Is the ban on agents’ letting fees beneficial for the tenants or the letting agents?

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Two men shaking handsNearly 42% of all letting agents in the UK believe the looming letting fees ban will be the biggest challenge to their business this year, with fears of job cuts and reductions to letting agents’ income, according to recent research conducted by Fixflo, repair and maintenance software company.

 

The opinions on the impending ban are mixed; some experts say the ban is going to make it more affordable for tenants to rent a property while others say it is going to lead to an increase in rents as letting agents’ pass on costs to their landlords who will have no alternative but to raise rents.

 

Currently, letting agents make significant profits on every new tenancy. Openrent estimates that some letting agents are making profits of 473% on certain fees. For example, the real cost of referencing a single tenant is £15 yet recent government research indicates that on average a letting agent charges £86 for this service. Furthermore tenancy renewal fees are around £85 but by calculating the cost based on it taking ten minutes and an average salary of a letting negotiator being £20,000 the real cost is just £4.

 

There are more examples of letting agents significantly overcharging for their services and the profits are significant. With an average tenant paying £233 in fees, while some have reported to have paid a huge £700, on top of the management fees a landlord pays, this could be considered exploitative.

 

Many landlords welcome the changes too, as often they find they are charged for the same services a tenant is charged for and some landlords feel they are paying extra for costs which should be covered partially by management fees, which can be a percent of the monthly rent or a set fee.

 

All these fees look like they will be wiped out when the ban comes fully into force. The ban is seen as a victory for the homelessness charity Shelter, who has been calling for a ban since 2013. They found that one in seven tenants has been charged more than £500 in fees.

 

Other experts see it as inevitable that the cost will still have to be paid by the tenant in one way or another and many worry that there will be a rise in rent. If letting agents would raise their management fees in order to cover their losses of £500 per tenancy at the start, landlords would need to raise rents by £41.66 per month. This would make an additional rental income of £500 per annum, in order to cover the extra management fee. Tenants would be paying an extra £500, which would then be passed onto the letting agents. Over a five year tenancy tenants would be paying an additional £2,500 over a five year tenancy. Therefore in the long run, tenants could end up paying much more.

 

Others say the letting market could just be regulated with the government setting caps for fees such as references, inventories, ID checks, tenancy renewals etc. This would ensure that all tenants are charged fairly, but it is hard to say if this would help or cause a rise in rental prices too.

 

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6th October 2017