The government is consulting on placing a ban on letting agents charging tenants fees for their services. And we expect that this ban will also apply to landlords who operate direct (say, via an online letting agent, for example).
And though it is a consultation, I fully expect this to become law.
I cannot say I’m surprised.
Many letting agents for too long have been charging tenants outrageous fees, when of course, they were also charging landlords for the same services at the same time.
In Scotland, letting agents have been banned from charging fees to tenants for two years, so the government in England and Wales will just be following the Scottish example.
Letting Agency Fees
We think the government may have missed a trick though.
We wrote back in April of this year (at our LettingFocus.com site) that the problem was actually lack of clarity on fees and a failure of transparency. We said that the law was an ass because it did not mandate that the likes of the portals, (Rightmove, Zoopla and others), should have to display tenant fees on their advertising listings too. All the portals did for most ads was just place a tiny notice saying “fees apply” on the listing, which seemed to us to be pretty poor.
Why does this matter?
Well, if you think about it, the portals are the places that maybe 70 to 80% of tenants look to find property, so this was a huge omission in the law as the portals are clearly also concerned with the business of advertising for let properties.
This was a real problem because too many of the actual end-letting agents who advertise on the portals, (just about all must use the portals), were not exactly busying themselves telling applicant tenants what the fees were.
But, not for the first time, the government has implemented a big change when all they had to do was force the portals to display the fees. If they had taken this simple route, the tenants would see exactly what the fees were at the very first point of contact. They would then behave like any rational consumer by going to those letting agents or landlords who charged no fees at all (or only low fees that simply reflected the cost of doing reference checks, say), and where the rent was also competitive.
In other words, people like us. In our lettings business we have only ever charged a maximum of £50 fees. We always made a big thing of this in our advertising too. The tenants who applied to rent a property from us liked this a lot – and liked us too because we did not charge fees that were above the cost to us of the time and money spent on reference checking.
Sadly, thanks to the government, we will not be able to differentiate ourselves in this way in the future.
So, again the government has implemented a draconian measure which was not needed and have implemented the wrong policy.
They have again failed to put in place a system in which tenants could act as rational consumers in which they would know the price of renting at the outset – a bit like when you go into a shop on the high street to buy bananas or a sofa.
They have elected to treat tenants like idiots.
Well, I’m sorry, I don’t believe Generation Rent who say rents will not rise as a result.
What will happen now is that letting agents will just raise fees they charge to landlords. And most landlords will pass most of the cost straight on to the tenant in higher rents, especially where demand is high.
A small minority, maybe 5% of landlords at most, will think about cutting out the full service high street agent and go to far cheaper online letting agents to get advertised on the portals – and then do all the rest of the work that the letting agent would have done. (The portals charge about £80 maximum for unlimited advert time per property).
So, there could be a very small benefit to tenants coming through in terms of lower rents being charged by the few landlords who do this, but that is all.
Online letting agents like UPAD will see their business grow a bit as a result.
Tenants looking for property and also searching for good landlords and letting agents would be well advised to buy my book, “Tenants Guide to Successful Renting”.
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