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Confirmed - government WILL ban letting agents' fees on tenants

The government will today announce that it is banning letting agents’ fees levied on tenants - meaning the fees will instead fall on landlords who will recoup them in higher rent anyway.

The measure will come as part of the Autumn Statement; it will apply to some 4.3m private rental sector tenants in England, saving an estimate of £337 in fees for each tenant. 

The decision will prove an interesting one for housing minister Gavin Barwell who has on a number of occasions voiced his opposition to a ban on agents’ fees levied on tenants. 

In September Barwell, in a question-and-answer session on social media, told another industry publication - Inside Housing - that a ban was “Bad idea - landlords would pass cost to tenants via rent. We’re looking at other ways to cut upfront costs and raise standards.”

Prime Minister Theresa May has also voted against such a ban, twice, in the Commons.

There is also embarrassment for local government minister Marcus Jones, who six months ago said in a Commons debate: “Banning or capping fees would not make renting any cheaper for tenants - tenants would still end up paying, but through higher rents.”

That’s certainly the view of the National Landlords’ Association. 

“The new Chancellor is clearly aware of the pressures facing those living in the private-rented sector, but in attempting to improve affordability he has shown that, like his predecessor, he lacks an understanding of how the whole sector works” claims chief executive Richard Lambert. 

“There’s no doubt that some unscrupulous agents have got away with excessive fees and double-charging landlords and tenants for far too long.  Banning letting agent fees will be welcomed by private tenants, at least in the short-term, because they won’t realise that it will boomerang back on them.

“Agents will have no other option than to shift the fees on to landlords, which many will argue is more appropriate, since the landlord employs the agent.  But adding to landlords’ costs, on top of restricting their ability to deduct their business costs from their taxable income, will only push more towards increasing rents”. 

Today’s news will render a private members bill in the Lords redundant.

Currently Baroness Olly Grender, a Liberal Democrat, is proposing the measure which seeks to ban agents’ fees on tenants.

She told peers last week: “There are good lettings agents out there who are members of government-accredited redress schemes and pursue best practice. They should continue to charge a fee for the work that they do but the fee should be from the landlord, who can shop around and choose which lettings agency to use. Landlords can decide to use the decent, regulated ones.”

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    my understanding is the proposed ban will be part of a consultation.

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    Does this mean that private landlords will also be banned from charging fees to prospective tenants? Therefore fees such as those charged for referencing?

  • Spencer Fortag

    I am waiting for the announcement so that I can fully understand the measures that he seeks to implement. I believe that any significant reduction in agents ability to charge tenants fee WILL result in higher fees for landlords though.

    Jon  Tarrey

    Won't that just mean more landlords going it alone, deferring the need for a letting agent and taking a DIY approach. Or the property management approach. Or looking towards one of the cheaper, online letting agents.

    In all these cases, it's always the tenants who are going to suffer. Always strikes me as emotional blackmail - oh, if you do this to us, it isn't going to be us who suffers but our poor tenants, who we will have no choice but to up the rents of. It always seem like such a cop out. Any time charges are levied on letting agents or landlords, it's tenants that pay the price.

     
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    I fail to see why the Govt feels the need to implement such measures. Surely they would be better in promoting the use of law abiding, regulated agents instead of meddling with fees. Whether you like it or not, Letting Agents are a business that provide a service and so they should be able to charge whatever they want for the services they provide - extortionate or not - just like any other business. Nobody is forcing tenants to use an agent but now it appears to be a God given right for people to live in houses they can't afford. I don't see Tesco offering their food (a basic human need) at cost price or clothes retailers dishing out clothes with no markup (another basic human need). As with any business, it costs to provide a good service - watch the rents go up and service that Tenants receive go down, well done Govt!

  • Steph Rady

    Not exactly the news we were hoping to see this morning. Here's hoping the Autumn Statement at least addresses the Stamp Duty tax changes that have impacted landlords and buyers alike.

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    What could happen is the landlord 'loans' the application fee by way of higher rent for initial 6 month term, spread over a 6 month contract - if tenant good and pays on time etc. the rent reduces in month 7

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    Er, so how does a tenant get referenced? Can we wrap that up in a holding deposit to be paid by the tenant to show that they want to reserve a property? The referencing fee will have to be paid by the tenant somehow else those who know that they have little or no hope in passing referencing will apply for it anyway ... at whose expense?

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    an estimated saving of £337 per tenant! Damn! I have been missing a trick here. Do you think the ASA would allow me to advertise (until the ban comes in) "TENANTS: Our fees are 50% lower than the average fee".

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    .... our current practice is not to take a holding or reservation deposit, but to deem that paying to be referenced is a sign of good faith from the potential tenant.

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    Good point Michael English. It's not uncommon to have to reference more than one set of tenants for each property. This will make almost impossible for those who had financial problems in the past, people starting out who come with guarantors etc, people who have just returned to the uk after a number of years overseas, and those who might need to rely on a degree of housing benefit to rent as why would the landlord pay to have such tenants referenced, when there is a chance that they will "fail" the referencing process?

  • Alistair Oswin

    great point Michael, our Admin fee is £50 per application & we only take one application per property at at one time. I see the application fee as a sign of good faith from a potential client as Michael mentioned. I always advise potential tenants if there is a pending application too. How many agents take multiple application fees on a particular property?

    I must agree some fees of High Street agents are scandalous but the tenant does have an informed choice whether to make an application in the first place.

    I think our application fee of £50 represents a fair indication of the time and expense of completing a credit check, address verification, right to rent, landlords ref & employment ref.

    My only fear is that many agents have become used to making massive margins on Application Fees and this income will need to generated elsewhere, passing those costs onto a landlord will only increase rents.

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    just to clarify: when I say more than one set of tenants for each property, I do of course mean, one set at a time - ie if they fail referencing, then referencing another tenant etc.

  • Julian Bishop

    What happens to the legislation which requires agents to advise Tenants of fees before they commit to a property?

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    No fees. No issue...I guess.

     
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    We only ever reference one application per property at a time; we make it clear to anyone who applies after we have accepted an application that the property has already been deemed provisionally let subject to acceptable references. If that applicant fails their check and we are unable to proceed, we shall then contact any other interested party and invite them to submit an application. Some of the fees we see listed are breath taking - as with Alistair we cover our costs in carrying out the required checks, we do not take a holding deposit and we do not load the actual deposit either. And the fee is seen as a gesture of good faith in applying for the property. Rarely does a tenant pull out.

    We fear that there will be Landlord's currently letting through an Agent who are unwilling to swallow the costs of referencing, decide to manage their properties themselves, fail to carry out the Right to Rent checks, provide the How to Rent guide and fail to complete their obligations to the extent that a whole new set of private Landlords are created who may not then act in the Tenants best interests when it comes to safety, risk and legislative requirements. How many of those new private Landlords will attend legal update courses, submit deposits correctly or even provide an inventory and then wonder why they get hammered when the tenant decides to use retaliatory eviction because the paperwork was incorrectly created or not created at all. Ahhh....of course.....the Government will then say Landlords will need to be registered or licensed, they will have to abide by a code of conduct and they will all have to pay for the pleasure....forgive me...isn't that mostly what an Agent does already, on their behalf? We see a whole lot more legislation and stealth taxes on the horizon.

    We challenge a Member of Parliament who supports these changes to the Fee's to spend a day with us here in the office. We are a family business, we have been around for more than twenty years and we are proud of how hard we work for all parties.....come and see for your self Mr or Mrs MP the work that Agents such as us actually do! And after 14 years, still enjoy - mostly!

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    We are very similar to you and agree very much with what you say. We are 30+ years in and a family run letting agency. I spend virtually all of my time these days keeping up with the ever changing legislation. Our landlords often don't have an appreciation for how much we do (and for no extra cost), particularly when compared to when we first started, when virtually all we had to do was collect the rent in with one hand and pass it out to the landlord with the other. As you'll know it is a never ending chain of paperwork, Right to Rent checks, How to Rent guides, EPCs, GSCs, smoke alarm checks etc. Not that I disagree with all of these as many are for safety, but we're not getting anymore money for it.

     
  • Carla Keegans

    It's good to see some responsible agents commenting here. Unfortunately in our area it is common practice for agents to charge fees to multiple tenants knowing fine well they'll only be giving the property to one. As well as a string of one-off fees. So we agree with scrapping tenant fees, and also with agents not being able to charge hidden fees in the management of landlord's properties.

    The wider picture is that any Government has to respond to the urgent issues in the housing market, and now the PRS accounts for about 20% of the population; public safeguards have to be in place, including ensuring best use of public money (Housing Benefit). So, yes, we envisage more regulation of the PRS, and we'd welcome this. The lettings industry needs to adapt and respond to the reality of the PRS - something we think responsible agents will respond positively to!

    Jon  Tarrey

    Well said!

     
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    Madness!! The Government feel it morally wrong for agents to charge tenants fees but are more than happy to charge buyers ridiculous amounts in Stamp Duty!! A simple solution would have been to introduce a fixed maximum charge linked to the level of rent involved. This would create a level playing field for all agents and stop rogue agents charging excessive amounts or applying 'hidden charges'. 


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    A charge for referencing a tenant at cost means the agent is making no charge at all. What the govt want to do is stop admin charges to tenants that do not reflect a reasonable cost as there is no control over this.

    I don't think passing on actual costs to a reference agency is going to be as contentious as predicted.

    Agents don't actually levy "fees" as by definition a fee is earned for providing some sort of service, and no service is being provided to a tenant, so they are costs (actually incurred) or charges (additional amounts to cover administration). No doubt some legal bod will be able to come up with something acceptable.

  • Alistair Oswin

    Guarantor Fees?
    Permitted Occupier Fees?
    check-in fee?
    Renewal Fees?

    The mind Boggles!

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    I agree, with one fell swoop he has just taken tens of thousands of pounds off the balance sheet!

     
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    On another point it is going to extend any interview with prospective tenants to make sure they are going to pass the referencing process, and agents should diligently be looking at payslips, bank statements and a few other documents moreso than they perhaps have in the past.

  • Kristjan Byfield

    Surely off the back of this we have to look at becoming a fully regulated and licensed profession. As the government increase SDLT, cut tax efficiencies and now (likely) increase agents costs- Landlpords will still need to make ends meet and, as such, many will have no option but to opt for low fee, low service operators once again plunging our industry back 20 years.
    The quote of Baroness Olly is actually worryingly worded as she appears, in the phrasing of her comments, to understand this yet seems equally unconcerned by this fact.
    Interestingly, councils and governments want ever increasing standards yet ever reduced costs. We recently started composing a pitch for Brent council on Letting & Managing a new portfolio for them- until we realised they wanted a full service offering yet their cap was around £500 pa per property. No margins at all and I fear what organisation will secure the job and what service they will be able to deliver under such financial pressures- deepened further by this ruling.
    High value areas, such as London, will march on largely unaffected (although there will be some agents saying good bye to vast revenue streams) however I fear for the regional agencies who often earn £400-700 to let and even manage a property. With no surplus fees, how will they survive? Will their Landlord be able to supplement a 30%+ rise in fees to accomodate this?
    Again, another legislative impact on our industry with no comprehensive consultation or apparent understanding of the inner working of our industry and the challenges faced in different areas.
    Where on Earth have ARLA & RICS been in all of this? Isnt this the very pivotal industry-related matters they should be championing us in?

    Jon  Tarrey

    "Surely off the back of this we have to look at becoming a fully regulated and licensed profession"

    Yes, then landlords might be taken a bit more seriously. And generate a bit more sympathy from the public. At the moment, too many unscrupulous, rogue landlord slip through the net, too many are only in to make money and don't care one jot for tenant safety or quality of accommodation. It's why landlords are so mistrusted, because we hear so many horror stories.

    Making things properly professional and regulated would help massively. In many ways the government are seeking to deflect the blame elsewhere. They know the reputation of landlords and letting agents, and they are looking to lay the blame firmly at the door - while failing to address the wider issues in the UK housing market. The PRS is swelling year by year because people can't afford to buy. You also still have massive issues over buy-to-let and Buy-to-Leave, which is hoovering up stock that could be going to people who actually want to make a house a home.

     
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    This is such a joke. Anyone with a clue about free market economy will agree. What next no mortgage 'Arrangement' fees? how do they help people buy homes? A mortgage surveyor get £90-£180 for a mortgage valuation yet the arrangement fees can be £1000s! My point is the ** FEES WILL JUST MOVE ** so for instance agents can CREATE A A REFERENCING COMPANY and the tenants must use that if they want to rent and the fees will be the same; no longer a letting agent, but a referencing agency. Or the reference agencies will offer a big commission to the agents and the agent states how much the tenant is to be charged....either way the tenants will pay but because the agro has increased, so will the the over all cost of renting. The fools should pray that BTL landlords don't sell up else rents will sky rocket. Complete stupidity yet again.

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    Application fee's stop a lot of time wasters, with no financial loss the doors will open to a number of persons not as committed to a future tenancy. I also know where to go now if I want a free credit score check!

  • Adrian Dunk

    How about asking the tenants to reference themselves and cover the costs? We point them in the direction of a referencing agency, the tenant pays them and have to provide us with a satisfactory reference before they can apply for the property??

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    Like an agents' newly set up sister company that specialises in referencing...?

     
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    Are the gov that short sighted, we collect VAT on application fees, so more lost revenue for the country!!

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    Are agents now going to be expected to cover the costs of referencing tenants?!

    What is to stop a tenant applying for several properties at the same time, knowing they will only take one, or applying for property knowing they have bad credit or their landlord wont give a good reference, meaning they fail but chance their arm anyway?!

    We charge a reference fee to cover our costs, we only reference one set of applicants on one property at a time. If they fail, they lose their fee, if they withdraw from the property, they lose the fee (This rarely happens though).

    We have had cases of landlords referencing tenants on their properties through 2 different agents, which I detest, as it is unfair on tenants. If the landlord withdraws a property from us, i.e they let it through another agent or decide to move back in etc, we refund the reference fee to the tenant or use their references on another of our properties.

    I believe, as has been said before, that maybe references should be transferable between agents, as long as its with a reputable reference company, Rent4sure/LetsXl/landlord hub etc.

    The only cost to tenants form us on top of referencing is a check out fee(if applicable) and tenancy preparation fee.

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    This comments section just shows what parasites 95% if Letting/Estate Agents are. Its an hilarious read. How about just don't rip people off and enjoy being a liked industry. Nah far too easy. Good riddance, you wont exist in 10 years.

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