Autumn Statement-Letting Agents Fees

[Herr Tubthumper]

Exactly this. It's what has happened in Scotland. Tenants have ultimately ended up paying increased rent leading to less visibility as to what they are paying for.

Someone else has said this isn't the case the cost is absorbed across the agent, landlord and tenant. Do you have any evidence?

 

[martin tyler]

Good. Letting agents are scumbags and it's easy for landlords to avoid using them. I used to rent my flat, and the money I saved myself AND my tenants by not using an agent to do some very straightforward admin was significant.

Absolutely. I let out a couple nothing special but I spent a couple hours making checks myself and have never had a problem and like you say there is money to be saved all round instead of lining someone else's pockets. Prior to that I've had 3 absolutely useless shocking so called agents. None did a decent job but all were happy to charge fees left right and centre

 

[mikeyjh]

Someone else has said this isn't the case the cost is absorbed across the agent, landlord and tenant. Do you have any evidence?

It was me that commented on it, and while I hadn't read this article prior to my comments, it does back me up. A bit.

https://www.theguardian.com/money/2016/nov/23/rents-unfair-letting-fees-tenants-charges

 

[GOM]

Exactly this. It's what has happened in Scotland. Tenants have ultimately ended up paying increased rent leading to less visibility as to what they are paying for.

They are paying to rent the property.

 

[Eagle Slayer]

As someone who is not too clued up on this but is thinking of renting in the near future any idea if and when these measures will come into force and what would I be charged for now that I will not be charged for in future ?

 

[wellquickwoody]

Is it not a good idea that these inspections are mandatory, better than dying in your sleep due to a faulty boiler that the landlord never serviced isn't it? People who own houses get their boilers serviced and have to pay for it.

I did state that the inspection was a good thing?

 

[mikeyjh]

As someone who is not too clued up on this but is thinking of renting in the near future any idea if and when these measures will come into force and what would I be charged for now that I will not be charged for in future ?

If you hang on till around 12:30 you'll know for sure - I suspect it will be April next year.

 

[beorhthelm]

If you hang on till around 12:30 you'll know for sure - I suspect it will be April next year.

afraid we wont know for sure today, there will be a consultation and probably some legislation to be drafted. we can hope that it doesnt get diluted away like the home buyers packs, a lot of agents will be lobbying for their little racket to continue.

 

[GT49er]

Sounds an excellent idea. Now let's have a ban on booking fees when buying tickets for concerts/sports events, etc.

 

[mikeyjh]

afraid we wont know for sure today, there will be a consultation and probably some legislation to be drafted. we can hope that it doesnt get diluted away like the home buyers packs, a lot of agents will be lobbying for their little racket to continue.

Okay, that will be disappointing - The legislation should be simply enough right, sure just a copy and past fro the sweaties, and a slam dunk through parliament

 

[Giraffe]

Someone else has said this isn't the case the cost is absorbed across the agent, landlord and tenant. Do you have any evidence?

The evidence is not public but I know for a fact that in Glasgow rents have increased since the ban on agents fees by more than they were increasing in England. Hard to pin that down exactly as all parts of England are different.

However what will clearly happen is that agents will look for fees from somewhere else. Their only real source is landlords. So they will have to put their commission up. If they do that some landlords will leave the rental market. Some predict 20-30% of them. This will mean even less supply in an already contracted market, leading to the inevitable increase in rents caused by basic supply and demand economics.

Additionally in the short term some agents, who literally only make a profit because of the tenant fees, will go bust as there will be a shift in the market with it being difficult to replace this income immediately. It will take 1-2 years for all this to balance off.

I'm not disputing this may be a better thing in the long wrong by the way, but I very much doubt it will make the overall cost of renting cheaper.

 

[Giraffe]

The frustration is that the problem in the housing market and in the rental sector in particular is the lack of supply of rental property.

Stamp duty on additional homes, the removal of interest tax relief for landlords (which is about to come in) plus the inevitable additional cost that will be passed to a landlord from the ban on tenant fees will inevitable lead to less landlords entering the market, and less supply to the rental sector.

At the same time the population increases and the demand for rental homes increases. Also the demographics of the population has changed with far more single occupancy than ever before. In short what we need is more supply of rental properties to get rent down, not less. I fear the latter is an inevitable consequence of banning letting fees to tenants.

 

[Audax]

Apparently fees have been banned in Scotland for a while and have not resulted in rent increases. Maybe the Agents charge the landlords reasonable fees because they want their business.

They are probably more prone to ripping off tenants as they are more of a 'captive market', i.e. They have found a specific property they want to rent, and they have no choice of Agent as the Agent is picked by the Landlord.

Even if rents do go up to cover Landlord costs it will just make the rents a fair representation of the overall cost of renting the property.

This does help tenants - At the moment, it's completely anti competitive. Tenant looks for the right house at the right rental, in most cases they aren't going to be looking through specific agents. I, as a landlord, can negotiate the fees and rates that I pay but the tenant cannot, it's not fair. Bloody hell, I think I'm just agreeing with something that the tories are doing.

There's no doubt that it would have some upward pressure on rent but not to the full extent of the charges, you'd expect the cost to spread over rent, agents fees and landlord income.

Exactly this. It's what has happened in Scotland. Tenants have ultimately ended up paying increased rent leading to less visibility as to what they are paying for.

Rent prices are generally set by supply and demand, although there will be a "floor" price set by the costs that landlords (and agents) *must* pay in order to let a property (plus profit margins). As such, it would be hard to predict right now whether or not moving the charges from the tenant to the landlord will flow through to increases in rent - that will depend to a large extent on how "willing" the demand side of things is to pay higher amounts. Landlords who increase their rents will run the risk of being undercut by others who choose not to; the eventual result will be that the rent prices will naturally float to a level that result in properties being occupied at a rent level set by high long the landlord is willing to wait to get a tenant.

One thing that will happen, is that the current eye-wateringly high charges will be reduced: landlords have a much higher ability to "shop around" the agencies to find the one they want to use, and the charges being levied by agents will play a role in their decision. So even if the charges are passed on in the form of higher rents, the increase is probable to still reflect an overall yearly saving for the tenant. It's also easier for the tenant to cope with a slightly higher monthly rent than it is to fork out large up-front fees.

Realistically, I'd only expect rent prices to go up if agents / landlords are already setting their rental prices close to the "floor" price and only taking off minimum profit margins. From everything I've seen, that's not the case currently: the market is such that rent prices are being set a significant margin over the floor price, because that's what the dynamics of supply/demand have resulted in. I'd expect the end result of this being that the "floor" prices go up, but the actual rental prices stay the same, with the agencies and the landlords between them taking lower profit margins.

 

[beorhthelm]

...Additionally in the short term some agents, who literally only make a profit because of the tenant fees, will go bust as there will be a shift in the market with it being difficult to replace this income immediately. It will take 1-2 years for all this to balance off.

good, any agent that relies on tenant fees rather than through fees to the landlord has a flawed model and probably at the dodgier end of the market. i can imagine they are the sort that undercut landlord commision to get the trade, rinse the tenant and dont do any work for either party untill renewal time. they didnt use to do have this practice of high fees.

and i dont believe for a second 20-30% of the market would disappear, landlords still need to pay their costs, or they'll sell up which is a benefit to that market, or be brought by landlords with better cost structures. banning fees will put up rents a bit, but the cost will be borne by the landlord who have the power to shop around for a better service, which the tenants dont.

 

[Giraffe]

good, any agent that relies on tenant fees rather than through fees to the landlord has a flawed model and probably at the dodgier end of the market. i can imagine they are the sort that undercut landlord commision to get the trade, rinse the tenant and dont do any work for either party untill renewal time. they didnt use to do have this practice of high fees.

and i dont believe for a second 20-30% of the market would disappear, landlords still need to pay their costs, or they'll sell up which is a benefit to that market, or be brought by landlords with better cost structures. banning fees will put up rents a bit, but the cost will be borne by the landlord who have the power to shop around for a better service, which the tenants dont.

All fair comment. Will be interesting to see how it settles down.

Will also be interested to see what the detail is behind the proposal. In Scotland some agents are wriggling round the ban in a variety of ways. If the legislation is not drafted well there will be some issues here I suspect.

 

[scamander]

moved recently and the admin prices for some agencies were very steep. Thinking that we'd save money on references we contacted the agency we were currently with about what they had on the market. Eventually found out we'd still need to pay for references if we moved property (but stayed with them), we'd been with them 4 years.

I can see that a new landlord might want references, but if you've been with that agency for several years, had no problems or complaints and never been in arrears it seemed a tad stringent.

 

[mikeyjh]

Rent prices are generally set by supply and demand, although there will be a "floor" price set by the costs that landlords (and agents) *must* pay in order to let a property (plus profit margins). As such, it would be hard to predict right now whether or not moving the charges from the tenant to the landlord will flow through to increases in rent - that will depend to a large extent on how "willing" the demand side of things is to pay higher amounts. Landlords who increase their rents will run the risk of being undercut by others who choose not to; the eventual result will be that the rent prices will naturally float to a level that result in properties being occupied at a rent level set by high long the landlord is willing to wait to get a tenant.

One thing that will happen, is that the current eye-wateringly high charges will be reduced: landlords have a much higher ability to "shop around" the agencies to find the one they want to use, and the charges being levied by agents will play a role in their decision. So even if the charges are passed on in the form of higher rents, the increase is probable to still reflect an overall yearly saving for the tenant. It's also easier for the tenant to cope with a slightly higher monthly rent than it is to fork out large up-front fees.

Realistically, I'd only expect rent prices to go up if agents / landlords are already setting their rental prices close to the "floor" price and only taking off minimum profit margins. From everything I've seen, that's not the case currently: the market is such that rent prices are being set a significant margin over the floor price, because that's what the dynamics of supply/demand have resulted in. I'd expect the end result of this being that the "floor" prices go up, but the actual rental prices stay the same, with the agencies and the landlords between them taking lower profit margins.

Difficult to argue with much of that - The only thing I'd mention is the regional variations that impact on the dynamic of the market. For instance, rental income down and competition between agents down here is high so I have plenty of choice in terms of who to have manage a house - They also offer quite competitive rates with smaller setup fees, I am confident that the impact here will be minimal. In (for instance) South Wales, it's quite a different story. Rents are significantly lower, management rates much higher and fees similar. (Also there is far less choice of agent, there is a quite dominant player in the market). So any fee passed on to the landlord will be a far higher proportion of the income than in SE England.

This may dissuade the more speculative investor - I'd describe myself as a semi professional landlord in that I'm not reliant on the income but am running it as a business, will certainly tolerate some of the charges being passed on a) because I'm fortunately in a position to do so and b) because it is the right thing to do. I believe it's the government policy not to encourage speculative BTL landlords but to grow the institutional and professional supply, rightly or wrongly, and I think this change would support that.

 

[Audax]

Difficult to argue with much of that - The only thing I'd mention is the regional variations that impact on the dynamic of the market. For instance, rental income down and competition between agents down here is high so I have plenty of choice in terms of who to have manage a house - They also offer quite competitive rates with smaller setup fees, I am confident that the impact here will be minimal. In (for instance) South Wales, it's quite a different story. Rents are significantly lower, management rates much higher and fees similar. (Also there is far less choice of agent, there is a quite dominant player in the market). So any fee passed on to the landlord will be a far higher proportion of the income than in SE England.

This may dissuade the more speculative investor - I'd describe myself as a semi professional landlord in that I'm not reliant on the income but am running it as a business, will certainly tolerate some of the charges being passed on a) because I'm fortunately in a position to do so and b) because it is the right thing to do. I believe it's the government policy not to encourage speculative BTL landlords but to grow the institutional and professional supply, rightly or wrongly, and I think this change would support that.

Can't argue with any of that. Absolutely correct that the supply/demand dynamics will vary from region to region. Indeed, it'll vary even at more local scales (such as central Brighton vs edge of Brighton vs Lewes vs Uckfield).

I was born and raised in Australia, so my first rental experience (20 years ago now) was under a system where the landlord is responsible for all fees (including the Aussie variant of Council Tax!), and the tenant only pays the rent, deposit, and utilities. It was quite a shock for me in 2005 when I moved over here to discover that agents would charge a fee as soon as I said "yup, I want that one thanks". It wasn't as bad back then as I see it's got now (thankfully I'm a home owner now, so not having to deal with rental agents) - but it's entirely predictable it's ended up where it has. Agencies were entrusted with a virtually unregulated opportunity to dip into tenants' wallets, and it was inevitable that eventually they'd do so to greater and greater levels. Every time they added a new fee and "got away with it", they'll have had an increasing temptation to do it again. And to charge higher and higher amounts, because these charges are near enough to pure profit for them (I've seen an article mentioning enormous charges for what was essentially a couple of minutes worth of photocopying).

It's an inherently broken system, and if the cost of "fixing" it is a small increase in rental prices over the next year, then I'd hope the tenants out there would accept it - they'll save an awful lot more over the years in not having to pay these ridiculous fees every time they move.

 

[soistes]

The fact that the share prices of the big letting agencies have fallen this morning in anticipation of this news suggests that the market does anticipate that they will take a hit from this, and will struggle to shift all of the cost to landlords (who will then pass it back to tenants through rents).

 

[Herr Tubthumper]

The evidence is not public but I know for a fact that in Glasgow rents have increased since the ban on agents fees by more than they were increasing in England. Hard to pin that down exactly as all parts of England are different.

However what will clearly happen is that agents will look for fees from somewhere else. Their only real source is landlords. So they will have to put their commission up. If they do that some landlords will leave the rental market. Some predict 20-30% of them. This will mean even less supply in an already contracted market, leading to the inevitable increase in rents caused by basic supply and demand economics.

Additionally in the short term some agents, who literally only make a profit because of the tenant fees, will go bust as there will be a shift in the market with it being difficult to replace this income immediately. It will take 1-2 years for all this to balance off.

I'm not disputing this may be a better thing in the long wrong by the way, but I very much doubt it will make the overall cost of renting cheaper.

Why isn't it public? Any meaningful research into this will have been published surely? If it hasn't been published and then undergone the usual scrutiny and peer reviewed etc I wouldn't trust it.

And I don't agree agents will "clearly look for fees elsewhere" An alternative approach is for a business too look for efficiencies and then increase revenue via volume from the competitors you say will go bust. Increased revenue and less competition makes more sense.