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Tenant Fees set to banned
within 12 to 18 months
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Rents due to rise as those
fees passed to Landlords
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Landlords won’t be worse
off – and neither will tenants or agents
With our new Chancellor of the Exchequer
revealing a ban on tenant fees in his first Autumn Statement on Wednesday what
does this actually mean for Wellingborough tenants and Wellingborough
landlords?
The private rental
sector in Wellingborough forms an important part of the Wellingborough housing
market and the engagement from the chancellor in Wednesday’s Autumn Statement
is a welcome sign that it is recognised as such. I have long supported the
regulation of lettings agents which will ensconce and cement best practice
across the rental industry and, I
believe that measures to improve the situation of tenants should be introduced
in a way that supports the growing professionalism of the sector. Over the last
few years, there has been an increasing number of regulations and legislation
governing private renting and it is important that the role of qualified, well
trained and regulated lettings agents is understood.
Great News
for Wellingborough Tenants
So, let’s look at
tenants .. this is great news for them, isn’t it? Well before you all crack open the Prosecco,
read this …
Although I can see prohibiting letting agent fees being welcomed
by Wellingborough tenants, at least in the short term, they won’t realise that
it will rebound back on them.
First up, it will
take between 12 and 18 months to ban fees, as consultation needs to take place,
then it will take an Act of Parliament to
implement the change. A prohibition on agent fees may preclude tenants from
receiving an invoice at the start of the tenancy, but the unescapable outcome will be an increase in the proportion of costs
which will be met by landlords, which in turn will be passed on to tenants through
higher rents.
Published at the same time as the Autumn
Statement, hidden in the Office
for Budget Responsibility’s Economic and Fiscal Outlook on the Autumn Statement
(The
Office for Budget Responsibility being created by Government in 2010 to provide
independent and authoritative analysis of the UK’s public finances), it said on Wednesday …
“The Government has also announced its
intention to ban additional fees charged by private letting agents. Specific
details about timing and implementation remain outstanding, so we have not
adjusted our forecast. Nevertheless, it is possible that a ban on fees would be
passed through to higher private rents”
The charity Shelter and
Scotland
Scotland banned Letting Fees in 2012.
The charity Shelter have been a big voice in persuading and lobbying the
Government since it managed to persuade the Scottish Parliament to ban fees in
2012. On all the TV and radio shows at the moment, they keep talking about
their Independent Research, which they said showed that,
“renters,
landlords and the industry as a whole had benefited from banning fees to
renters in Scotland. It found that any negative side-effects of clarifying the
ban on fees to renters in Scotland have been minimal for letting agencies,
landlords and renters, and the sector remains healthy.”
Going on,
“Many
industry insiders had predicted that abolishing fees would impact on rents for
tenants, but our research show that this hasn’t been the case. The evidence
showed that landlords in Scotland were no more likely to have increased rents
since 2012 than landlords elsewhere in the UK. It found that where rents had
risen more in Scotland than in other comparable parts of the UK in 2013, it was
explained by economic factors and not related to the clarification of the law
on letting fees”
.. yet the devil is in the detail….
Only yesterday Shelter were quoting this Research
from December 2013 to say rents never went up following the tenant fee ban in Q4
2012. I have read that research and I agree with that research, but it was published
three years ago, only 12 months after the ban was put into place.
I find it strange they don’t seem to mention
what has happened to rents in Scotland in 2014, 2015 and 2016 .. because that tells us a
completely different story!
What really happened in
Scotland to rents?
I have carried out my research up to the end
of Q3 2016 and this is the evidence I
have found..
In Scotland,
rents have risen, according the CityLets Index
by 15.3%
between Q4 2012 and today
(CityLets being the equivalent of Rightmove
North of the Border – so they know their onions and have plenty of comparable
evidence to back up their numbers).
When I compared the same time frame, using Office
of National Statistics figures for the English Regions between 2012 and 2016,
this is what has happened to rents
·
North East 2.17% increase
·
North West 2.43% increase
·
Yorkshire and The Humber 3.21%
increase
·
East Midlands 5.92% increase
·
West Midlands 5.52% increase
·
East of England 7.07% increase
·
South West 5.82% increase
·
South East 8.26% increase
·
London 10.55% increase
….and let me remind you about Scotland …
15.3% increase.
Are you really telling me the
Scottish economy has outstripped London’s over the last 4 years? Is anyone
suggesting Scottish wages and the Scottish Economy have boomed to such an
extent in the last 4 years they are now the Powerhouse of the UK? .. because if
they had, Nicola Sturgeon would have driven down the A1 within a blink of an
eye, to demand immediate Independence.
So what will happen in the Wellingborough
Rental Market in the Short term?
Well nothing will happen in the next 12 to 18
months .. it’s business as usual!
… and the long term?
Rents
will increase as the fees tenants have previously paid will be passed onto
Landlords in the coming few years. Not immediately .. but they will.
As a responsible letting agent, I have a
business to run. It takes, according to ARLA, (Association of Residential
Letting Agents) on average 17 hours work by a letting agent to get a tenant
into a property. We
need to complete a whole host of checks prescribed by the Government; including
a right to rent check, Anti Money Laundering checks, Legionella Risk
Assessments, Gas Safety checks, Affordability Checks, Credit Checks, Smoke
Alarm checks, Construction (Design & Management) Regulations 2007 checks, compliance with the
Landlord and Tenant Act, registering the deposit so the tenants deposit is safe
and carry out references to ensure the tenant has been a good tenant in
previous rented properties.
All of
which the vast majority of lettings agents take very seriously and are expected
to know inside out making us the experts in our field. Yes, there are some
awful agents who ruin the reputation for others, but isn't that the case in
most professions?
.. but
business is business.
No
landlord, no tenant and certainly no letting agent does work for free.
I,
along with every other Wellingborough letting agent will have to consider
passing some of that cost onto my landlords in the future. Now of course,
landlords would also be able to offset higher letting charges against tax, but
I (as I am sure they) wouldn’t want them out of pocket, even after the extra
tax relief.
So
what does this all mean for the future?
The
current application fee for a single person at my lettings agency is £150 and for a couple £240 .. meaning on
average, the fee is around £200
per property.
I
am part of a Group of 500+ Letting Agents, and recently we had to poll to find
the average length of tenancy in our respective agencies. The Government says
its 4 years, whilst the actual figure was nearer one year and eleven months, so
let’s round that up to two years.
That
means £200 needs to
found in additional fees to the landlord, on average, every two years.
In Actual Pound Notes
In
2005, the average rent of a Wellingborough Property was £523 per month and today it is £599 per month, a rise of
only 14.5% (against an
inflation rate (RPI) of 38.5%).
Using the UK average management rates of 10%, this means the
landlord will be paying £720
per annum in management fees.
If
the landlord is expected to cover the cost of that additional £200 every two years,
rents will only need to rise by an additional 2% a year after 2018, on top of
what they have annually grown by in the last 5 years.
So,
if that were to happen in Wellingborough, average rents would rise to £708 per month by
2022 (see the red line on the graph) and
so the landlord would pay £850
per annum in management fees .. which would go towards covering the additional
costs without having to raise the level
of fees.
.. but that is bad news for Wellingborough Tenants?
Quite
the opposite. Look at the blue line on the graph). If the average rent Wellingborough
tenants pay had risen in line with inflation since 2005, that £523 per month would have
risen today to an average of £725 per month. (Remember,
the average today is only £599 per month) .. and even if inflation remains at 2% per year for the next six
years, the average rent would be £788 per month by 2022 .. meaning even if landlords increase their
rents to cover the costs tenants are still much better off, when we compare to
the £708 per month
figure to the £788 per month figure.
Conclusion
The
banning of letting fees is good news for landlords, tenants and agents.
It
removes the need for tenants to find lump sums of money when they move. That
will mean tenants will have greater freedom to move home and still be better
off in real terms compared to if rents had increased in line with inflation.
Landlords
will be happy as their yield and return will increase with greater rents whilst
not paying significantly more in fees to their lettings agency. Letting agents
who used to charge fair application fees won’t be penalised as the rent rises
will compensate them for any losses.
..
and the agents that charged the silly high application fees .. well that’s
their problem. At least I know I can offer the same, if not a better service to
both my landlords and tenants in the future in light of this announcement from
Phillip Hammond.
