- · Tenant Fees set to 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 on Wednesday what does this actually mean for Mid Sussex
tenants and Mid Sussex landlords?
The private rental sector in Mid Sussex forms an important part of the Mid
Sussex housing market and the engagement from the chancellor in Wednesday’s
Autumn Statement is a welcome sign that it is recognised as such. I have long
supported 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 Mid Sussex 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 Mid Sussex 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 a few days ago 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? 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 Mid Sussex Rental Market in the Short term?
Well nothing
will happen in the next 12 to 18 months, its 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 Mid Sussex 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 £225 and for a couple £300, meaning on
average, the fee is around £260 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 £260 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 Mid
Sussex Property was £1,020 per month and today it is £1,251 per month, a rise
of only 2.4% (against an inflation rate (RPI) of 22.8%).
Using the UK average management
rates of 10%, this means the landlord will be paying just over £1500 per annum
in management fees.
If the landlord is expected to cover
the cost of that additional £260 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 Mid
Sussex, average rents would rise to £1,533 per month by 2022 (see the red line
on the graph) and so the landlord would pay £1,840 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 Mid Sussex
Tenants?
Quite the opposite. Look at the blue
line on the graph). If the average rent Mid Sussex tenants pay had risen in
line with inflation since 2005, that £1,020 per month would have risen today to
an average of £1,535 per month. (Remember, the average today is only £1,251 per
month), and even if inflation remains at 2% per year for the next six years,
the average rent would be £1,535 per month by 2022 meaning even if landlords
increase their rents to cover the costs tenants are still better off, when we
compare to the £1,533 per month figure to the £1,535 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.
