Two days on and the property industry is still reeling from the Chancellor Philip Hammond’s decision to ban letting agent fees for tenants almost immediately.
It shouldn’t have come as a surprise, given that these fees were banned in Scotland four years ago and the Government has actually been consulting on them for the last two. It’s become commonplace to hear about big high street letting agents increasing their tenant’s fees by £50 every couple of years, and others charging over £300 simply to press print on an identical tenancy agreement to renew for the following year.
For long suffering tenants (or the JAMs (Just About Managing) if you’re the Government), they have had no choice but to pay these unfair fees, which often run into hundreds of pounds. For them, renting is a necessity and our the industry doesn’t work like a shop, which risks losing customers if it puts up its prices. The Government has needed to play a role in this important issue for some time and Hammond himself admitted to failing to ‘regulate the market at an arm’s length’.
But the ban on fees, is a case of robbing Peter to pay Paul, as this cost will undoubtedly get passed onto landlords and, consequently, tenants through rent rises. Rents in Edinburgh went up 8 per cent the year after tenant fees were abolished (considerably above the growth of UK rents that year) and the same will now happen in England.
This will only make matters worse for tenants, who in some cases are already spending up to two thirds of their salary on rent. Unfortunately, the people making these decisions, don’t seem to understand the dynamics of the lettings market and the effect that this will have – both Theresa May and Philip Hammond have themselves previously voted against a ban on fees.
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There is already a total mismatch between supply and demand in the lettings industry, which is driving rents up by as much as 5 per cent a year, rising far higher than salaries, which are predicted to rise by only 1 per cent next year.
At Upad, we see over twice as many tenants chasing each rental property as we did four years ago. The neglected lettings industry has a bulging balloon of tenants and too few rental properties. As a result, 10 per cent of all tenants in the UK have fallen behind with their rent payments (as of August 2016) and I predict that 2017 will see the highest rent arrears yet.
Alarmingly, in the last two months, more properties have been sold than purchased by landlords and if this trend continues, then tenants really will be in real trouble. With the new ban on fees, the 3 per cent stamp duty surcharge which came in earlier this year, and plans to limit tax relief on mortgage interest payments from April 2017, the lettings market is in danger. But it could be good news for online agents like mine, as the fee ban is certainly the final nail in the coffin for the high-street lettings industry.
Much like the high-street bank, another dying breed, a lot of independent high street agents who set up shop looking to make a quick profit could be consigned to history as landlords look to switch online to save costs.