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By Ellie Donaghy

Head of Lettings, Andrews Property Group

OTHER FEATURES

The tenant fee ban - another failure of government policy?

With a mere matter of weeks until the Tenant Fees Act comes in to effect, I can’t help but wonder just how successful the reality of this policy change will be.

At its heart, the ban is intended to make renting fairer for those who either choose to rent or those for whom it’s simply the only option. At the same time, of course, it is one of a number of initiatives aimed at reigning in the supposed unscrupulous nature of ‘rogue’ landlords and letting agents. 

As a key component of the government’s focus on cleaning up the rental sector, the tenant fee ban has been widely justified on the belief that it will save renters £240 million a year. On face value, that’s an impressive figure, but break it down and it equates to somewhere close to just £70 per household and while £70 isn’t a value which should be sniffed at, it’s also unlikely to make a huge difference to the average tenant – especially when you consider other costs involved in renting.

There’s no avoiding reality and that is simply that rents continue to rise year on year. Recent figures suggest that over the past twelve months, they’ve increased by an average of 3.3% and while they may not continue to grow at this rate forever, the likelihood is that they’re not going to reverse.

Even the Prime Central London market, which is thought to have suffered the greatest knocks in recent times, continues to see rents creep up. That ultimately means that tenants will carry on paying increasingly more regardless of any perceived ‘saving’ that the fee ban creates.

Then, of course, there’s the question of who foots the bill once the tenants themselves can’t be charged. Here, another fallacy of this policy change becomes apparent. Landlords will argue that in recent years they’ve been punished enough and that being able to earn a living as a landlord has become increasingly difficult. The result being that if they’re faced with greater costs, they’ll be forced to review the levels of the rents that they charge – and that’s something that certainly wont sit comfortably with tenants.

Indeed, if you look to Scotland where the tenant fee ban was introduced seven years ago, figures there would suggest that since the ban rents have gone up on average by around 6.5%. That works out at £350 per tenant, per year – a figure which is, ‘coincidently’, about what you’d expect to pay in fees.

Added to that, is the fact that that figure is now an annual increase of £350, rather than just a one-off, and with tenants staying longer in properties, the long-term impact becomes clear.

Tenants aren’t, however, entirely passive in this whole situation. In the past six weeks or so, there have certainly been a number who’ve negotiated on fees prior to the ban coming in to effect.

These occurrences aren’t currently widespread, though, and while in some areas where Andrews operates at least a third of new tenancies have been negotiated in this way, there are other areas where this hasn’t been the case at all and there’s not necessarily any rhyme or reason for this.

What is clear is that with the tenant fee ban, much like the proposed abolishment of Section 21 and the assumed impact that Brexit, should it ever happen, will have on the rental market, is that while both tenants and landlords alike appear more informed about the impact that changes within the market are likely to have, they’re actually left confused as to the reality or simply don’t agree with it.

The rental market plays an essential role in the delivery of housing in the UK. The changes already made, along with those due to be introduced, will simply push rents up and drive supply down (which in itself will drive further rent increases).

Who benefits in that scenario? Certainly not tenants, nor the many honest landlords that make up the majority of the UK’s PRS. I can’t help but think that the tenant fee ban may be heading for failure. Perhaps it’s simply time to leave the rental sector alone?

*Ellie Donaghy is head of lettings at Andrews Property Group

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    A cogent piece, but nothing that hasn’t been said before. The Scottish evidence doesn’t really support the thesis, but Scotland is a different market. The reality is simple. Agents will absorb some of the cost of lost fees, passing some to landlords. That will then be added to rents in one of two ways. Where the market can stand the increase, rents will get lifted. Where the market initially can’t, some landlords will exit; that will reduce supply and then the market WILL rise there too.

    The thesis is correct then, that rents will rise as the market finds its new stable level. Landlords who remain will ultimately be okay.

    Then s21 will go. Risk to landlords will increase. Some will exit. Rents will rise again. Obvs.

    The two key questions are these.

    At what point in the rent/market rebalancing cycles does a government intervene with rent control, to mask the effect of their (all of them) total failure to address the housing supply crisis? At which point, the market structure will break down with possibly catastrophic consequences for supply.

    And, every time supply constricts and rents rise, some tenants at the bottom end of the affordability curve drop off. Where do they go, the marginal, ‘just about managing’, struggling to cope tenants? The ones with families who can’t sofa surf to mask the homelessness figures? What happens to that family, those children?

    Maybe government (all of them) will get building social housing at scale. But I doubt it and so ‘the weak suffer what they must’.

    Did I mention homelessness figures today..?

  • Paul Barrett

    Rent controls would simply be evaded.
    LL would withdraw their properties from LA and self-manage
    You can hardly expect LA to collect the brown envelope with the top-up cash to pay the true rent!
    It will be a pain but LL would have to collect their own rent.
    Cash is how most rents would be paid.
    HMRC would lose billions in taxes as no LL would ever declare rent in excess of the controlled rent.
    A massive black market would arise with both LL and tenant complicit.
    Tenants would not have any choice if they wanted to rent a property.
    This process already happens in Stockholm.
    Of course with rent controls no lender can lend on the basis of actual rents being achieved even if illegally.
    Nope lenders would have to base loan offers on controlled rent levels.
    Which means lower loan offers.
    Which means lower prices.
    Which means negative equity.
    Which means price crash.
    Which means run on the banks.
    Which means a CC ............again.
    Which means many bankruptcies exacerbated by S24.
    It is the value of credit advanced that sustains BTL property prices.
    Few LL could come up with the additional deposit required to make up for a lower lender offer.
    Portfolio LL might be put in a situation where because property prices reduce the lender demands more cash to reduce LTV.
    So again more bankruptcies.
    Lenders will become de facto LL like the last time.
    They eventually managed to sell their repossessed properties but of course there were no rent controls so lenders could offer what LL needed to buy the repo properties.
    HMRC would take a massive hit in tax income as many leveraged LL would not be making any profit though of course those cash rich LL would continue but with a reduction in income.
    After all if you are a cash rich LL and your income per property is reduced by £400 per month you still stay in business.
    Just means a slight cutback in domestic lifestyle.
    However for a leveraged LL such income reduction would result in bankruptcy
    Rent controls would be an unmitigated disaster for the UK economy.

    Of course as has been mentioned a lot of homeless tenants will result from rent control.

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    Thing is, it doesn't just stop the Rogue Agents from charging ridiculous fee's, it affects All Agents. Another Blunt instrument aimed at Everyone.

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    The fact that legislation has been required, along with other legislation, simply demonstrates that the PRS is not capable of regulation of it's own industry. Central Government does not introduce any legislation if it is not necessary, and such legislation is long overdue. I work in the property industry, and I have also been subject to three separate section 21s, each time costing over a £1,000 and a significant amount of time. If those sort of practices were conducted in other industries, there would be a public outcry. There is a limited role for the PRS, which should be smaller and more professional, for instance some purpose built schemes. The many small individual landlords often are not suitable.

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    You are confabulating different issues and kind of missing my point.

    Self-regulation of agents has had some success problem with self-regulation is that whilst those who volunteer to be regulated generally behave themselves, the rogue operators are not regulated and prosper outside of any oversight. Mandatory regulation of agents is finally coming but not of landlords.

    S21 drove supply by de-risking lettings. Go back to the old days and supply will tumble. Except this time we don’t have kits if available council housing. Where will people live?

    A small professional and institutionally owner PRS will be premium product. Look at existing schemes and pipeline! Hardly affordable stock, is it? And again, in your world, where is the council/low-cost housing? Be super clear about this; institutional PRS will not solve the housing crisis, especially not for those struggling to make rent. It’s a myth.

    Sorry to hear you were statistically amazingly unlucky in your PRS rented experience. Noting that landlords don’t kick out good tenants paying market rent unless they want to move in themselves or sell up, as many more are doing now renting is getting a kicking (see the connection?).

    Best start campaigning for social housing at scale, I suggest. Battering PRS landlords will have exactly the opposite effect you seek; it is the lack of supply that enables the minority’s of dodgy PRS landlords to behave badly. And the weak suffer...

    Paul Barrett

    Exactly correct.
    Not everyone can afford the luxury hotel offer.
    They can afford a B & B though!!
    If there are no B & B's where do people stay.
    In a sector like the PRS there needs to be a wide variety of offers.
    Not every can afford or wants to afford the Premium offer even if they can afford it.
    It is socially divisive forcing everyone to pay for the Premium offer.


     
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    It's this simple, the more they mess with a market, the more it backfires. There will be less private tenancies in a year from now and it will be more expensive to rent. Not just from these fees but from all of their stupid changes. Note they don't ban FTB mortgage arrangement fees do they? nothing to do with their chums who run banks hey.

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    Well we all think we have the answer, but sadly we don't. All we seem to agree on is that Governments past and present have a poor understanding of the PRS. There will always be tenants who feel aggrieved, don't look after properties, don't pay the rent, and landlords who ignore the laws pertaining to HMOs.
    Governments are nearly always reactive rather than pro-active, and no matter how much the professional bodies try to guide them away from their foolhardy ways to get tenants to vote for them which is what it's nearly all about, the PRS suffers generally.
    It's true that the number of rental property is diminishing and will probably continue to do so.

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