Ban of Letting Agent Fees in Autumn Statement
Chancellor Philip Hammond announced in the Autumn Statement on 23rd November, that the Department for Communities and Local Government would launch a consultation to consider a ban on letting agent fees. Letting agents charge for a variety of services including preparing tenancy agreements, checking references and credit checks. Whilst there are currently no details on the type of fee which would be prohibited, the ban is expected to save the UK’s 11 million renters in admin fees paid to agents. According to the charity Citizens Advice these amount to an average £337 per property nationwide.
Letting agents are protesting this loss of income leading many to believe that they will simply recover it elsewhere. Some commentators have speculated that landlords will be charged a further premium, and since prospective tenants rarely select a property due to any personal loyalty to letting agents, listings are placed according to the landlord’s preference. Agency fees vary significantly across the country and the lack of regulated fee structures coupled with high demand for rental property gives tenants very little room to effectively negotiate these fees.
Despite the headline saving this ban represents for tenants, it may only be a quick fix. Long term effects could result in an increase in rental costs, which in turn makes the initial outlay of funds even more onerous when taken into consideration with the security deposit and rental advances demanded prior to keys being released.
If agents do look to recoup this revenue from landlords immediately, it is likely the cost will pass to tenants. However, this in turn may make the letting market more competitive; agents vying for the landlords property more aggressively could in the longer term drive their rates down.
The graphic below shows the outlay of initial funds required if a landlord decided to increase rent by 10%; this could be more than the current average agency fee of £337
How this may impact mobility
The changes, when introduced, are likely to have a greater impact on permanent transfers or employees coming into the UK on localised packages as these individuals are typically responsible for their own rent. Many organisations currently pay letting agent fees on behalf of employees moving under these package types and therefore may need to adopt a flexible approach to these costs in the future, depending on the outcome of the government consultation.
Sterling will be following the consultation carefully and will provide further information as and when more details of the proposal are available.