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Property news: Lettings agents fear effect of fee ban

Tenants will pay no lettings fees when new legislation comes in next year.
Tenants will pay no lettings fees when new legislation comes in next year.
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The ban on tenant fees could bring rents rises, a lack of rental properties and put agents out of business. Sharon Dale reports.

Those who have been forced to pay extortionate fees charged by unscrupulous lettings agents whooped with joy when the government announced plans to ban all tenant fees.

The charges covering referencing, credit checks, viewings and drawing up contracts are an average £223 for each tenancy, according to the English Housing Survey, but charges of £500 and much more are not unheard of, especially in London and in areas of high demand.

However, the legislation, which is due to come into force in Spring year, looks set to have a series of unintended consequences that will have an adverse effect on the whole lettings industry and on the tenants it aims to protect.

The ban on charging would-be renters could reduce the number properties to let, push up rents and put some agents out of business.

Will Linley of Yorkshire sales and lettings firm Linley and Simpson says he tried to warn Yorkshire MPs about the issues and suggested that they should cap fees, thereby preventing greedy agents from making excessive profit from tenants.

“I tried to engage with local MPs. Most didn’t respond, three wrote back with the same templated letter saying they supported the ban and one met with me and was shocked when I explained the implications.

“Part of the issue is that most MPs are in a London bubble and they are looking at greedy agents there and the huge amount they get in fees then tarring us all with the same brush.”

He and others believe that both reputable and disreputable lettings agents will go out of business when the ban hits the statute books

“It is a loss of revenue for all lettings agents in what is not a massively lucrative business. Some will suffer more than others, including some of the biggest, national lettings chains because their business model has been to increase charges to tenants while reducing the fees for landlords in order to get more properties on the books. That is wrong and had to be corrected but abolishing fees altogether will impact on good, reputable agents,” says Will.

“There is a financial cost in making checks, conducting viewings and drawing up contracts and I think some of that should be borne by the tenant, which is why I campaigned for a cap on fees of not more than a week’s rent plus a £15 levy on every tenancy to pay for lettings agents to be regulated properly.”

Luke Gidney, MD of Let Leeds, adds: “The ban will have a huge impact on many letting and estate agency businesses across Yorkshire. The majority of agents work on a 10 to 20 per cent profit margin.

“This huge reduction in revenue puts hard working, independent businesses into an extremely precarious position.

“We understand that many agents are looking at possible business closures or at making some of their staff redundant to reduce costs. It is estimated that over 4,000

employees in the lettings industry will lose their jobs as a result.”

Linley and Simpson say that they and other agents will be forced to pass on some of the tenant check costs to landlords who will in turn pass them onto tenants in the form of higher rents.

“Landlords have already had a rough time with various tax changes and some are leaving the rental sector and others don’t want to enter it. That means a reduction in the supply of rental properties, which will drive rents up even further, especially in the areas where there is the highest demand like London and Leeds city centre,” says Will.

The Association of Residential Letting Agents, ARLA Propertymark, back this up. A recent survey showed that 27 per cent of landlords would stop buying rental properties and 20 per cent would sell some of their properties if their costs increased.

There are also fears that less competition in the market will open the door to rogue landlords and lower property standards.

To future-proof its business from the effects of the tenant fees ban, Linley and Simpson has concentrated on increasing the number of rental homes on its books. They have also bought out smaller agencies so they can boost the revenue they get from landlords for managing a property.

Luke Gidney of Let Leeds is merging with smaller, independent lettings businesses to create economies of scale and reduce overheads.

He also plans to offer tenants optional, paid for services.

“We have already voluntarily removed all tenant fees from student properties and instead we offer a range of premium services and all-inclusive rental packages with gas, electric,

water, internet, TV licence, cleaning, insurance and gardening.

“It gives modern renters the hassle-free living experience they desire, and allows our business to offset the loss in tenant application and referencing fees.”