Letting Fee Bombshell Hits Private Rented Sector

Letting Fee Bombshell Hits Private Rented Sector

Its Autumn Statement day today, giving the new Chancellor his first chance to put his mark on the post-Brexit economy. Many landlords have bad memories of Autumn Statements and Budgets as it was the 2015 Budget at which then-Chancellor George Osborne revealed his plans to restrict tax relief on landlords’ finance costs and the 2015 Autumn Statement that the additional stamp duty rate was sprung.

Unfortunately, despite constant lobbying by the NLA (as well as a plethora of other housing related bodies) the current Chancellor, Philip Hammond has not taken this golden opportunity to avert the impending crisis of the Tenant Tax.

Instead he dropped another bombshell.

Letting Fees No More!

To park the Tory tanks squarely on the lawns of Labour and the Lib Dems, the Chancellor has decided to take action on the fees letting agents charge to prospective tenants – by banning them.

Light on complete detail, and no sign of any thought through policy, the Government will instead open a consultation on the issue. However, they have made their intention clear – letting fees will be a thing of the past…more or less.

In the past the NLA has been critical of excessive fees but believes there are legitimate reasons for some costs to be met by prospective tenants. For example, an applicant contribution towards their referencing encourages full disclosure, i.e applicants with a poor credit history are less likely to lie about it and risk failing if they have contributed financially.

These fees also prevent applicants from gaming the market by agreeing to let a number of properties while they make their mind up or negotiate. If they have to contribute to vetting, or put down a holding deposit, this becomes uneconomical.

We have also openly criticised the practice of ‘double-charging’, as many landlords resent their tenants being charged for a service they have already paid for – or paying for a service the tenant has already paid for.

All fees should be justified and transparent. It seems odd that this announcement comes so soon after the transparency regulations into force (and before they have been reviewed as previously promised).

It also seems to have been an awfully quick change of heart from the new Government:

Housing Minister Gavin Barwell in September said a ban was a bad idea – landlords would pass cost to tenants via rent. We’re looking at other ways to cut upfront costs and raise standards.”

Local Government Minister Marcus Jones earlier this year said that “banning or capping fees would not make renting any cheaper for tenants – tenants would still end up paying, but through higher rents.

Theresa May herself has previously voted against restrictions on letting fees too.

Should Landlords Care?

Yes, no, maybe. It really depends on the letting agent you use (as some already don’t charge tenants fees), or if you even use an agent at all. Our latest member survey showed 57% of landlords use a letting agent to some degree.

A ban on letting fees, depending on the finer details of the final policy, could deliver benefits to landlords as 43% of landlords don’t use any of their services.

Fees being set too high can act as a barrier to ‘good’ tenants, so a ban on fees could allow landlords to find tenants quicker and easier as they would not have to have a sum of money saved up to move.

On the flip side though, a ban would not eliminate legitimate costs, or agents’ desire for a profit margin. Landlords may face increased fees as a result. These increased costs may lead to landlords needing to increase rents to cover them (or accept less profit).

This may be seen by some as an acceptable consequence of stopping tenants having to have a sum of money just to move, but it needs to be taken in the context of other changes being made.

Obviously the big one is the incoming restrictions to mortgage interest relief, but on top of that will be minimum energy efficiency standards, electrical safety checks, immigration checks, and the ever-spreading discretionary licensing.

All of these put upwards pressure on rent, at the same time that their proponents (who would prefer to go further still) decry the rising rents!

Our Position Going Forward

The Chancellor made clear that the Government will look to ban letting fees. While the NLA may not view it as the most effective way forward, we will of course work constructively to ensure that whatever changes are imposed on the sector are as fair and undamaging to landlords as possible.

One compromise could be that letting fees are banned, except for certain ones such as credit and reference check fees. This approach has just been adopted by the Lib Dem Renters’ Right Bill that has received cross-party support and is currently making its way through the House of Lords.

More Autumn Statement News

 There were also other announcements in the Autumn Statement that could impact on the PRS, such as:

  • An increase in Insurance Premium Tax from 10% to 12% next June
  • A commitment to maintain the plan to cut corporation tax to 17% by 2020
  • A possible review of incorporation, as the Office of Budget Responsibility highlighted a £3bn cost to the Treasury from higher rates of incorporation…

7 thoughts on “Letting Fee Bombshell Hits Private Rented Sector

  1. I think it’s a real problem as all cost are going up , tax cost , stamp duty , and no Admin fees , what about Ref costs credit check, tenants can give Lanlords tbe run around with no commitment! ! EPC , Deposit Certificate ? Electrical certificates , Gas certificates etc next License costs .
    When half the Landlords have left the market place we will half a real Homeless Crisis .
    The present Government is Totally Clueless an absolute Disgrace !!

  2. Mortgage Interest Tax Relief – I am appalled at this new unfair, inhumane, partial, baseless legislation. I have worked hard all my life, borrowed, invested to offer accommodation and services to tenants, one of the most difficult tasks, often under appreciated. At the moment my NET income is only £20,000.00 p.a. This thoughtless legislation (I think the idea has been influenced by Labour Party or Sadig Khan who had warned if he becomes the Mayor he would put landlords in their place!) would bring me into a high earner tax category, no deduction of my mortgage interests and would make me liable to pay tax of nearly £40,000.00 p.a. double of my true net income, paying tax while making a loss!

    George Osborne and Philip Hammond who are both rich and the latter is the second richest cabinet minister have no mortgage to understand the impact of recent moves, implemented with an anti-landlord agenda. Their cash must be kept securely offshore in Panama!! The rich without mortgage are untouched, benefit seekers are rewarded and the hard working soft target landlords in the middle are easy prey.

    Purchase of Council/Housing Association properties – Another crazy decision – My next door neighbours are tenants of Housing Association who are going to be able to buy their maisonettes with 70% discount and I who even work as a landlord while being a pensioner will be forced out of my home as I have to sell up because of this stupid new legislation.

    They should scrap this draconian legislation immediately which would serve no purpose except unfairly filling up the treasurey’s reserves at the expense of decimating an industry. Where will all the renters live after a good proportion of landlords go out of business?

    I will not vote Conservative again!

  3. Why is this government targeting private landlords? The Country & local authorities are unable to fund housing for letting. The private sector, with the availability of Buy to Let mortgages has worked well, both with the supply of properties & with the opportunity of everyday people to purchase with mortgages. The changes to interest tax relief is wrong & will prevent everyday aspiring people to acquire properties as an investment. The figures could not ‘stack up’. Only cash purchasers will benefit. Not right & unfair. Also, all has worked well in the past, so why penalize aspiring ordinary people & from a Tory Government as well? Very unjust & a jeopardy to housing for those less fortunate.

  4. Yes, I agree with all the comments above. I would also raise the issue of council tax payable on empty properties. This seems to receive no publicity. Yet in a void, when we receive no rent, we have the double whammy of having to pay council tax on the empty property. Is anything going on in the government’s heads? If private landlords are forced to sell because the ‘business’ is completely profitless, who is going to house our tenants?. We operate in the north west (Cumbria), mainly to people claiming Housing Benefit – not our original intention but this is how it panned out – and are finding the whole operation not worth the headache now.

  5. Everything you guys are saying is right. I’m 57 and have been in the property renting business as a professional landlord for more than 25 years. I currently have around 50 tenants. I have a social conscience and have improved my properties and the area they are in. I have always voted conservative, because up until now Tory policy has generally always supported business growth sensibly.

    There is obviously an agenda to remove the ‘small’ landlord from the rented sector and replace us with institutional landlords. Just like the old days when corporations owned 1000’s of houses and rents were controlled, because the companies were managed by cronies who all became rich and then became Lords!

    Government statistics are completely wrong. 90% of my tenants are young semi professional couples living in decent accommodation. I talk to them and guess what 95% of them do not want buy their own place at the moment or in the near future because they want to be free of commitment.

    The reality is not that bad for us really, hey sell up, lose the hassle, take the money and run?

    What is being missed by the Cameron/May government is that the ‘small landlord’ property renting ‘game’ is one of the oldest established business sectors and we will survive long after they are gone! Whether I am still a landlord or not come the next election, I will not vote for a Conservative government again if these ridiculous policies are still being pursued.

    Quite simply, lets get building more houses and then allow market forces to control the sector.

    When governments tinker with business it always goes wrong, just look at our car industry and don’t even think about coal and steel!

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