What will the ban on letting agents fees announced in the Autumn Statement mean for north London renters?
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The Chancellor has declared a crackdown on agency fees, but will depriving estate agents of this lucrative income stream ultimately lead to a rise in rents in north London?
Chancellor of the Exchequer Philip Hammond announced a ban on letting agents fees in his Autumn Statement today.
Agencies will no longer be able to charge tenants for services such as reference checks and deposit administration.
Green member of the London Assembly Sian Berry, who herself rents near Tufnell Park tube station, welcomed the news as a “huge relief”.
She added: “Too many London renters are driven into debt when we move because of the nasty, unpredictable shock of sky-high fees being charged for seemingly trivial services like printing an inventory.”
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There are fears that the ban could lead to a rise in rents, as agents pass the fees on to landlords, who will in turn raise rents to cover their costs.
Adam Ray, associate director of Excel Property Services on Finchley Road said:
“It could mean a rethink about the restructuring of fees, and if landlords have to pay higher commission it could cause rents to go up.”
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He added: “At Excel we’ve always kept our fees quite low, but at the end of the day it’s a service which you’d expect to pay for in any other industry.”
Even if the fees are passed on from letting agents to landlords, the latter shouldn’t necessarily see huge losses in profit.
Nick Marr, co-founder of property classifieds site TheHouseShop.com said:
“The additional loss in returns could be as little as 0.14 per cent when compared to the existing landlord fees structure.”
He calculated that letting agents would charge landlords on average an extra £25 per month if passing on the cost of tenancy fees.
“Some landlords will undoubtedly raise their rents as a result of the ban - as we have seen in Scotland - but many will be able to absorb the costs of this new system without substantial losses, meaning tenants should not face a barrage of rent rises once the ban is in place.”
However many north London estate agents are already under pressure from falling transaction levels due to increases to Stamp Duty and Land Tax, and the ban will add to their woes.
Mark Pollack, director of Aston Chase called the ban “another blow” to “the much maligned estate agency profession.”
“Many London firms are increasingly dependent on income being generated by their lettings departments,” he said.
Mr Pollack added: “Our charges are reasonable in comparison to many of the larger corporate agencies who also charge their landlords an administration fee. Indeed, we have always considered it surprising to charge for a tenancy agreement that we already have on file, although this is an industry norm. However, the reference fees are a cost that we have to pay to a third party so under the new legislation, in the future agents would presumably have to pay for these themselves.”
Head of residential development at Stirling Ackroyd Nick Davies was also disappointed by the Autumn Statement.
“The reality of the government’s decision to ban letting fees is that it will only result in landlords passing the bill on to tenants through higher rents,” he sais.
“Landlords have already been stung by the stamp duty surcharge and the end of mortgage tax relief, and so it is difficult to see them doing anything other than push the burden back on to Generation Rent.”
Groups have been campaigning for an abolishment of these fees for years.
The average cost to tenants is £337 according to Citizens Advice, who called the charges a “rip off” in March 2015.
Housing charity Shelter had lobbied against the fees since 2013. Chief executive of the charity Cambell Robb said:
“Millions of renters in England have felt the financial strain of unfair letting agent fees for far too long, so we’re delighted with the government’s decision to ban them.”
When the news of the ban broke last night shares in Foxtons plunged by 13 per cent in just one hour.
In the Foxtons terms and conditions of their standard tenancy agreement they ask tenants to agree to a flat rate £420 administration fee plus a £300 surcharge for changing the name on a tenancy agreement and a £60 fee for every letter sent by the agents in the event of late payment of these charges.
“I’m not surprised it’s hitting bigger players hard. It’s a big revenue stream for them. Smaller, independent agencies will be more able to absorb the costs,” said Mr Ray.
Housing minister Gavin Barwell had previously rejected calls to ban fees. Just two months ago on September 19 he tweeted:
“Bad idea - landlords would pass cost to tenants via rent. We’re looking at other ways to cut upfront costs & raise standards.”
Ed Miliband had included a proposal for a similar ban in his 2015 manifesto. Last night the former Labour leader tweeted:
“Banning letting fees welcome but cap on rent rises and 3 year tenancies key to give renters real security and affordability--see manifesto!”