Maidenhead Landlords and Tenants: What does the ban on Tenant Fees mean for you?

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.