UK government launches consultation on letting agent fee ban

The government announced in its 2016 Autumn Statement that it would consult on introducing a ban on letting agent fees paid by tenants. The proposal has already stoked controversy among industry experts, as agents are expected to pass that cost on to landlords, who are already facing higher expenses, due to 2016’s stamp duty surcharge and April 2017’s mortgage interest tax relief changes. As a result, the fee ban is forecast to be ultimately passed on to tenants in the form of higher rents.

The government, on the other hand, says that the ban would “give renters greater clarity and control over what they will pay”. Today, it launches a consultation on the proposed ban, with views and comments accepted until 2nd June 2017.

David Cox, Chief Executive of the Association of Residential Letting Agents Propertymark, comments: “The Government’s housing policy is shambolic and today’s consultation contradicts its already stated aim to encourage longer term tenancies. Independent analysis launched at ARLA Propertymark’s annual Conference last week revealed that if an outright ban was introduced, rents will increase by £103 per year which will only serve to financially punish long term tenants.

“The decision is a short-term crowd pleaser and we are disappointed DCLG has not considered our proposals in today’s consultation. We urge the Government to use this process to think again to ensure that consumers, and the wider economy are not penalised by contradictory Government policies.”

Chris Norris, Head of Policy at the National Landlords Association (NLA), adds: “Yet again the Government has published plans to tackle a particular element of the letting agency market, whilst at the same time suggesting other areas that they ‘might’ like to look at in the future.

“It is about time that landlords and agents were given some certainty about the market’s regulatory future – which could be easily achieved by agreeing an over-arching system of regulation for letting agents once and for all.

“We’re particularly concerned that the scope of this consultation appears to have drifted to include tenancy deposits, with suggestions that a ‘cap’ may now be necessary. This looks like yet another attempt to affix a sticking plaster to a perceived problem without really understanding what is driving behaviour in the real world.”


Don’t ban fees, say letting agents: stagger them instead

31st January 2017

Letting agents are calling for the government to introduced a staggered fee model, rather than ban agent fees altogether.

The UK government announced that it would abolish letting agent fees in its Autumn Statement last year, the latest in a string of measures targeted the private rented sector. The ban was described by the Association of Residential Letting Agents at the time as a “crowd-pleasing” move, with negative consequences for tenants and the wider market. Indeed, with landlords likely to see the letting agent charges passed on to them, and factors such as the government’s planned tax change beginning in April 2017, many buy-to-let investors will have no choiec but to hike their rental rates to combat rising costs.

Now, ARLA is proposing a new alternative: instead of banning fees, spreading them out across the first six months of a tenancy.

New research by ARLA reveals that more than four out of ten (42 per cent) letting agents expect that a full ban would result in reduced staff numbers in the medium to long term, while 62 per cent of agents think that a full ban will cause the quality of rental properties to decline.

The research, completed by 1008 letting agents, explored the impact that a full ban will have, as well as the purpose of letting agent fees, which cover checks and legal requirements such as conducting credit checks and collecting references.

Letting agents expect the condition of properties to worsen, and three in five (61 per cent) also expect property management standards to drop. By spreading the cost of fees, rather than banning them entirely, ARLA argues letting agents will be able to maintain current service levels to tenants.

The spreading of fees would also make tenancies more affordable to tenants, as it means they would only need to find the deposit and the first month’s rent when moving into a home.

Tenants would also only pay for fees over the first six months of a tenancy, rather than subsequent years, meaning that there would be no additional cost for renewing a contract.

David Cox, Managing Director of ARLA, says: “We believe that ARLA’s proposal to spread the cost of the fees across the first six months of the tenancy will guard against the numerous unintended consequences of a full ban while also finding a solution that works best for the consumer. Over the coming weeks and months, ARLA will be campaigning for a balanced legislative solution. Our research supports our previous calls that a full ban on letting agent fees will have a profoundly negative impact on the rental market, and do little to help cash-poor renters save enough to get on the housing ladder.”


Landlords turning to online agencies ahead of rising costs?

20th December 2016

Landlords may be turning to online agencies as one way to minimise their costs in 2017.

In the last 12 months landlords have taken the brunt of most governmental tax increases, with stamp duty costs increasing for buy-to-let investors and, more recently, the likelihood of bearing the cost of tenant fees, following the government’s decision to ban letting agent charges.

This additional cost alone could cost landlords upwards of £500 per tenancy. The biggest hit, though, is still to come in 2020 when mortgage interest will no longer be tax deductible and landlords will receive a tax rate based on gross income and then paid a flat 20 per cent rebate, forcing many up a tax bracket, pushing others into loss-making territory and leaving most no choice but to raise rents.

One report from UKALA recently suggested that nearly half of landlords would forgo the services of their letting if profits fell, to keep them in the black. The research also found that a growing number of landlords are aiming to incorporate so they can run their properties as a limited company, thereby avoiding some of the new charges.

Another possibility is that landlords will turn to online agencies to help balance their books. Indeed, online agent Upad reports that it has seen a 44 per cent annual growth in repeat business for its digital lettings services and this year has let over 10,000 properties, the equivalent of a 60-branch high street agent.

James Davis, CEO and Founder of Upad, comments: “What we are seeing is swathes of landlords under mounting financial pressure looking for ways to bring down their costs in order to keep buy-to-let as a profitable exercise. It makes sense that one of the first things they will look at is the agent they use to manage their property as well as scrutinise every single cost associated with this. Upad figures suggest that landlords save £750 per tenancy on a single tenancy and for overstretched buy to let investors, this saving could lead to thousands of pounds with a larger portfolio to manage.”

James adds: “I think it’s fair to say that landlords are going to continue to suffer under the current political forecast and expected tax increases. Whether or not this is the right approach, landlords who want to stay ahead of the game are going to have to assess their strategy in order to stay in the black.”


Half of landlords prepared to ditch their letting agent

20th December 2016

Half of landlords would ditch their letting agent, if their profits fell significantly, a new survey reveals.

The majority of landlords in the UK use landlords (57 per cent – or 1.1 million) – with 36 per cent saying their regularly employ their services, while 21 per cent said they occasionally use them. However, 47 per cent of them said they will scrap their services, if their profits were to fall, according to the UK Association of Letting Agents (UKALA).

The research arrivea at a time when buy-to-let investors are facing growing costs amid a string of government crackdowns. The National Landlords Association (NLA) has already warned that more than 400,000 landlords will be pushed up a tax bracket as a result of the changes, which include a stamp duty surcharge of 3 per cent and the phasing out of mortgage interest tax relief. In the Autumn Statement last month, meanwhile, a ban on letting agent fees for tenants was also announced, which is likely to see the costs passed onto landlords instead.

A quarter (26 per cent) of landlords who use letting agents to exclusively fully manage all of their propertiesm though, would cut them loose in the face of diminishing profits. This drops to a fifth (21 per cent) of landlords who use agents on a let-only basis for all their properties. Regionally, more landlords in Scotland would ditch their agent if costs climbed (54 per cent), while one in three (29 per cent) would do so in the West Midlands.

Richard Price, Executive Director of UKALA, says: “A significant number of landlords will be hit hard by the tax changes and agents’ fees will be one of the items underneath the magnifying glass if profits begin to decrease. As landlords’ costs inevitably rise, agents will need to do more to position themselves as indispensable, and make it obvious that they provide solid value for money. Otherwise, as future tenancies come to an end, landlords will either shop around or start to consider self-managing their properties.”

The survey arrives as the buy-to-let sector begins to show signs of confidence, with landlords already taking steps to manage their costs ahead of the new tax measures in April 2017.