The Queen’s speech to the British parliament this week was a scaled-back affair, which was unsurprising given the Grenfell Tower fire, recent terrorist attack and the fact that the prime minister Theresa May is still trying to agree a deal with the DUP to prop up her minority government.
Much commentary in recent days has concentrated on the long list of Conservative manifesto promises that have fallen by the wayside, reflecting the fact that we now have a PM that has been stripped of her power and a government that is just about managing.
While there were a few sensible measures included in the Queen’s speech, such as on insurance reform and domestic violence, controversial parts of the Tory manifesto, including means-testing winter fuel payments, foxhunting, the scrapping of free universal school meals for school children, and new grammar schools, were dropped. But unfortunately for many letting agents, the proposal to ban letting agent fees in England was not among the casualties.
“The blanket ban announcement is a headline grabbing knee-jerk reaction from a new government trying to do anything to gain public support,” said Simon Gerrard, MD of Martyn Gerrard.
“This decision has been made with little consideration for the housing industry and my concern is that, moving forward, investing in property will cease to be a financially viable option for the many,” he added.
Danielle Cullen, managing director of StudentTenant.com, believes that the prime minister is “clutching at straws” by including letting fee ban in Queen’s speech.
She said: “The inclusion of the letting agency fee ban in the Queen’s speech does nothing but reeks of desperation.
“Theresa May obviously failed to gain the public’s trust with her manifesto in the lead up to the election. Now she is desperately clutching at straws trying to please as many people as possible, on a matter very important to large numbers renting in the private-sector.”
The proposed fees ban was initially announced last November during the chancellor’s Autumn Statement, and although the details are still very unclear, the move is clearly designed to shift the cost of all letting agent fees on to landlords.
Clynton Nel, residential director at JOHNS&CO, commented: “Although this (tenant fee ban) will of course alter the letting process and potentially impose a further financial strain on landlords, we will need to be versatile in adapting to the new policy and ensuring we continue to offer the highest quality of service and support to all our customers; both landlords and tenants.”
Some experts now believe that this proposed change in the law will leave landlords with no choice but to further increase rents, as letting agents look to pass existing tenant fees onto landlords, while others, such as ARLA, fear that as many as 4,000 jobs in the letting sector could be lost.
“A ban on letting agent fees will cost the sector jobs, make buy-to-let investment even less attractive, and ultimately result in the costs being passed on to tenants,” said ARLA’s chief executive, David Cox, who now questions what the point of a formal consultation into a fee ban was if the decision had already been made.
He added: “It’s unlikely the government had enough time to analyse all of the responses from the consultation, as it only closed on the 2nd June. It appears they had already made their decision and therefore the consultation was no more than a ‘tick box’ exercise and they haven’t appropriately taken the industry’s views into account.”
Kate Eales, national head of letting at Strutt & Parker concurred: “Regarding the total ban on letting agent fees outlined in the Queen’s speech, whilst it has not come as a bolt from the blue, it has come as something of a surprise in its speed as the industry consultation was only closed for responses on 2nd June.”
Robert Nichols, managing director of Portico, believes that the ban will come as welcome news to renters, but points out that the fees which allow landlords and agents to carry out a series of vigorous checks on prospective tenants before they let the property will still need to be covered.
“Ultimately these costs have to be paid be somebody, and they’re likely to fall on the landlord.”
So will the banning of letting agent’s fees help tenants? Well, in Coffin Mew’s associate solicitor Adrian McClinton’s view, “probably not as much as hoped”.
“I think that landlords will stand firm and we will see the cost of this proposed ban being partly shouldered by letting agents, by reducing their prices and internal cost cutting, and by tenants, through an increase in rents, which is possible because of the huge demand for housing,” he said.
RLA chairman, Alan Ward, believes that the draft bill put forward by the government serves neither tenants nor landlords, and leaves the market in a state of “unhelpful limbo”.
He commented: “Rather than proceeding with draft plans that will be eclipsed by battles over Brexit, ministers could instead use powers they already have to introduce a fixed menu of fees which letting agents would have to publish. This would enable tenants to immediately understand fee structures, and enable them to more easily shop around.”
The proposed regulation prohibiting agents from charging tenants fees confirm what many of us already know: “The letting industry is the ‘whipping boy’ of the government,” proclaimed Trevor Abrahmsohn of Glentree Estates.
He commented: “Maybe a cap would protect some of the consumers at the lower end of the scale but a ban is far too harsh and draconian and, as usual, the heavy, ‘clanking’, hand of government will ensure that the medicine is ‘worse than the ailment’.”
The fact is that we would usually expect to pay a fee for services provided to us and renting a property should be no different to any other industry, according to Suzanne Diamond, head of Letting at Humberts.
“We would naturally expect to pay an admin fee if we were leasing a car or if we were arranging a mortgage so why should letting be different?”
It is all very well agents being upset by the fee ban and with some justification, but Jeremy Leaf, north London estate agent, points out that the recommendation to ban tenants’ fees appeared in all main parties’ general election manifestos and so this cannot be regarded as a surprise.
“The problem is that the many are being punished for the mistakes of the few,” he said. “The overwhelming majority of agents don’t charge excessively for this service whereas those that do are being highlighted and it is an easy win for the government to ban these fees.”
The fact that the two major political parties support a tenant fee ban shows that “whether you root for ‘Calamity May’ or ‘Corbyn the Messiah’ is irrelevant”, according to James Robinson, general manager, Lurot Brand.
“We are constantly let down, lied to and left baffled by the ineptitude of our politicians,” he said. “Banning tenants fees is akin to squeezing a balloon at one end expecting the other end not to expand as the fees will just be added somewhere else.”
Like most other agents the government’s plan to abolish fees charged by letting agents to tenants has left Steven Bond, director of letting at Beresfords with “a very bitter taste in my mouth”.
He added: “I simply cannot accept the government’s stance that no costs whatsoever should be met by the tenants. In such instances where there is no cost to them it will, in my view become common place for certain tenants to proceed with tenancy applications on multiple properties all at the same time in the hope that one ‘will get over the finishing line’.
“Landlords and agents will in effect therefore be wasting a lot of time and money processing applications which will simply not proceed to completion. How can this be acceptable? In such instances I suspect many landlords and agents will then play the same game in reverse running multiple applications from different tenants on a single property so they are not left ‘holding the baby’ if a tenant pulls out as they have no financial commitment by doing so. In such instances all those genuine tenants involved who lose out through no fault of their own will be back to square one. How can this be healthy for the industry?”
Tim Hassell, MD of Draker Lettings, is among those that would have liked a more considered approach that would be seen “fair by all sides of the letting industry”.
“An outright ban may force many less profitable companies ‘underground’ with their charges which will inevitably be passed onto both landlords and tenants in other ways. This is something that as a lettings only agency, we absolutely do not want to do,” he said.
Hassell says that a major problem is the fact that we have a government that is “determined not to listen to proper counsel in this matter with most of the advice from property professionals being ignored”.
“Taking a balanced and reasonable approach and showing that all have been listened to would have encouraged both the government and the industry to work together to control this issue in a much more positive manner,” he added.
But there can be no denying that the some letting agents have overcharged tenants for their financial gain, and so the fact that the government has now acted and proposed to ban agents from making these charges has been welcomed by some industry figures.
Alex Harrington, group letting managing director at Dexters, commented: “Dexters supports the ban on tenants fees being brought forward and the limiting of any additional charges to tenants.
“We have always kept any charges to tenants as low as possible, making sure any financial contribution from a tenant has been transparent before they consider renting through us and that it is wholly relevant to the work carried out on their behalf.”
Charlie Woods, senior lettings director at Russell Simpson, has also “welcomed the government’s plans to cut tenants fees”.
He commented: “From our point of view it’s business as usual, for quite a while now we haven’t charged the standard administration fee, because we simply don’t see the need. We also don’t charge the landlord their portion as they are paying us a fee already so we’ve always felt it was unjustified to ask for anything else on top.
“There has been talk of some agents pushing the fees onto the landlord, who could subsequently increase the rent to cover the additional costs. However, I feel this is unlikely, as with the sales market, overly high prices in the rental market stand out and the properties will simply not let, so all-in-all this will be a very positive move for tenants.”
“The abolishment of fees in the rental market couldn’t come soon enough,” according to Lizzie Stevens, director of Folio London.
She added: “At Folio we stopped this practice several years ago; there is no need for tenants to be struck with a hefty upfront payment when moving home is an expensive time as it is.
“Corporate landlords like ourselves are ahead of the game and this will not affect our business – but it will shake up the private landlord sector and give a better name all round to the word landlord.”
Calum Brannan, CEO of No Agent, perceives the new Tenant’s Fees Bill as a “huge leap forward for the letting market – an industry that has been double dipping and making profits from both tenants and landlords simultaneously for too long”.
“With the Tenants Fee Bill now firmly on the horizon, agents will be under increasing pressure to deliver exceptional service in tougher conditions”, said Tim Wright, product director at KeyAGENT.
Ultimately, the highly anticipated announcement to ban agents from charging letting fees to tenants is a decision that most agents has been expecting, and the main issue now is how best to prepare for it.
“One of the ways to replace lost fees income is for agents to increase their insurance product uptake, and we’re ready to help them do that,” said Luke Burton, sales and marketing director at Rent4sure, a national tenant referencing firm which is currently working actively with several letting agent and landlord clients to deliver additional income streams that benefit tenants and landlords.
Until a firm policy is brought into effect, agents’ main focus must remain on serving their clients’ best interests and doing everything possible to simplify the process of letting properties on behalf of landlords and a new home for tenants, according to Hannah McDougall, lettings manager at United Kingdom Sotheby’s International Realty.
She commented: “It has been widely debated whether letting fees should fall to tenants or landlords. However, in either case, there are knock-on effects to be felt throughout the market.
“We hope a decision to ban fees charged to tenants will help to encourage greater consistency across the market and draw attention to protecting vulnerable tenants by stamping out any unreasonable fees enforced by a small minority of landlords and agents.”
Ultimately, what matters is that agents do not cut corners and fail to carry out stringent referencing checks, even if the government does now act and ban letting agents from charging tenant fees.
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno