Phillip Hammond: The Tenants Friend.
And the Lettings Agent’s Nemesis.
Well, there’s a fair chance that Phillip Hammond could end up trialling as pitcher for the Los Angeles Dodgers with a curve ball like that. It wasn’t until the evening before the Autumn Statement that rumours began to spread that the Chancellor was going to ban lettings fees. So sure were the commentators of their facts that this was clearly a strategic leak by No:11. So, rather than “spread sheet Phil” we could be looking at “slide arm Phil”. What next? The cutter, forkball or screwball?
It took the industry by complete surprise since there has been little consultation, and few murmurings to suggest it was even on his mind. And yet, without the opportunity to present a counter argument, the Lettings Agents are faced with the loss of a lucrative part of their business, “as soon as possible” as Mr Hammond put it.
This is not a new issue. The subject of the fairness of tenant fees has been growing in recent years and this has been rising to a clamour in recent times as the housing crisis, especially in London, has meant that the cost of renting, especially the up-front costs, has been spiralling out of control. In the UK, the average level of fees is disputed. Figures from the Association of Residential Lettings Agents (ARLA) say the average fee to tenants is £239 in London. Charity Shelter dispute that; Campbell Robb, Shelter’s chief executive, has previously said the fees are “truly out of control” and that one in seven tenants are paying more than £500 in fees according to their research.
Lettings agents have, in recent times, found reasons to charge tenants for almost every possible reason. On one website, those reasons were listed as:
- Fixed Admin Fee
- Guarantor Fee
- Tenancy Agreement Fee
- Company Reference Fee
- Personal Reference Fee
- Tenancy Extension Fee
- Third Party Reference Fee
- Replacement Tenant Fee
- Check In Fee
- Check Out Fee
- Pet Disclaimer Fee
- Change Move In Date Fee
- Dilapidations Deposit
That’s quite a list, and it’s not difficult to see why tenant pressure groups are up in arms.
Lettings agents have said that they will have no alternative other than to pass on their costs to the landlords. But that seems a difficult trick to pull off. It’s generally acknowledged that rents in many areas are pretty much at the limit of what the market can take. Generally speaking the market dictates the level of rent anyone can and will pay. Not Landlords, nor their agents. Despite talk of a housing crisis and the requirement to build 200,000 homes per annum to house the UK adequately, Institutional investors are beginning to bring their product to market. Whilst still only a small proportion of the PRS market in the UK as a whole, the £50 billion the institutions are expected to invest over the coming years will ensure more stable pricing and a reasonable supply. Private landlords and lettings agents will have to factor this in before raising rents to compensate for lack of fees.
Scotland may serve as a useful barometer since agents fees were banned there in 2012. The evidence as to whether this resulted in rents rising is somewhat confusing: one source has rents rising faster in Scotland than any other part of the UK, even London, which is doubtful, since 2012 at 15.3%. Yet the ONS Private House Rental Index has Scotland in the five years since 2011 at 107.2, Wales at 103.5, England at 114.3 and London at 122.4. So that would appear to be in strict contradiction and more in line with intuition.
Clearly this ban on lettings fees was always coming. It’s just come a little sooner than the lettings industry would like. In the Institutional PRS market, many of the new operators already have no up front fees and clearly, apart from anything else, that would have them steal a march on the private landlords. Perhaps the lettings industry might count itself lucky that this government, like the last, is reluctant to impose regulation on the industry. Although that might still happen and bodies like the RICS are in favour. With Phillip Hammond’s penchant for surprising pitches, it might be that the lettings industry could strike out altogether in the wake of governments drive to address the housing industry as a whole.