29th March 2017

Research suggests proposed ban on letting fees is causing confusion

lettings-fees.jpgThe Government’s consultation on how the letting fees ban will work is due to start shortly but it is already causing confusion in the private rented sector.

The proposed ban is part of building a strong and safe private rented sector, which provides security and stability for both tenants and landlords. However, new research suggests that letting agents and tenants are confused over the planned ban and clarity is needed sooner rather than later along with support for those affected to make sure the change has a minimum impact.

Economic impact of fees ban in England

The ban is likely to have an impact not just on letting agents but on tenants, landlords, the private rented sector and the wider economy, latest research suggests.

Letting agent fees cover the cost of vital checks required to set up a tenancy agreement. If they are banned outright when the Government publishes its consultation, agents will need to pass the costs on to landlords through higher agents’ fees, and according to the Association of Residential Letting Agents (ARLA Propertymark), research suggests that 41% of landlords expect to pass on a portion of the inflated cost to tenants by pushing rents up.

Research found that as landlords try to recoup the costs passed on through increased agent’ fees, they will implement several coping mechanisms, with 27% not buying any more rental properties, 20% selling some rental properties, 8% reducing their use of letting agents and 7% spending less on property maintenance.

Private landlords are an important source of investment in the housing market, and a worsening of their financial position will result in less investment, adding that the rental market is already under huge pressure to increase housing stock to offset rising demand. ARLA suggests that any further hits to limited stock will put more upward pressure on rents as competition between prospective tenants increases.

In Scotland, letting agent fees were banned in 1984 and officially clarified in the Private Rented Housing Act of 2011. This meant that tenants were only accountable for the rent and deposit, and everything else would be charged to the landlord. According to ARLA this has resulted in many agents carrying out less of the tasks they were doing previously and one in four said they no longer do credit checks as standard.

At the moment, tenants can be charged fees for a range of administration, including reference, credit and immigration checks. But there is concern that the fee ban could have a significant impact on letting agents, landlords and tenants, and could lead to increased costs in other areas.

Referencing and insurance are two areas likely to be impacted by the changes but the exact scale of this is unclear while the government decides how to implement the ban. Poor quality referencing could lead to increased rent arrears, higher eviction numbers and longer void periods. This, in turn, could affect connected insurances such as rent guarantee, with the likelihood of claims to be perceived as increasing, premiums would surely follow suit.

We are concerned about these changes and what it means for the private rental sector.