Summary of our response
We do not support the banning of letting agents charging fees to tenants. We believe fees should be open, transparent and reasonable. They represent legitimate costs to business that need to be covered. When renting a property, a tenant is taking a legal interest in land for the duration of their tenancy and the fees charged to tenants are broadly similar to those charged when purchasing a property (referencing checks equate to mortgage application fees, contract negotiation charges are akin to conveyancing, and inventory costs are similar to a survey).
In terms of fees, the only difference between renting a home and buying a property is that when purchasing a property, the fees are paid to three different parties and generally cost the purchaser much more, whereas when renting a property, the letting agent acts in a quasi-legal capacity, undertaking these tasks on behalf of the tenant.
Ban will not meet its objectives
A ban on letting agent fees will have a profoundly negative impact on the rental market and will not deliver a fairer, or a more competitive, or a more affordable lettings market. And it will not give tenants greater clarity and control over what they will pay. Currently, tenants know and understand what they're committing to at the start of the tenancy.
The Government outline in the Draft Tenant Fees Bill (Point 18 on Page 4) that they believe a ban on fees will make the private rented sector more competitive but have provided no evidence to support this. We fundamentally believe that the Government is misguided in its approach for two reasons.
- Banning fees will reduce competition in the market by driving some agents out of business. In particular, smaller agents will struggle, their turnover will become smaller, driven out of business or taken over by larger agencies creating corporate monopolies rather than increasing competition in the sector.
- The remaining agents will become more selective about the tenants they choose.
Impact on tenants, letting agents and landlords
We surveyed 1,008 letting agents ask their opinion on the impact of a ban would be. The majority (90 per cent) responded saying that rent prices will increase as a result of banning fees, 60 per cent said the quality of properties will decline and 40 per cent think the ban will result in a fall in employment in the medium to long term.
The cost of running a letting agency – an office, staff, travel expenses, advertising properties and administration costs all mount up. Some letting agents may not be able to absorb the loss of income created by tenant fees and will close.
Capital Economics’ analysis suggests that in the worst-case scenario (where agents do not pass on any additional costs to landlords), 16,000 jobs will be lost in the sector and a further 8,000 in the supply chain. in the most plausible scenario, whereby letting agents pass on 75% of the loss from the fees ban to landlords, this will result in 4,000 jobs in the sector being lost.
Private landlords are an important source of investment in housing stock and a worsening of their financial position will likely result in less investment. Some would-be landlords are likely to be put off by the increased costs that may be demanded by letting agents, and together with the withdrawal of mortgage interest rate relief and additional stamp duty, this will likely reduce the number of new entrants. This will put upward pressure on rents and stifle the market.