ARLA Propertymark (Association of Residential Letting Agents) has claimed that the government’s proposed ban on letting agent fees will cost tenants who stay in properties the longest hundreds of pounds.
The organisation has worked with research consultancy Capital Economics to explore the impact a ban on letting agent fees would have on rent costs, letting agents, the private rented sector and the wider economy.
Letting agent fees account for around a fifth of letting agents’ revenues, and cover the cost of checks required to set up a tenancy agreement. If they are banned outright when the government publishes its consultation, agents will need to pass the costs on to landlords through higher agents’ fees. Two in five landlords (41%) expect they will need to pass on a portion of the inflated cost to tenants, and the research finds they will most likely push rents up by £103 on average per year. If landlords were to pass on the entire uplift in agents’ fees, tenants would be hit harder, typically seeing rent increases of £275 a year.
ARLA says this will hit long-term tenants the hardest. Based on an average rent increase of £103, those in tenancies 10 years or more will lose out by £755. However, those who move every six months will pocket £4,463 over a 10-year period.
The lettings sector employees around 58,000 people across the country. If letting agents take the full hit of the letting agent fee ban, 16,000 jobs will be at risk, ARLA claimed. It believes however that it is more likely agents will pass on 75% of the costs to landlords, which would result in job losses of around 4,000.
As landlords try to recoup the costs passed on through increased agent’ fees, ARLA says they will implement several coping mechanisms, including:
- Not buying any more rental properties (27%)
- Selling some rental properties (20%)
- Reducing use of letting agents (8%)
- Spending less on property maintenance (7%).
In Scotland, letting agent fees were banned in 1984 and officially clarified in the Private Rented Housing Act of 2011. This meant that tenants were only accountable for the rent and deposit, and everything else would be charged to the landlord. However, this has resulted in many agents carrying out less of the tasks they were doing previously. ARLA claims that one in four said they no longer do credit checks as standard.
ARLA says that the Exchequer is in receipt of £400m in employee taxes from letting agents which is at risk if there is a hit to employment in the sector. Further, letting agent activity supports a huge range of jobs through spending with suppliers, such as maintenance firms and legal firms, which will all be put under pressure if activity falls. Using government data, ARLA estimat s that letting agents spend around £1.4 billion annually on goods and services such as accountancy and legal fees, building supplies and government services. Overall the spending on suppliers supports around 17,000 jobs indirectly across the UK and £1.1 billion of value added.
David Cox, chief executive, ARLA Propertymark, said: “The lettings sector is worth about £4 billion and employs around 58,000 people all over the country. The government’s Autumn Statement announcement that it plans to ban letting agent fees was the third big blow in as many years for agents, and exacerbate the threat to the private rented sector; an increasingly important tenure on which millions of people rely.
“For many tenants, buying a property simply isn’t an option, and they must depend on the private rented sector to provide security, good standards and fundamentally, a home. Our findings show that landlords are likely to raise rents as a result of the ban on fees. Those tenants who move least frequently, which tend to be lower income families, will be worst hit by rent rises. This is ironic and shows that there will be unintended consequences to what, in effect, is a crowd-pleasing, populist policy.”