Tenant Fees set to banned within 12 to 18 months
Rents due to rise as those fees passed to Landlords
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 Heanor tenants and Heanor landlords?
The private rental sector in Heanor forms an important part
of the Heanor 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 Heanor 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 Heanor 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 to rents in Scotland?
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 Heanor 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 Heanor 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 £125
and for a couple £250
.. 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 Heanor Property was £438 per month and today
it is £501 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 £601
per annum in management fees (excluding VAT).
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 Heanor, average rents would
rise to £592 per month
by 2022 (see the red line on the graph)
and so the landlord would pay £710 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 Heanor Tenants?
Quite the opposite. (Look at the blue line on the graph). If
the average rent Heanor tenants pay had risen in line with inflation since
2005, that £438 per
month would have risen today to an
average of £606 per
month. (Remember, the average today is only £501 per month) .. and even if inflation remains
at 2% per year for the next six years, the average rent would be £659 per month by 2022 ..
meaning even if landlords increase their rents to cover the costs tenants are
still much better off, when we compare the £592 per month figure to the £659 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.
