- Tenant Fees set to banned within 12 to 18 months
- Rents due to rise as those fees passed to Landlords
- Landlords won’t be worse off – and neither will tenants or agents
With our new Chancellor of the Exchequer
revealing a ban on tenant fees in his first Autumn Statement , what
does this actually mean for Hampstead tenants and Hampstead landlords?
The private rental sector in Hampstead
forms an important part of the Hampstead housing market and the engagement from
the chancellor in Wednesday’s Autumn Statement is a welcome sign that it is
recognised as such. I have long supported the regulation of lettings agents
which will ensconce and cement best practice across the rental industry and, I believe that measures to improve the situation
of tenants should be introduced in a way that supports the growing professionalism
of the sector. Over the last few years, there has been an increasing number of
regulations and legislation governing private renting and it is important that
the role of qualified, well trained and regulated lettings agents is understood.
Great News for Hampstead
Tenants
So, let’s look at tenants... this
is great news for them, isn’t it? Well
before you all crack open the Prosecco, read this …
Although I
can see prohibiting letting agent fees being welcomed by Hampstead tenants, at
least in the short term, they won’t realise that it will rebound back on them.
First up, it will take between
12 and 18 months to ban fees, as consultation needs to take place, then
it will take an Act of Parliament to implement the change. A prohibition on
agent fees may preclude tenants from receiving an invoice at the start of the
tenancy, but the unescapable outcome
will be an increase in the proportion of costs which will be met by landlords,
which in turn will be passed on to tenants through higher rents.
Published at the same time as the Autumn Statement, hidden in the Office for Budget
Responsibility’s Economic and Fiscal Outlook on the Autumn Statement (The Office for Budget Responsibility being
created by Government in 2010 to provide independent and authoritative analysis
of the UK’s public finances), it said on Wednesday …
“The Government has also announced its
intention to ban additional fees charged by private letting agents. Specific
details about timing and implementation remain outstanding, so we have not
adjusted our forecast. Nevertheless, it is possible that a ban on fees would be
passed through to higher private rents”
The charity Shelter and Scotland
Scotland banned Letting Fees in 2012. The charity
Shelter have been a big voice in persuading and lobbying the Government since
it managed to persuade the Scottish Parliament to ban fees in 2012. On all the
TV and radio shows at the moment, they keep talking about their Independent Research,
which they said showed that,
“renters,
landlords and the industry as a whole had benefited from banning fees to
renters in Scotland. It found that any negative side-effects of clarifying the
ban on fees to renters in Scotland have been minimal for letting agencies,
landlords and renters, and the sector remains healthy.”
Going on,
“Many
industry insiders had predicted that abolishing fees would impact on rents for
tenants, but our research show that this hasn’t been the case. The evidence
showed that landlords in Scotland were no more likely to have increased rents
since 2012 than landlords elsewhere in the UK. It found that where rents had
risen more in Scotland than in other comparable parts of the UK in 2013, it was
explained by economic factors and not related to the clarification of the law
on letting fees”
.. yet the devil is in the detail….
Only yesterday Shelter were quoting this Research
from December 2013 to say rents never went up following the tenant fee ban in Q4
2012. I have read that research and I agree with that research, but it was published
three years ago, only 12 months after the ban was put into place.
I find it strange they don’t seem to mention
what has happened to rents in Scotland in 2014, 2015 and 2016... because that
tells us a completely different story!
What really happened in Scotland to rents?
I have carried out my research up to the end of Q3 2016 and
this is the evidence I have found...
In Scotland, rents have risen,
according the City Lets Index
by 15.3% between Q4 2012 and today
(City Lets being
the equivalent of Rightmove North of the Border – so they know their onions and
have plenty of comparable evidence to back up their numbers).
When I compared the same time frame, using Office of
National Statistics figures for the English Regions between 2012 and 2016, this
is what has happened to rents
- · North East 2.17% increase
- · North West 2.43% increase
- · Yorkshire and The Humber 3.21% increase
- · East Midlands 5.92% increase
- · West Midlands 5.52% increase
- · East of England 7.07% increase
- · South West 5.82% increase
- · South East 8.26% increase
- London 10.55% increase
Are you really telling me the
Scottish economy has outstripped London’s over the last 4 years? Is anyone
suggesting Scottish wages and the Scottish Economy have boomed to such an
extent in the last 4 years they are now the Powerhouse of the UK? .. because if
they had, Nicola Sturgeon would have driven down the A1 within a blink of an
eye, to demand immediate Independence.
So what will happen in the Hampstead Rental
Market in the Short term?
… and the long term?
Rents will increase as the
fees tenants have previously paid will be passed onto Landlords in the
coming few years. Not immediately... but they will.
As a responsible letting agent, I have a
business to run. It takes, according to ARLA, (Association of Residential
Letting Agents) on average 17 hours work by a letting agent to get a tenant
into a property. We need to
complete a whole host of checks prescribed by the Government; including a right
to rent check, Anti Money Laundering checks, Legionella Risk Assessments, Gas Safety
checks, Affordability Checks, Credit Checks, Smoke Alarm
checks, Construction
(Design & Management) Regulations 2007 checks, compliance with the Landlord and Tenant Act, registering the
deposit so the tenants deposit is safe and carry out references to ensure the
tenant has been a good tenant in previous rented properties.
All of which the
vast majority of lettings agents take very seriously and are expected to know
inside out making us the experts in our field. Yes, there are some awful agents
who ruin the reputation for others, but isn't that the case in most
professions?
.. but business
is business.
No landlord, no
tenant and certainly no letting agent does work for free.
I, along with
every other Hampstead letting agent will have to consider passing some of that
cost onto my landlords in the future. Now of course, landlords would also be able to offset
higher letting charges against tax, but I (as I am sure they) wouldn’t want
them out of pocket, even after the extra tax relief.
So
what does this all mean for the future?
The
current application fee for a single person at my lettings agency is £200 and
for a couple £300... meaning on average, the fee is around £200 per property.
I
am part of a Group of 500+ Letting Agents, and recently we had to poll to find
the average length of tenancy in our respective agencies. The Government says
its 4 years, whilst the actual figure was nearer one year and eleven months, so
let’s round that up to two years.
That
means £200 needs to found in additional fees to the landlord, on average, every
two years.
In
Actual Pound Notes
In
2005, the average rent of a Hampstead Property was £3310 per month and today it
is £4138 per month, a rise of only 25 % (against an inflation rate (RPI) of
38.5%).
Using
the UK average management rates of 12%, this means the landlord will be paying £5,958.72
per annum in management fees (excluding VAT)
If
the landlord is expected to cover the cost of that additional £200 every two
years, rents will only need to rise by an additional 2% a year after 2018, on
top of what they have annually grown by in the last 5 years.
So,
if that were to happen in Hampstead, average rents would rise to £5,377 per
month by 2022 (see the red line on the graph) and so the landlord would pay £ 7,742.88
per annum in management fees... which would go towards covering the additional
costs without having to raise the level
of fees.
..
But that is bad news for Hampstead Tenants?
Quite
the opposite. Look at the blue line on the graph). If the average rent Hampstead
tenants pay had raised in line with inflation since 2005, that £3310per month
would have risen today to an average of £4138 per month. (Remember, the average
today is only £4138 per month)... and even if inflation remains at 2% per year
for the next six years, the average rent would be £5377 per month by 2022 ..
meaning even if landlords increase their rents to cover the costs tenants are
still much better off, when we compare to the £ 4982 per month figure to the £5377
per month figure.
Conclusion
The
banning of letting fees is good news for landlords, tenants and agents.
It
removes the need for tenants to find lump sums of money when they move. That
will mean tenants will have greater freedom to move home and still be better
off in real terms compared to if rents had increased in line with inflation.
Landlords
will be happy as their yield and return will increase with greater rents whilst
not paying significantly more in fees to their lettings agency. Letting agents
who used to charge fair application fees won’t be penalised as the rent rises
will compensate them for any losses.
..
and the agents that charged the silly high application fees.. well that’s their
problem. At least I know I can offer the same, if not a better service to both
my landlords and tenants in the future in light of this announcement from
Phillip Hammond.
If you are looking for an agent with experience that can help you find the right tenant for your property, then contact us to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based on Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. The kettle is always on.
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