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Nov 24, 2016: Fall Out From Fees Ban

A consultation into banning letting agent fees is to be launched in the New Year. The ban will also require primary legislation through a new Act of Parliament. However, questions are now emerging as to the alleged lack of any prior consultation whatsoever with the industry. It appears that none of the industry bodies had any inkling of the ban. ARLA has slammed the Government for announcing the measure without consultation, while also urging letting agents to continue business as usual. However, ARLA has in turn been criticised by a previous adviser over its tactics. The Government U-turn on letting agents fees follows an announcement only last month by TPO, which announced a joint initiative with Trading Standards to make agents aware of their mandatory responsibilities to show fees. In an EYE recent meeting with TPO, no possibility of a ban was even mentioned. That possibility was also not flagged up in conversations with ARLA, NALS or RICS. However, ARLA is now urging businesses to make their views heard. ARLA managing director David Cox yesterday said: “ARLA is extremely disappointed that this announcement has been made without a strong basis of evidence. “We are asking the Chancellor and the housing minister for a meeting at their earliest opportunity in order to ensure that they fully understand the damage that this will cause to housing standards and the impact on the cost of renting. “We need the Government to explain why measures have been brought forward without prior consultation, undermining the work that we and other partners are doing.” Separately, it is clear that there has been a gathering roar of protest against the ban on letting agent fees charged to tenants, with many agents warning that it will only fuel the housing crisis. At EYE, we have received an unprecedented number of emails on the subject – so many that we simply cannot report on the majority – and have had to choose a tiny handful of reactions. However, please do keep posting up your comments and also letting us know your responses. Every single one of your emails will be read and noted. Paul Smith, head of Spicerhaart, said: “Government intervention in the rental market will sadly only lead to a backdoor rent rise for tenants. “The cost of administration such as references and inventories that tenant fees would have previously covered are now likely to be passed on to the tenant through their rent. We estimate that rents will on average increase by £21.25 per month, which is an extra £255 a year, as a direct result of this change – with tenants in London likely to be much worse off. “This measure represents yet another government blow for landlords, following the 3% Stamp Duty surcharge on second homes, the end of mortgage relief and the new rules on lending relative to rental income that have already come from the government in the last year. “Landlords are already abandoning more expensive cities such as London because of the costs, even though this is exactly where more rental properties are desperately needed – and this announcement is hardly going to persuade them to return. “The buy-to-let market is suffering, with haart data showing that the number of landlords registering to buy has fallen by 25% annually across the UK, and by 60% in London. “We’re creating a time bomb for Generation Rent by pushing landlords out of the market, as well as undermining house-builders’ pipelines by cutting demand. “The Government should concentrate on getting the market moving again, not penalising landlords, and we cannot wait until the situation reaches a crisis point.” Glynis Frew, managing director of Hunters, which was founded by her brother Kevin Hollinrake who is now a Tory MP, said: “We are very disappointed. An outright ban would have unintended consequences on the very people the government wants to protect perhaps financially or even in terms of property safety. Agents perform both a service and a paralegal role when assisting tenants to move home. “In our national tenant survey earlier this year, 75% of respondents said they did not want rents to increase to cover the cost of banning lettings fees. Unfortunately, it is very likely rents will increase in response to these changes. “Whilst helping first-time buyers on to the housing ladder is important, the Government has overlooked the fact that some people genuinely want to rent or have short-term plans. 60% of respondents from the Hunters tenant survey also stated they chose to rent for reasons other than being unable to buy. “We welcome the opportunity to enter into consultation and we sincerely hope the Government listens. The proposal that landlords would simply pick up the cost may have been acceptable in a different climate, however landlords have received countless knocks from the Government earlier this year which will make this unlikely.” Andrew Ellinas, of London agents Sandfords, said: “Tenants have to be referenced, but if they subsequently fail those checks, preventing the tenancy from going ahead, who pays that fee? “What about inventory checks? How can you now expect the landlord to pay for the inventory at the beginning and end of a tenancy – it doesn’t make sense. A tenant pays for it on the way in for their own peace of mind and the landlord once the tenancy has ended so that they can check everything is still there and in good condition. “Landlords will not welcome this news and will look to recover their incurred costs elsewhere. Tenants may avoid a fee at the start of the tenancy, but there will be an unavoidable outcome of higher rents for them to pay.” Eddie Hooker, of insurers Hamilton Fraser which runs the Property Redress Scheme and also mydeposits, said some agents will have to close. He said: “This ban will increase costs on landlords who are trying to plug the gap in a difficult housing market. Parts of these costs are likely to be passed back to the tenant through increased rents as a result. “It could also have a negative impact on the rental market as a whole with possible office closures and some agents having to shut up shop entirely.” Separately, former adviser to ARLA Malcolm Harrison criticised ARLA for not being clear enough in stating that letting agency fees are about passing on costs, not profit. Harrison said: “What is surprising is that the professional bodies so significantly failed over the last few years to counter that these items are on-costs not fees and also that their members should not remain members if they continued to see allow these profit centres to be milch cows fit for a Lehman Brothers.”

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