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Categorized | Property

Letting agent fees banned in Autumn Statement

Posted on November 23, 2016

Landlords and estate agencies are set to pay the price of the latest initiative to help “just about managing” Britons after Philip Hammond, the chancellor, announced a ban on letting agents charging fees to tenants.

In his Autumn Statement, Mr Hammond said he would take aim at the charges letting agents can levy on tenants for services such as administration and referencing. The government believes the ban — to be brought in “as soon as possible” following a consultation — will help millions of households in private rented housing by sparing them what can amount to hundreds of pounds in fees.

“We have seen these fees spiral, often to hundreds of pounds,” Mr Hammond said. “This is wrong. Landlords appoint letting agents and landlords should meet their fees.”

The move came despite a warning from the housing minister in September that “landlords would pass costs to tenants via rent” if the fees were banned. Labelling this a “bad idea”, Gavin Barwell said on Twitter at the time that “we’re looking at other ways to cut upfront costs & raise standards”.

On Wednesday the minister said: “It is the nature of the job that you have to defend current policy, even when you’re working to change it.”

Shares in letting agents fell sharply on Wednesday morning when details of the plan were reported by the Financial Times and other news organisations. Foxtons, which focuses on London property, was down 10.6 per cent at the end of Mr Hammond’s presentation, at 110p per share, while Countrywide shares were down as much as 5.5 per cent before recovering to trade down 3.5 per cent by the time the chancellor wrapped up. Shares in LSL Property, which owns estate agencies across the UK, dropped 5 per cent to 207p per share.

Until now, letting agencies have been able to charge both tenants and landlords for administrative services such as checking references, preparing a tenancy agreement, renewing a tenancy and ending a contract. The agencies will now need to pass more of those charges on to landlords, or absorb part of the costs themselves.

Consumer and tenant groups welcomed the news after attacking the level of charges. Research from consumer group Citizens Advice found letting agents charged average fees of £337, and in some instances up to £700.

Gillian Guy, Citizens Advice chief executive, said fees had gone up by 60 per cent in the past five years: “People are paying over £300 to letting agents for what is often basic administration, such as checking references and running credit checks. This change will help the 4.8m households who now rent from a private landlord — 1.5m of whom are families with children.”

Richard Lambert, chief executive of the National Landlords Association, said agents would be forced to shift fees on to landlords. He added: “But adding to landlords’ costs, on top of restricting their ability to deduct their business costs from their taxable income, will only push more towards increasing rents.”

The change follows reforms to the Scottish system, which moved in 2012 to shift the burden for such costs on to landlords rather than tenants. Looking at whether this led to rent rises, a committee of Westminster MPs in March 2015 concluded “the evidence available is not strong enough to reach a view on the impact of the ban on fees in Scotland”. In 2014, campaign group Shelter said that independent research it commissioned found landlords in Scotland were no more likely to have increased rents in 2012 than elsewhere in the UK.

In areas where the rental market is highly competitive, landlords may have to shoulder more of the costs, putting further strain on their balance sheets after a series of government measures that have strained the buy-to-let investment model.

Landlord groups have said some fees, such as reference checks, should not be passed on to landlords, since they prevent dishonest applications. The NLA has argued for greater transparency in charging, rather than a complete ban on tenant fees.

The ban may also hurt estate agency businesses that have been seeking to expand their lettings divisions as the number of homes being bought and sold remains low across the country. Foxtons, for example, said in October it was pleased with the results of “strategic initiatives which we have implemented to grow our lettings business”.

David Cox, managing director of the Association of Residential Letting Agents, said: “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 do little to help cash-poor renters save enough to get on the housing ladder.”

Rises in letting agents’ fees have hit millennials in particular, critics said, since they were increasingly likely to rent. Some 24 per cent of those aged 25 to 34 rented privately in 2004-05, according to the official English Housing Survey; 10 years on, this had risen to 46 per cent. The proportion of the same age group buying with a mortgage fell from 54 per cent to 34 per cent over the period.

Research by Shelter in 2012 found that one in seven private renters who had used a letting agent paid more than £500 in fees. The English Housing Survey found those renters who faced agency fees paid an average of £223.

Political momentum has been gathering behind the issue for some years. Labour proposed to end the fees in its 2015 manifesto. A Renters’ Rights Bill calling for a ban was proposed by the Liberal Democrat peer Baroness Olly Grender in May and last week passed a committee stage in the House of Lords.

Additional reporting by Mure Dickie