Industry groups have warned that the government’s ban on letting agency fees levied on tenants in England will backfire, with most predicting the costs diverted to landlords will simply be loaded on to rental charges anyway.
“Arbitrary bans sound appealing as a quick fix, but the problem of affordability in the private-rented cannot be addressed by preventing legitimate businesses from charging for their services” says Richard Price, executive director at the UK Association of Letting Agents.
“A ban on agent fees may prevent tenants from receiving a bill at the start of the tenancy, but the unavoidable outcome will be an increase in the proportion of costs which will be met by landlords, which in turn will be passed on to tenants through higher rents” he adds.
He says his members strive to provide a premium service which represents excellent value for money, adding that “this ban will place in jeopardy hundreds of professional businesses in order to deal with the few unscrupulous”.
Isobel Thomson, chief executive of the National Approved Lettings Scheme, contacted her letting agent members with the message: “On the face of it, it is an easy political win but one which directly affects your business. Let me be absolutely clear. NALS does not believe this is the right way to go for agents, landlords or tenants and we will continue to communicate this on your behalf to decision-makers.”
The Residential Landlords’ Association was quick to point to government U-turns and hypocrisy over the move, saying that as recently as September housing minister Gavin Barwell tweeted about a ban on letting agents’ fees as: “Bad idea – landlords would pass costs on to tenants via rent. We’re looking at other ways to cut upfront costs and raise standards.”
And the RLA says that just last week, communities and local government Minister Lord Bourne also expressed reservations about such a policy warning that “we must be mindful of the potential impact on rents from banning fees paid by tenants.”
Responding, Alan Ward, chairman of the Residential Landlords Association said: “This will not help tenants, especially those who are ‘just managing’. Agents’ fees have to be paid by somebody. If any extra fees are passed on to landlords, tenants will end up paying them forever as market rents will increase.”
He said that it would have been much better for the government to have taken steps to improve the transparency of fees charged by agents by forcing them to publicise what the fees actually cover.
Richard Lambert of the National Landlords Association echoed that view, saying that private rental sector tenants will obviously welcome the ban - until they discover the unintended consequences.
“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” he says.
“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” insists Lambert.
David Cox, managing director of the Association of Residential Letting Agents, agrees. “[This is] the fourth assault on the sector in just over a year, and do little to help cash-poor renters save enough to get on the housing ladder. This decision is a crowd-pleaser, which will not help renters in the long term” he claims.
“Most letting agents do not profit from fees. Our research shows that the average fee charged by ARLA licensed agents is £202 per tenant, which we think is fair, reasonable and far from exploitative for the service tenants receive” he says.
“These costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents. The banning of fees will end up hurting the most, the very people the government intends on helping the most” Cox adds.