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Ban on letting agent fees could backfire on tenants, landlords warn

Published 23/11/2016

New investment in affordable housing will include a £1.4 billion cash injection to help build 40,000 new homes.
New investment in affordable housing will include a £1.4 billion cash injection to help build 40,000 new homes.

Plans to ban letting agents' up-front fees could backfire on tenants who may see their rents hiked further, according to landlords.

Under plans outlined in the Autumn Statement, letting agents in England will no longer be able to charge renters fees, for example when they sign a new tenancy agreement.

Figures suggest this will stop tenants being hit with fees averaging £223 per tenancy.

The move aims to help 4.3 million households in private rental housing.

But Richard Lambert, chief executive officer at the National Landlords Association (NLA), said that while tenants may welcome the move in the short term, "they won't realise that it will boomerang back on them".

Mr Lambert continued: "Agents will have no other option than to shift the fees on to landlords, which many will argue is more appropriate, since the landlord employs the agent."

But he said that with landlords already facing tax changes which squeeze their income, they will be pushed towards increasing rents.

Genevieve Moore, a partner at accounting and advisory firm Blick Rothenberg, said it is likely that charges for landlords will increase.

She said: "This could trigger increases in rents as landlords recover these costs from tenants."

Richard Price, executive director at the UK Association of Letting Agents (UKALA), said: "A ban on agent fees may prevent tenants from receiving a bill at the start of the tenancy, but the unavoidable 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."

But Shelter said that in Scotland, where letting fees have already been removed, rental prices have not seen a spike.

Shelter said analysis of Office for National Statistics (ONS) figures showed private rents in Scotland have actually increased at a slower pace than those in England in recent years.

Campbell Robb, Shelter's chief executive, 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. We've long been campaigning on this issue and it's great to see that the Government has taken note.

"Our recent survey found that nearly half of renters had been asked to pay fees that they thought were too high, with many having to borrow money every time they move, so this will make a huge difference to all those scraping by in our expensive, unstable renting market."

Estate agents' shares took a tumble on Wednesday, ahead of the Autumn Statement, amid expectations of the plans being unveiled. Countrywide, Foxtons and Savills came under pressure on the stock market.

Chancellor Philip Hammond also committed to bringing forward a Housing White Paper to address "long-term challenges" in the sector.

In the shorter term, the Government will launch a new £2.3 billion Housing Infrastructure Fund to deliver up to 100,000 new homes in areas of high demand.

It will invest a further £1.4 billion to deliver 40,000 additional affordable homes and relax restrictions on Government grants to allow a wider range of housing types.

The news was welcomed by industry observers, but Mr Hammond was urged to do more in next year's Budget.

Andrew McPhillips, chief economist at Yorkshire Building Society, said: "The measures to address the housing crisis announced by the Chancellor today are welcome but we hope the Government is keeping its powder dry for the eagerly anticipated Housing White Paper and next year's Budget because more is needed.

"In order to speed up the delivery of new homes, the housing minister in the upcoming White Paper should consider devolving more powers to city regions outside London and also give councils the ability to borrow against their assets so that they can better fund housebuilding in their area."

London, where a lack of affordable housing is most acute, will receive £3.15 billion as its share of national affordable housing funding to deliver more than 90,000 homes, Mr Hammond added.

The Chancellor also announced a regional pilot of Right to Buy for housing association tenants and "continued support" for home ownership through the Help to Buy scheme and the Help to Buy Isa.

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