THE BLOG

Banning Letting Agents Fees Would Give Renters More Power in the Housing Market

21/04/2016 10:21 | Updated 21 April 2016

When faced with the housing crisis we have, it is always tempting to start banning stuff. The list of targets is long: off-plan property sales, foreign ownership, empty homes, buy to let. But banning stuff outright is rarely straightforward and can have unintended consequences. Letting fees are one of the exceptions.

Generation Rent has published its latest report on letting agent fees, finding that across 10 boroughs and 700 letting agents, the average fees for a two-person household setting up a new tenancy cost £386.

That's on top of the deposit, the first month's rent, the van hire and the carpet shampooer for the last place. It's a huge amount of money to say goodbye to at the best of times, let alone during a time of high stress.

Industry insiders tell us that the actual costs of setting up a tenancy involve credit checks costing around £20 and about 4 hours' work, so even at the lower end of the scale most agents are making big profits. A handful of agents manage to make zero tenant fees work, but many opt to grossly overcharge. Tenants using one agent in Tower Hamlets, for example, would hand over £780.

This is completely legal. Letting agents can charge whatever they like, as long as they publish their fees in full - which is how we've been able to compile our website, www.lettingfees.co.uk. One in seven agents still doesn't publish their fees, in breach of last year's Consumer Rights Act.

The government brought in the legislation on the expectation that transparency would force agents to start competing on fees, and tenants would ultimately get a better deal. But as much as we want our website to single-handedly bring down fees, that's not how the market works.

In a competitive housing market like London's, flat hunters will take the first property that ticks their boxes for location, condition and rent. In the desperation to secure a roof over your head, how much the agent will charge compared to the one down the road doesn't come into it - the other guy doesn't have a flat you want anyway.

As a result of this captive market, agents are free to overcharge. That's why we need a ban on fees.

The only response we ever get when we propose this is that agents will have to charge those costs to landlords, and that will be passed to the tenant in higher rent. Even if it does, we think that's better than facing big one-off fees that some tenants need a payday loan to cover.

But it won't happen, because rents are already as high as the market will allow them to go. Two-thirds of private rented properties have no mortgage on them - the landlord is making a huge margin that £386 won't dent.

And that's assuming that the letting agent will charge the full tenant fee to the landlord. More likely, they won't because they know that the landlord will take his business elsewhere. The landlord, unlike the tenants, is the customer in this relationship and can choose which agent to use. Putting all the costs on the landlord will force agents to start competing properly, instead of taking their revenue from tenants with nowhere else to turn.

With little impact on rents from a ban on fees, tenants might also find they get a better service from their landlord. They would now be in a position where they did not need to dip into savings in order to move somewhere else, so would be more willing to leave an unsuitable property. That threat of losing a reliable tenant would also strengthen their hand in negotiations with landlords over rent rises and repairs.

A ban on letting fees might seem like a knee-jerk reaction, but it's one that stands up to scrutiny - and is already working in Scotland. London's next Mayor should add it to their shopping list for Westminster.

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