In last week’s Autumn statement the new Chancellor Philip Hammond threw a curve ball at the lettings industry south of the border by banning letting agents from charging tenants fees. Up until last week, the feeling from letting agents in England was that after years of pressure from tenants groups, a limit would be put on what an agent could charge a tenant rather than an outright ban. Their feeling was that this would stop tenants being exploited with some agents charging eye-watering fees (up to £780 per tenancy in some cases) but the average fee of £386 per tenancy would still be permissible.
The agents got it wrong.
The Chancellor has gone further and banned tenant fees altogether and it’s caused shockwaves through the industry in England. At £386 per tenancy, this probably represents 10%-15% of an agents’ income and possibly all of their profit. By taking this income away, it’ll put pressure on all letting businesses in England. Something will have to give.
The same change in law was introduced in Scotland in 2012 so what can agents in England take from what has happened in Scotland? First of all, there were some key differences to the ban in Scotland and the ban in England:
- The average fee in Scotland was about £80 compared to £386 in England. The loss of this income was much easier for Scottish agents to bear or pass on to their landlords.
- The “ban” in Scotland was a clearing up of ambiguous wording in the existing law that previously made charging tenants a grey area. We all knew it was only a matter of time before tenancy fees were abolished in Scotland and we built our businesses and fee models accordingly so 2012 was not the same shock as last week’s announcement in Westminster.
- The Tenancy Deposit Scheme (TDS) in Scotland was introduced at the same time as the tenancy fee ban. TDS was arguably bigger news than the banning of tenancy fees because it meant agents could no longer hold the huge sums of tenants’ deposits in their bank accounts and it caused many agents to sell up or exit the market.
The ban of tenancy fees in Scotland in 2012 made agents charge their landlords a little bit more, they had to make their businesses better and more efficient and the ones that didn’t went out of business. I suspect we’ll see the same thing happen in England. Rents in Scotland have continued to increase since 2012 but this appears to be in line with rent increases throughout the rest of the UK so can’t be put down to the banning of tenancy fees. I would think that tenancy fees being banned in England will increase rent levels but this is nothing compared to the changes caused by market forces and the continuing over-demand and under-supply that shows no sign of changing.
My advice for any agents in England worried about the loss of tenancy fees is to look again at their own businesses. There is an opportunity to embrace technology in a sector that lags behind service in other industries. Agents can do more for their existing clients in an ever changing private rented sector. They need to get their own story out there as there will be a whole world of landlords and tenants who are waking up to a choice of letting agents they’ve not had to make before. This is a tremendous opportunity for the best prepared letting businesses.
I’d be delighted to hear any comments you have on letting agent fees so please do submit a comment below or send me an email.