Are ministers right to bring in a ban on letting agency fees?

The Chancellor announced in his Autumn statement 2016, that letting fees will be banned and will come into effect “as soon as possible” following a period of consultation prior to introducing this legislation. If the upfront fees are banned, as a result of the consultation, then surely this will be positive news for the tenant looking to move in 2017?

In the short-term the tenant will benefit as the letting agency fees will be passed on directly to the landlords. It’s difficult to predict how this will affect property supply as landlords are already having to adjust to changes in Stamp Duty as well as mortgage interest relief.

It could mean that some landlords withdraw from the market altogether, therefore reducing the housing supply and forcing rents up.

The other issue of tenants not having to pay a fee to secure a property means they could potentially play a few landlords against each other, making multiple applications with different agents. This would benefit the tenant but for the landlords and agents they would lose out on the business and could create an upturn in rent to cover such periods.

Another option is to rent out privately to tenants and avoid the costs of a letting agency, however this could prove costly in many other ways. By not using an agency to look after property portfolios could expose landlords to regulatory requirements that could be missed, such as right to rent, safety requirements, S21 and repairs. Landlords without the knowledge and expertise to carry out repairs properly, or by missing important regulatory requirements, could be putting themselves, their business and potentially their tenants’ safety at risk.

This idea of a ban on letting agency fees was introduced by the government to help reduce the cost of rent and help first buyers to save enough for a five per cent deposit but it could have a negative impact on the rental market and not help renters in the long run.

If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents.

Some agents however see the ban on fees as a positive step and could make it more transparent for tenants and help them lose out to fake agents trying to charge more money than they should, especially in a highly competitive market, such as London.