The Chancellor has announced a ban on letting agents charging tenants fees in England, which will come into effect “as soon as possible”.
Currently, tenants can be charged fees for anything from reference, credit and immigration checks to drawing up a tenancy agreement. Fees can vary widely from an average of £200 to several hundred pounds in London.
But letting agents are critical of the move, claiming that it will simply lead landlords to increase their rents to cover their costs.
David Cox, managing director, Association of Residential Letting Agents (ARLA), says: “A ban on letting agent fees is a draconian measure and will have a profoundly negative impact on the rental market.
“It will be the fourth assault on the sector in just over a year and it will do little to help cash-poor renters save enough to get on the housing ladder. This decision is a crowd-pleaser, which will not help renters in the long term.
“Most letting agents do not profit from fees. Our research shows that the average fee charged by ARLA-licensed agents is £202 per tenant, which we think is fair, reasonable and far from exploitative for the service tenants receive.
“These costs enable agents to carry out various critical checks on tenants before letting a property. If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents. The banning of fees will end up hurting the most the very people the government intends on helping the most.”
Knock-on effect on rents
John Goodall, chief executive and co-founder of peer-to-peer platform Landbay, says that it’s “encouraging” to see signs of a government recognising the importance of the private rented sector, but points out that a similar ban in Scotland in 2012 has led to rising rents.
“Scotland has already gone down this route, and although there are a lot of moving parts in play here, it saw rents grow by 1.55% over the past 12 months, the fastest growth of all of the UK home nations.
“It’s a start, but the fact is rents are likely to rise faster than house prices over the next five years, so the overall outlook for tenants is still bleak.
“What would really help those just about managing to climb on to the property ladder, is a bold but realistic commitment to encourage the expansion of rental housing, which would help maintain affordable rents,” he adds.
Ben Madden, managing director of London agents Thorgills, adds: “The ban on letting agent fees is both myopic and misplaced.
“While letting agent fees need to be transparent and competitive, and usually are, they are a legitimate business cost and an integral part of the lettings process. Without thorough referencing, credit and inventory checks, landlords are sitting ducks and tenants can also lose out.
"Scrapping these fees could result in unscrupulous agents delivering less, not more transparency.
"For tenants, the ban will drive up costs rather than reduce them. As is often the case, the actual people a policy change is designed to help will be the ones who suffer the most.”
But not all agents are against the ban. Jeff Doble, chief executive of Dexters estate agents, says: “While we await the exact detail of the legislation, we broadly welcome the government's action on this. We would prefer to see compulsory regulation of letting agents, but this is a step in the right direction as it will lead to more transparency and make life difficult for rogue estate agents."