Britain’s buy-to-let landlords are squaring up for a battle with letting agents, after the chancellor this week announced he would ban agents from charging tenants fees for administrative services.
Philip Hammond on Wednesday said he would move “as soon as possible” on the ban, following a government consultation expected to take place next year. “In the private rental market, letting agents are currently able to charge unregulated fees to tenants. We have seen these fees spiral, often to hundreds of pounds. This is wrong,” he said in his Autumn Statement.
Housing market experts said letting agents were likely to try to defend the profits generated by fees and charges by asking landlords to foot the bill; while landlords would resist attempts to pass on the costs to them, particularly in areas where a competitive market limited their ability to raise rents.
Anthony Codling, an analyst at Jefferies, said the chancellor’s move would spark an “interesting debate” between agents and landlords. “At this early stage it is difficult to ascertain whether agents will be able to turn tenant fees into additional landlord fees. We doubt that many landlords will willingly put their hands in their pockets to help their agent replace lost income.”
The move is expected to benefit newer letting agents with a strong online presence and low or no charges for tenants, such as Purplebricks, Upad and Rentify. Mr Codling said: “Some agents may see this as an opportunity to gain market share by offering lower cost alternatives to … traditional fee structures.”
Landlord clients had so far been willing to accept the online model under which tenants do not pay for administration, according to James Davis, founder and chief executive of Upad. “Generally, the landlord is happy to pay for referencing to be done and it hasn’t had a detrimental effect on our business.”
In a survey of landlords carried out in the immediate aftermath of the Autumn Statement, Mr Davis said just over half of 500 Upad landlords surveyed had said they would continue to ask tenants for references, but would pass any extra costs on via rents. Some 32 per cent said they would absorb the costs themselves. “The marketplace will change and it will be tenants that end up losing out in the long run. High street agents are not going to give up that revenue stream without a fuss,” Mr Davis said.
Mr Codling warned that the rule change could lead to tenants having to pay more. “The law of unintended consequences here is that rather than paying a one-off fee as the tenant going in, if it does find it’s way into rents you’re paying that on an ongoing charge. That’s not what this is intended to do.”
While the ban on tenant fees may fuel competition in the agency market and leave landlords facing extra costs, some may think twice before reacting by breaking with a longstanding agent. Richard Bowser, editor of Property Investor News, said the decision would be particularly hard for landlords whose portfolio is based hundreds of miles from where they live, and who would typically rely on a local letting agent to manage the properties.
“They may have forged a good relationship with their agent over several years and built a degree of trust. Those landlords will be faced with a dilemma. But the letting agent also faces a dilemma — do they want to lose a good portfolio client?”
David Lawrenson, a landlord adviser at LettingFocus.com, said banning all tenant fees was a draconian step, but letting agencies “only have themselves to blame”.
“Too many agents charged rapacious levels of fees, which were frequently far in excess of the actual costs,” he said. “Also, we are convinced that too many agencies engaged in the practice of hiding fees and only revealing them at the last minute when the tenant was committed.”
For those landlords who feel they have little choice but to absorb the costs, the ban is just the latest in a string of adverse tax and regulatory measures aimed at reining in growth in buy-to-let. But Mr Bowser said investors would continue to buy in areas where the prospects for rental demand were high.
“Anyone investing in and around London knows it’s a long-term game. We’re now into a different part of the cycle in the capital. But across the country there are many different micro markets.”
