Cap tenancy fees, don’t ban them

In his Autumn Statement, Chancellor, Philip Hammond, announced ministers would bring a ban on all tenancy charges. The debate on what impact this will have on the already squeezed rental market has raged on. Ultimately, the question on everyone’s lips is: will the ban push rents up? 

Without careful management, we believe it will. A tenancy ban could result in increased rents as landlords seek to recoup the costs of referencing and administration. It could also lead to a poorer service to tenants. 

Although we have seen very little movement since the budget, it is unlikely the proposal will be shelved. Hammond made it clear that it wasn’t a case of if, more a case of when. It is understood that primary legislation is expected in the Autumn with a final ban to come into force in 2018.

As a market leader in the rental sector, we strongly urge the Government to implement a cap on fees, rather than an all-out ban. 

Tenancy charges vary widely from agent to agent. The latest English Housing Survey found that 40% of private renters were charged a fee by a letting agency or landlord in 2014-15 at an average of £223. 

In 2012, Scotland outlawed extra charges for tenants, and while it was positive for renters in the short term, the long term impact has been mixed. Since the ruling, tenants in Scotland can only be asked for just the rent and deposit – everything else has to be paid by the landlord. Scottish letting agent groups argue that rents rose when fees were banned but a House of Commons select committee decided the evidence was inconclusive. In fact, reports in Scotland suggest rents increased by 4.25% immediately after the announcement to ban tenant fees.

An all-out ban could also have a significant impact on the supply of homes. It is widely recognised that England is in profound need of more rental homes. RICS has estimated that 1.8 million new rental homes are going to be needed by 2025 to keep up with demand. Figures from RICS suggest the number of households renting has increased from 2.3 million in 2001 to 5.4 million in 2014 and is expected to reach 7.2 million by 2025. 

If an all-out fee ban is imposed, it is inevitable that landlords would absorb some of that cost. It’s also worth mentioning that without payment, important tenancy checks may be compromised. 

Our concern is this will this leave landlords tempted by a cheap fee exposed, as agents look to cut corners in order to offer a lower fee. In turn this will place tenants in the hands of a largely unregulated part of the industry which is surely something we are all trying to prevent. 

In line with its ban on tenant fees, perhaps the Government should also consider the mandatory regulation of all lettings agents in England in its impact assessment. If the Government’s objective is to improve industry standards and to stop unscrupulous lettings agents, then this would be a long-term solution. 

It may have short term appeal, but in the long term the ban will not help renters if the wider implications on the housing market are not considered. 

For more advice get in touch with your local branch.