- Tenant Fees set to be 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 last Wednesday
what does this actually mean for Morley tenants and Morley landlords?
The private rental sector in Morley
forms an important part of the Morley housing market and the engagement from
the chancellor in Wednesday’s Autumn Statement is a welcome sign that it is
recognised as such. I fully support 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 Morley
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 Morley 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 inescapable 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 in Scotland to rents?
I have carried out my research up to the end of Q3 2016 and
this is the evidence I have found..
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 Morley 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 Morley 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 Morley Property was £512per month and today it is £598
per month, a rise of only 16.7% (against an inflation rate (RPI) of 38.5%).
Using
the UK average management rates of 10%, this means the landlord will be paying £717.60
per annum in management fees.
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 Morley, average rents would rise to £683 per month by
2022 (see the red line on the graph) and
so the landlord would pay £819.60 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 Morley Tenants?
Quite
the opposite. Look at the blue line on the graph). If the average rent Morley
tenants pay had risen in line with inflation since 2005, that £512 per month
would have risen today to an average of £710
per month. (Remember, the average today is only £598 per month) .. and even if
inflation remains at 2% per year for the next six years, the average rent would
be £771 per month by 2022 .. meaning even if landlords increase their rents to
cover the costs tenants are still much better off, when we compare to the £683
per month figure to the £771 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.
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