Rentals growth prompts fears over high fees

Research from PwC predicts that just 26 per cent of people in the UK now aged 20 to 39 will own their own homes by 2025.

Many agents are ethical but some take advantage of supply and demand issues

Research from PwC predicts that just 26 per cent of people in the UK now aged 20 to 39 will own their own homes by 2025.

The professional and financial services firm says this compares with 64 per cent of those born in 1960 and 1970 who owned a house by the time they were 35.

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The figures reveal a continued swing towards renting with a forecast for rental rates to rise by 14.5 per cent between 2000 and 2025. Growth looks set to be highest in London with a 24.4 per cent rise, while Yorkshire could see a 16.7 per cent increase. The result is a burgeoning number of lettings agents and, as with any growth market, there are unscrupulous opportunists.

One of the main complaints from tenants is high administration charges. It is normal to pay a bond usually equivalent to a month’s rent, which must be lodged in a government-backed tenancy deposit scheme.

There will also be a tenancy application fee to cover the costs of processing the paperwork, a referencing fee to check a tenant’s credentials and extra fees if a guarantor is needed.

Student Ella Hargreaves learned the hard way that administration fees can vary depending which agent you choose. She and her friends were looking for a shared house for their second year in Newcastle where there is a shortage of student property. What appeared to be a perfect property came with hefty administration fees.

“We felt under pressure to sign for it as the agent said that houses were going quickly. He was right about that so we signed, not realising that the administration fees were so high. They were charging all seven of us £250 each with a £25 reference charge on top, which amounted to £1,925 to process the application,”

Ella did some research and realised that the agent had recently doubled his fees. Other agents had followed suit, while some had kept administration charges at £125. P

“I think some agencies are taking advantage of the supply and demand situation and if you want to secure a house then you have no choice but to pay what they ask,” says Ella.

Jonathan Morgan, of Leeds city centre sales and lettings specialists Morgans, agrees: “The amounts being charged in different parts of the country vary enormously and this is part of the issue. In London, for example, some of the biggest letting agents will charge as much as £400 per tenant as a tenancy fee and will also insist on a check out charge and a mandatory cleaning charge, irrespective of the condition of the property at the end of the tenancy. This is extortionate in our view and not commensurate with the scope of services delivered to the tenant.”

“In the north, fees are generally much lower. At Morgans, for example, we charge a tenancy application fee of £114 per tenant, which includes the referencing fee and VAT. This is one of the lowest in our market place and we believe it is fair and commensurate with the services we have provided.”

Combating extortionate fees is not easy in an industry that is largely unregulated. Attempts have been made to ban letting agents’ fees and this policy was suggested in the Labour Party manifesto at the last election.

Jonathan Morgan says this approach is unlikely to achieve the desired effect and could lead to higher landlord fees, which could lead investor to recoup costs through higher rents.

He adds: “It is difficult in a free market economy to impose limits on fees. It might be more productive if the professional bodies came together and offered up some guidelines around recommended fee scales, which could then be used as a benchmark for the wider industry.”

David Cox, managing director of the Association of Residential Letting Agents, agrees that some landlords and agents take advantage and that better regulation is needed in the private rental sector.

Ella Hargreaves believes that the answer could lie with property owners. She says: “I think they should check what the administration charges are for their tenants. If they think that the letting agent is being greedy and unfair, they should switch to another agent with more reasonable fees.”