November 26, 2016
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| The autumn statement saw the Conservatives try to lessen the fees pain for renters, but will it work? Photograph: Dominic Lipinski/PA |
The good news is that this is more than a proposal: the chancellor, Philip Hammond, said ministers “will” bring in a ban, which means that tenants will no longer have to pay fees that can run into the hundreds when they sign a new tenancy agreement. But some felt there was a worrying lack of detail – Hammond merely said it would happen “as soon as possible”, while the Treasury said the government “will consult on this in due course”. So it’s far from clear when the fees will be outlawed.
But how much do people actually pay? There are varying figures. The latest English Housing Survey, published in July, found that 40% of private renters were charged a fee by a letting agency or landlord in 2014-15, at an average of £223. Citizens Advice last year put the total average tenancy fee at £337, while a 2013 report from housing charity Shelter said one in seven (15%) renters using an agency forked out more than £500.
However, the biggest area of debate was whether the ban will drive up rents, on the grounds that landlords will now have to pay these costs and will simply pass them on to tenants. Or will landlords or letting agents absorb the costs?
Guardian Money decided to round up the views of experts and commentators on the key question of whether the ban will mean higher rents.
No it won’t/most likely won’t
Generation Rent, which campaigns for better privately rented homes, says: “We don’t think it will [push up rents], mainly because rents are really just set by what people are prepared to pay in the market. Rents have been rising because demand has been so high.” The organisation says the fact that there is such huge variation in the level of fees charged shows there is a lot of scope for getting these costs down. It adds that landlords will have the power to shop around for lower fees.
PricedOut, the group campaigning for affordable house prices, believes it is “very likely that landlords and agents will bear most of the costs, as they have done in Scotland, which banned fees years ago”. It adds that even if all fees were to be passed on in the form of higher rent, “this will still benefit tenants, as their costs will be spread and they will find it easier to move home, giving them more bargaining power”.
Shelter published a report in 2013 that looked at what had happened in Scotland. There, it has been illegal to charge “premiums” – fees charged at the start of a tenancy, in addition to rent and the deposit – to renters since 1984. However, the law wasn’t enforced until 2012, when it was clarified. Shelter said its research had shown that landlords in Scotland “were no more likely to have increased rents since 2012 than landlords elsewhere in the UK”. In fact, only one landlord in 120 surveyed said they had noticed an increase in agency fees and had passed this on to their tenants.
easyProperty, the online estate agent, says: “Any sensible agency won’t pass on the charges to landlords due to competition in the sector, so we don’t foresee rent rises, as there is no need to add the fees to rents.”
Yes it will
Housing minister Gavin Barwell was asked two months ago whether he would follow the Scottish example and ban letting fees. He tweeted: “Bad idea – landlords would pass cost to tenants via rent. We’re looking at other ways to cut upfront costs & raise standards”. It’s not clear whether Barwell has since changed his mind… or had it changed for him.
Beresfords, a chain of estate agents, says: “Ultimately landlords will be expected to pick up most, if not all, of any fees lost by agents. However, landlords will want to recoup such increases, and the most obvious way to do so is by increasing the rent. Unfortunately, over time, tenants could end up paying much more in uplifted rent than what they would have expected to pay in initial fees at the outset.”
The Residential Landlords Association says: “This will not help tenants, especially those who are ‘just managing’. Agents’ fees have to be paid by somebody. If any extra fees are passed on to landlords, tenants will end up paying them for ever, as rents will increase.”
Simon Gerrard, MD of London estate agency Martyn Gerrard and a past president of the National Association of Estate Agents, says yields for landlords are already low, “so lowering them further means landlords will simply sell rather than rent, which will push rents up even higher because there will be less stock”. He adds: “The landlords that do stay in the market will have to increase rents to cover these new costs.”
Maybe …
Lord Bourne of Aberystwyth, a communities minister, said during a House of Lords debate on 18 November that Gavin Barwell has “been clear that we must be mindful of the potential impact on rents from banning fees paid by tenants… This is not a straightforward issue, and we have to be careful that any changes do not have impacts elsewhere”.
‘We’ve nothing to save after £2,300 on rent and childcare’
Over the past decade Sarah Cross has become an expert on London’s rental market, having moved every year between 2007 and 2015 – often not out of choice. So she was pleased at the government’s decision to ban letting agents’ fees to tenants. “That’s a really positive thing – previously we’ve paid nearly £1,000 just in fees and charges.”
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| Sarah Cross and her son Oliver. Photograph: Martin Godwin for the Guardian |
She and her partner both earn above the national average – their household income is £80,000 – but they still can’t afford to buy a family house in London. “We have no money to save after rent and bills,” says Cross, 31, who works as an operations specialist for a major company. This also means the couple’s plans to grow their family are currently on hold. “We’d like another child, but living in London limits your funds – and we don’t really feel like we have enough behind us to have a larger family.”
The couple pay around £1,300 a month in rent, with childcare swallowing a further £1,000. They are clearly not financially destitute – “We go on holiday” – but Cross adds: “One of us basically pays the rent and bills, and the other pays for childcare and essentials.”
Having had to move so often in the past, the birth of Oliver in 2014 saw them negotiate a two-year contract “to ensure we wouldn’t have to disrupt our whole lives one year later”.
Cross says that, like many people, they are in a catch-22 situation: house prices are stratospheric because too few homes have been built in London to sustain the number of people, but they don’t feel they can move out because “the employment wouldn’t be there”.
She says something needs to be done to get the capital’s housing market working properly. She is “intrigued” by the news of 40,000 additional affordable homes, but says: “It’s really important we build more affordable homes that are fit for purpose – we’ve viewed several shared ownership schemes and haven’t found one appropriate for family living - and that maybe we limit the price that we pay on rental properties.”
Cross is a supporter of the charity Shelter, which also welcomed the decision to ban letting agent fees.
https://www.theguardian.com/money/2016/nov/26/banning-letting-fees-higher-rents-tenants-ask-experts
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