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Letting agents' fee ban: Tory MP warns of "unintended consequences"

A Tory MP has taken to the internet to warn against what he calls the “unintended consequences” of a ban on letting agent fees levied on tenants.

Mike Freer, Conservative MP for Finchley and Golders Green, says some letting agents “do seem to like having their bread buttered on both sides” but says that he has a much better understanding of how fees are levied now that he has spoken with one agency - Martyn Gerrard - which operates in his constituency, 

Freer, writing on the Conservative Home activists’ website, makes a lengthy case for how at first sight the ban - announced by Chancellor Phillip Hammond on agents’ fees applied to tenants in England - could perhaps be seen as justifiable.

However, he then warns of the unintended consequences that could, in fact, see tenants worse off as a result. 

His is a lengthy post and LAT reproduces below just part of the argument. It may add weight to the argument put forward by some industry groups that it remains worth lobbying MPs and other politicians about this issue

“... This is because letting agents, according to the consensus, will shift the lost income generated from tenants to the landlord by chargibg higher fees.  This coupled, with a shortage of stock (as investors are further deterred from entering the buy-to-let market), will lead to an increase in rents. In Scotland, where all but rent and refundable deposits were banned in 2012, the evidence shows that rents have risen as a direct consequence of the ban.

“The average fee paid by tenants quoted by the Government is £233, while Shelter quotes an average of £350. The reality for many tenants, especially in London, is a much higher figure. But what is a fee, and what is a reasonable cost?

“For example, I would hope that a holding deposit will be seen for what it is, rather than a fee that is banned. It is not unreasonable for a prospective tenant to put down a deposit – which goes towards the dilapidation deposit when the tenancy begins – to show commitment, and to assure the landlord that he or she is serious about taking the property. A ban on non-refundable holding deposits will mean that tenants could express an interest in multiple properties, giving rise to costs to the landlord and agent…and then simply walk away without any consequence. This is surely not the Government’s intention.

“Similarly, is it unreasonable to ask a prospective tenant to provide evidence of his suitability as a tenant? 

“This usually involves an independent company providing a report having carried out credit, employment, previous landlord, immigration and right to rent checks. Again, if the tenant does not have to pay for this, what is to stop him showing interest in multiple properties, with each of these landlords paying for separate referencing checks only to be disappointed? Will a landlord be prepared to carry out these checks without any assurance that the tenant is serious, and what will happen if the tenant fails the checks? If the tenant is paying, he will be as certain as he can be that there is nothing in their past that will mean they fail the reference check.

“My concern is that if all the costs are to be borne by the landlord, there will be letting agents who will try to compete for business by cutting their fees. This will inevitably be at the cost of the quality of the service and checks they provide. Landlords tempted by the cheap fee will be left dangerously exposed, since the agent may well have had to cut too many corners in order to offer a low fee.

“In a speech that lasted 51 minutes, the Chancellor’s announcement to ban fees to tenants took just 26 seconds. Details of what is intended are sketchy to say the least. This will lead to confusion for tenants, since as it is unlikely the ban will come into force until 2018.  DCLG has not given any more information other than ‘Government will begin consultations in due course, and primary legislation will follow to bring the ban into effect’.”

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    By my calculations the ban on letting fees in Scotland has increased rents by £147 per month.

    To pay an extra £147 per month to save a one off fee of £233 is crazy and this is being proposed by the person who is in charge of the nations finance.

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    By coincidence £147 is exactly what our total fees are per tenancy regardless of length of stay.

     
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    It would be very helpful if lettings agents in Scotland, where 'fees' are already banned, could advise us as to how they have dealt with the joint problem of tenants not paying for reference checks and not putting down a holding deposit (as an advance on the full deposit should they take the property). In my own case we treat the ref check fee as a sign of good faith so take no further holding deposit .... but I am keen to hear how the ref check gets paid for in Scotland.

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    This hasn't been as much of an issue as we thought it would be and we haven't experienced an increase in tenants pulling out.

    We do though continue to take a small holding deposit which is refundable if the tenancy doesn't go ahead.

     
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    Our one-off low fee (£147) has remained at exactly the same rate for over ten years for those unable to provide a deposit. Cap don't ban or allow a fee where no deposit is taken so overall affordability isn't compromised. To lose "fees" altogether will definitely mean us losing our dedicated lettings staff member and will create an increased workload for our small management team who already work a 50+ hour week. Incidentally Chancellor we pay tax on our fees income have you forgotten that? Rent will have to be increased in the first months for rooms in shared houses to cover for the cost of enabling shorter lets. These have more costly associated "turnaround" work where we provide an inclusive full deep clean plus all new bedding for every let . Short-term stays may now not be an option as we can't recover costs if tenant only wants to rent for anything under 6 months. Finally we really do a lot for our administration, registration, preparation and referencing charge which is clear from the on-sett (including swapping and moving furniture as required, check-in inventory and meet and greet/show around). Other people get paid for their work why shouldn't we? If you are banning fees start with my accountants who are not content with a vast hourly rate plus vat then never fail to add an unquantified an ever increasing amount for "disbursements" to my annual bill.

  • Robert Ulph

    Now this is looking more like what we need to look at, I understand that tenant fees need to change now and a sensible consultation about what this will look like needs to happen. Will it make any difference I am afraid that government has not listened to the industry as yet before jumping in with a vote winner so I expect not but getting MP on our side to say that without some charge costs will just be put somewhere else, We are running a business with costs and staff to pay. I think more MP need to visit Letting Agents and see what we really do for our money.

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