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UK Letting Agency Fees – An HCR Briefing

1st December 2016

In the Autumn Statement on November 23rd 2016 Chancellor of the Exchequer Philip Hammond announced a ban on Letting Agency fees to tenants although the ban will be subject to consultation.   HCR believes that this is part of the major shift in the UK housing market from purchase to rental and an indication that renters now form an important political constituency. 

There has been a lot of discussion in the media around the fees charged by Letting Agents to both landlords and tenants.   In return for fees from landlords – generally a percentage of the monthly rent charged on the property – a Letting Agent will find tenants for the landlord and install them in the property.   Once the tenants have occupied the property, the Letting Agency may manage the property maintenance issues during the tenancy on behalf of the landlord. There is genuine competition between letting agencies in seeking to attract and retain landlord business.

Having gone to the length of viewing and choosing a property, tenants are unlikely to back out at the last minute and so are vulnerable to aggressive fee pricing.] Fees to tenants are quite different. Until May 2015 when agencies in England and Wales were forced by law to publicise their fees, charges were often opaque.  Even after that legislative change, during the mechanics of finding and signing up to a property, prospective tenants can find themselves having to pay significant sums for apparent administrative fees associated with beginning a tenancy.

And there has been no serious competition for tenants in many areas, particularly where demand for houses outstripped supply.  Having gone to the length of viewing and choosing a property, agencies know tenants are unlikely to back out at the last minute so are vulnerable to aggressive fee pricing. Tenants cannot afford to limit their choice of property by choosing letting agencies on the grounds of fees alone.

Since the ban was announced, figures of between £220 and £330 pounds for average tenant fees have been quoted by landlord pressure groups but this conceals huge regional differences.  A few minutes browsing amongst major high street agents revealed minimum “administration” fees of £444 and £499.  In cases of multiple occupancy, each additional tenant can be charged between £70 and £125 further. 

In recent days, Letting Agent associations have been telling the media that if Letting Agents are prevented from charging tenant fees then these costs will be passed onto landlords who will then have to increase rents accordingly. 

This is a possibility but in Scotland, where the ban was introduced in 2012, it has been virtually impossible to prove that this happened.  Far more likely is that landlords will expect Letting Agents to absorb some or all the fees they previously loaded on to tenants and that could and should result in greater competition between agents to secure landlords.  The gauntlet has already been thrown down by easyProperty who Tweeted that they supported the ban on Letting Agent’s fees days after Mr Hammond’s announcement.

It is not surprising that a period of consultation will take place.  This will probably be in the light of the Scottish experience where differences in the interpretation of the relevant legislation have led to some letting agencies still charging certain fees which they believe the law entitles them to do.

HCR will follow the consultation process and will issue further bulletins as it progresses.