worsen this would result in less investment.  With the housing market already under pressure to increase housing stock, additional hits to limited stock will only push rents up.

Scotland banned letting agent fees in 1984, further clarified under the Private Rented Housing Act 2011, which meant tenants were only responsible for paying rent and deposits.  With all other costs being charged to the landlord this has left many agents reducing the service they offer, many of which admit to no longer carrying out standard credit checks.

Impact on the wider economy

The £400m the Exchequer receives in employee taxes from letting agents will be at risk if employment drops within the sector.

It is estimated that letting agents spend approximately £1.4 billion per year on goods and services such as legal fees, accountancy and maintenance supplies.  Letting agents support a wide variety of jobs through this spending, all of which will come under pressure if activity within the sector should decline.

International comparison

Letting agent fees in the UK are lower than other major economies.  High end agencies in France charge on average £416 for a 40 square metre apartment and fees in the USA equate to approximately one month’s rent.

Chief Executive of ARLA Propertymark, David Cox, commented on the findings: “The lettings sector is worth about £4 billion 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 exacerbate the threat to the private rented sector; an increasingly important tenure on which millions of people rely.

“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.”

Full article available on ARLA Propertymark: http://www.arla.co.uk/news/march-2017/letting-fee-ban-will-hit-loyal-tenants-hardest/

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