Next year is likely to be a challenging time for letting agents, following a raft of changes introduced by the government prompting concern that fewer homes will come onto the market, as vast numbers of landlords will be forced to exit the sector, restricting the level of housing stock agents have to offer.
The phasing out of mortgage tax relief from April 2017, coupled with the introduction of more stringent buy-to-let mortgage lending conditions as the Prudential Regulation Authority seeks to cool existing lending practices in the sector, will inevitably push some landlords out of the market.
There has already been a sharp decline in the volume of buy-to-let valuation instructions since the introduction of the 3% stamp duty surcharge on additional properties in April and the scrapping of the 10% ‘wear and tear’ tax relief for landlords who rent out furnished homes, with the number of valuations carried out for the buy-to-let sector having fallen by 18.5% over the past 12 months, according to Connells Survey & Valuation.
John Bagshaw (left), corporate services director of Connells Survey & Valuation, said: “2016 has been something of an annus horribilis for landlords. They have had to contend with the reverberations of the 3% stamp duty surcharge and the removal of 10% wear and tear allowance.”
Another major issue that private landlords in England may soon have to contend with is that of addition letting agency fees.
The announcement during the chancellor’s Autumn Statement of an outright ban on letting agents’ fees to tenants was clearly designed to shift the costs to landlords, and although details are still very unclear, with the DCLG planning a consultation ahead of bringing forward legislation, Philip Hammond has already stated that the government believes the ban should be brought in “as soon as possible”.
Baroness Olly Grender, Liberal Democrat peer and a former senior figure at Shelter, is among those that have long campaigned to ban letting agency fees.
“Our relentless campaigning to get tenants’ letting fees banned has finally paid off and the government has recognised this is the right thing to do,” said Baroness Grender.
But the proposed ban on letting agent fees is widely viewed as a draconian measure within the letting industry which will have an adverse impact on the rental market.
According to the charity Citizens Advice, the fees currently cost tenants an average of £337 per person, but ARLA says that around £200 per tenant is a more realistic figure for fees relating to a range of administration, including reference, credit and immigration checks, as well as the drawing up of tenancy agreements.
ARLA managing director, David Cox (below), said: “These costs enable agents to carry out various critical checks on tenants before letting a property.
“If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents. The banning of fees will end up hurting the most, the very people the government intends on helping the most.”
Rent price rises are on the horizon
A recent survey from online letting agent Upad found that 40% of landlords plan to increase rents if existing tenant fees are passed onto them to pay.
Only a third of the respondents questioned said that they would definitely not raise their rents, meaning that potentially two-thirds of tenants, or up to 2.6 million renters, could face a permanent increase in rent as a direct result of last month’s announcement.
“Frustratingly for everyone involved, this research suggests that landlords will be left with no choice but to further increase rent,” said James Davis (right), CEO and founder of Upad.
Spicerhaart is warning that tenants could end up paying up to three times as much as they currently do, if tenant fees are banned.
It says that for people paying a monthly rent of £1,000, a 3% rent increase to cover the cost of any banned fees would mean that - over an average tenancy duration - a tenant could end up paying three times as much as the fee would have been.
“We’re all saying it doesn’t make sense so why isn’t the government listening?” asks Spicerhaart chief executive Paul Smith.
But there is one further snag here: an easy way for landlords to avoid incurring extra letting agent fees would be to simply not instruct a letting agent in the first place.
Cutting out the middle man
A significant number of buy-to-let landlords currently do not use letting agents to find or manage properties, and it has been suggested that many more should consider doing the same.
“We’re firm believers that as landlords’ purse strings are tightened by tax changes and the expected increases from traditional letting agents that landlords will look for alternatives,” said Gillian Kent, chairman at No Agent.
A prominent commentator has suggested that it is easy for landlords to avoid becoming “villains” after the tenants fee ban by choosing to simply “ditch rip-off agents” altogether.
Simon Lambert, editor of This is Money, wrote on the website: “Landlords are always ripe for a kicking in some circles, so it should come as no surprise that they were swiftly painted as potential future villains in the ban on tenant fees.
“The theory on the news that chancellor Philip Hammond would ban tenant fees in his Autumn Statement was that buy-to-let owners would respond by passing on higher costs through rent rises.”
But Lambert suggested that buy-to-let landlords have as much right to be “as angry as tenants over letting agency fees”.
“Many [landlords] pay handsomely for letting and management already and the fees they pay are meant to cover many of the things that some unscrupulous letting agents also charge tenants for.
“A check with their agent on the level of double-charging going on would leave a landlord as grumpy as their tenant.”
Lambert also pointed out that landlords do not profit from these tenant fees – “they go to the agent”. Consequently, while agents will be keen to maintain their revenues, the financial journalist believes that an attempt to simply claw back lost earnings by “lumping extra costs” on to landlords would be a “high risk strategy”.
“Those landlords, already facing a tax and mortgage squeeze, are likely to see any big hikes as a catalyst to move elsewhere,” he added.
Unfair playing field
Abolishing letting fees for tenants will create a “fairer playing field” for the UK’s 4.3 million or so private renters, with no justifiable reason as to why agents should pass these expenses onto landlords, according to easyProperty's CEO Rob Ellice (below).
“Any sensible agency won’t pass on the charges to landlords, due to competition in the sector, so we don't foresee rent rises as there is no need to add the fees to rents,” he said.
Lambert and Ellice’s views are shared by the likes of Generation Rent, PricedOut, Shelter, among others.
Generally speaking, landlords have a choice as to whether to use an agent whereas tenants do not – particularly when stock is in limited supply. But perhaps landlords should be careful what they wish for, according to Jeremy Leaf, north London estate agent.
Leaf (right), a former RICS residential chairman, believes that those landlords planning to “ditch” letting agents to try to find their own tenants and manage their properties, will soon “better appreciate” the “substantial amount of work” carried out by agents on behalf of their clients to let and manage property professionally.
He commented: “Agents’ charges are supposed to cover the reasonable cost of moving people safely into properties while at the same time protect the interests of tenants - and landlords.
“Responsibilities have increased considerably in the past 12 months and a good agent should be able to make the landlord aware of his responsibilities in all of these areas.”
Ask any long-term landlord - or tenant - and they will tell you that good letting and managing agents are worth their weight in gold.
A reliable agent that helps to provide landlords with a stress free investment, which includes sorting any problems for them relating to their rental property, providing access to a network of plumbers, electricians, and handymen or women, who can get things fixed straight away, do essential maintenance swiftly and at a fair cost and keep tenants happy, will always be in demand.
Agents that provide a substandard service will quickly be found out and squeezed out of a market, in which standards are rapidly changing - for better or for worse - owed in part to government changes, designed to increase the desirability of the sector to tenants as a choice of tenure. It’s just a shame that when the government implements these alterations, they are often not fair on all parties, especially landlords and letting agents.
ARLA - www.arla.co.uk
easyProperty - www.easyproperty.com
This is Money - www.thisismoney.co.uk
Upad - www.upad.co.uk
No Agent - www.noagent.co.uk
Jeremy Leaf and Co - www.jeremyleaf.co.uk
Connells - www.connells.co.uk
Spicerhaart - www.spicerhaart.co.uk
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno