Quick Read:
- Tenant Fees are set to banned within 12 to 18 months
- Rents will rise as those fees are passed to Landlords
With our new Chancellor of the Exchequer revealing a ban on
tenant fees in his first Autumn Statement last Wednesday what does this actually
mean for Maidenhead tenants and Maidenhead landlords?
The private rental sector in Maidenhead forms an important
part of the Maidenhead housing market and the engagement from the chancellor in
Wednesday’s Autumn Statement is a welcome sign that it is recognised as such. I
have long supported the regulation of lettings agents, which will ensconce and
cement best practice across the rental industry and I believe that measures to
improve the situation of tenants should be introduced in a way that supports
the growing professionalism of the sector. Over the last few years, there has
been an increasing number of regulations and legislation governing private renting
and it is important that the role of qualified, well trained and regulated
lettings agents is understood.
However, whilst the Government is quite right in its
assessment that the UK is in the middle of a Housing Crisis and is trying to do
something to alleviate the pain from the people feeling it most (as confirmed
in a recent conversation I had with Dominic Grieve QC, the MP for
Beaconsfield), personally I am not convinced that this approach is the best
one. There has been a lot of media coverage of the high upfront costs facing
tenants, which I do agree in many of the examples quoted have been
unnecessarily high, however in my opinion this has been exacerbated by a
minority of greedy rogue letting agents charging unregulated and extortionate
fees. Perhaps a better approach would have been to regulate fees rather than an
outright ban. However, I digress….let’s see what the impact of the ban will
actually be.
Great News for Maidenhead Tenants?
So, let’s look at tenants .. this is great news for them,
isn’t it? Well before you all crack open
the Prosecco, read this …
Although I can see prohibiting letting agent fees being
welcomed by Maidenhead tenants, at least in the short term, they won’t realise
that it will rebound back on them.
First up, it will take between 12 and 18 months to ban fees,
as consultation needs to take place, then it will take an Act of Parliament to
implement the change. A prohibition on agent fees may preclude tenants from
receiving an invoice at the start of the tenancy, but the unescapable 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.
Published at the same time as the Autumn Statement, hidden
in the Office for Budget Responsibility’s Economic and Fiscal Outlook on the
Autumn Statement, it said on Wednesday …
“The Government has also announced its intention to ban
additional fees charged by private letting agents. Specific details about
timing and implementation remain outstanding, so we have not adjusted our
forecast. Nevertheless, it is possible that a ban on fees would be passed
through to higher private rents”
According to Shelter, that’s not what happened in Scotland,
right?
Scotland banned Letting Fees in 2012. The charity Shelter
have been a big voice in persuading and lobbying the Government since it managed
to persuade the Scottish Parliament to ban fees in 2012. On all the TV and
radio shows at the moment, they keep talking about their Independent Research, which
they said showed that,
“renters, landlords and the industry as a whole had
benefited from banning fees to renters in Scotland. It found that any negative
side-effects of clarifying the ban on fees to renters in Scotland have been
minimal for letting agencies, landlords and renters, and the sector remains
healthy.”
Going on,
“Many industry insiders had predicted that abolishing fees
would impact on rents for tenants, but our research show that this hasn’t been
the case. The evidence showed that landlords in Scotland were no more likely to
have increased rents since 2012 than landlords elsewhere in the UK. It found
that where rents had risen more in Scotland than in other comparable parts of
the UK in 2013, it was explained by economic factors and not related to the
clarification of the law on letting fees”
.. yet the devil is in the detail….
Only yesterday Shelter were quoting this Research from
December 2013 to say rents never went up following the tenant fee ban in Q4
2012. I have read that research and I agree with that research, but it was published
three years ago, only 12 months after the ban was put into place.
I find it strange they don’t seem to mention what has
happened to rents in Scotland in 2014,
2015 and 2016 .. because that tells us a completely different story!
What really happened in Scotland to rents?
I have carried out my research up to the end of Q3 2016 and this
is the evidence I have found..
In Scotland, rents have risen, according the CityLets Index
by 15.3% between Q4 2012 and today
(CityLets being the
equivalent of Rightmove North of the Border – so they know their onions and
have plenty of comparable evidence to back up their numbers).
When I compared the same time frame, using Office of
National Statistics figures for the English Regions between 2012 and 2016, this
is what has happened to rents:
Scottish rents have risen by 15.3% compared to those in London,
which rose by 10.6% over the same time period.
Are you really telling me the Scottish economy has
outstripped London’s over the last 4 years? Is anyone suggesting Scottish wages
and the Scottish Economy have boomed to such an extent in the last 4 years they
are now the Powerhouse of the UK? .. because if they had, Nicola Sturgeon would
have driven down the A1 within a blink of an eye, to demand immediate Independence!
So what will happen in the Maidenhead Rental Market in the
Short term?
Well nothing will happen in the next 12 to 18 months … it’s
business as usual as the Government runs a consultation and makes the necessary
amendments to the relevant Act of Parliament.
… and the long term?
Rents will increase as the fees tenants have previously paid
will be passed onto Landlords in the coming few years. Not immediately ..
but they will.
As a responsible letting agent, I have a business to run. It
takes, according to ARLA, (Association of Residential Letting Agents) on
average 17 hours work by a letting agent to get a tenant into a property. We
need to complete a whole host of checks prescribed by the Government; including
a right to rent check, Anti Money Laundering checks, Legionella Risk
Assessments, Gas Safety checks, Affordability Checks, Credit Checks, Smoke
Alarm checks, Construction (Design & Management) Regulations 2007 checks, compliance
with the Landlord and Tenant Act, registering the deposit so the tenants
deposit is safe and carry out references to ensure the tenant has been a good
tenant in previous rented properties.
All of which the vast majority of lettings agents take very
seriously and are expected to know inside out making us the experts in our
field. Yes, there are some awful agents who ruin the reputation for others, but
does the whole industry have to pay the price for the behaviour of the rogues?
Business is business. No landlord, no tenant and certainly
no letting agent will do work for free.
I, along with every other Maidenhead letting agent will have
to consider passing some of that cost onto my landlords in the future. Now of
course, landlords would also be able to offset higher letting charges against
tax, but I (as I am sure they) wouldn’t want them out of pocket, even after the
extra tax relief.
So what does this all mean for the future?
On average, in Maidenhead, the current application fee for a
single person is £300 and for a couple £400 meaning on average, the fee is
around £350 per property.
I am part of a Group of 500+ Letting Agents, and recently we
had to poll to find the average length of tenancy in our respective agencies.
The Government says its 4 years, whilst the actual figure was nearer one year
and eleven months, so let’s round that up to two years.
That means £350 needs to found in additional fees to the
landlord, on average, every two years.
In Actual Pound Notes
If the landlord is expected to cover the cost of that
additional £350 every two years, rents will theoretically only need to rise by
an additional £175 a year after 2018, on top of any natural inflationary
increases.
The average rent of a Maidenhead Property is currently
£1,574 per month, so in real terms, the current cost of absorbing the
additional £175 per year would be an increase of only 1%, or approximately £15
per month. In reality, since most tenancies are agreed on a 12 month basis, I
can’t see many landlords willing to take the risk of losing £175 if the tenant
left after 12 months, so the real increase would be more like 2% (or
£30/month).
Conclusion
The banning of letting fees is bad news for tenants, who are
the very people supposed to be benefitting from this change in the law.
Letting agents who charged reasonable tenant-find fees will
be able to pass these over to the landlord, who in turn will pass back to
tenants with higher rents, as we have seen in Scotland.
Whilst it reduces the amount of money tenants need to find when
they move and this will give people a greater freedom to move home as a result,
this comes at a cost. Tenants will end up paying for this by paying higher
rent.
.. and the agents that charged the silly high application
fees .. well that’s their problem. At least I know I can offer the same, if not
a better service to both my landlords and tenants in the future in light of
this announcement from Phillip Hammond.
