ARLA Propertymark chief executive David Cox and tenant campaigner Vicky Spratt clashed a number of times during a Radio4 debate on the lettings fee ban yesterday.
Consumer affairs programme You and Yours, presented by Winifred Robinson, featured a case study of a tenant who had been quoted fees of half the monthly rent of £1,600, and asked Cox how agents could justify such charges.
Cox told Robinson that fees should be transparent and need to cover items like referencing, contract negotiation and inventories.
He said: “A survey of our members showed average fees were £202. Fees should be reasonable.”
Asked why the cost of referencing doesn’t reflect the amount that the credit agencies charge, Cox said: “Referencing costs all vary from agent to agent as with every business. It is not just the cost of the third-party referencing but the time taken to get all the necessary information.
“The referencing process can take up to eight hours on average.”
Spratt, deputy editor of The Debrief website, who launched a petition that eventually helped lead to the Government announcing its aim to ban tenant fees last year, then interjected, asking: “Shouldn’t the landlords be paying for that?
“The landlord is the one making a profit. A tenant makes nothing out of renting a house, while a lettings agent is working for the landlord. An agent is filling the property for them.”
She also pointed out that it is the landlord’s mortgage getting paid off, plus they get to keep anything extra at the end of each month.
Spratt told the programme that letting agents had informed her that they were double charging and warned that in some cases the landlords were unaware of this. She also complained that when she tweeted that tenant fees were unfair, one agent simply replied that “we charge because we can” along with a series of laughing emojis.
Asked if she thought rents would rise if, as expected, the tenant fee ban is introduced, Spratt said there was no evidence that this would happen, claiming this was not the case in Scotland since the country banned fees.
But Cox disagreed with this, claiming rents rose 4.2% in Scotland in the year after the ban.
He said: “If we look at the Scottish Government’s own statistics, rents across the country rose by 4.2% and were 0.2% down in England at the same time.”
Responding, Spratt stated: “We have discussed these figures before.
“Rents at that time were rising, particularly in cities. That is not inconsistent with what we were seeing across the UK because of the housing shortage.”
Cox went on to insist these were official statistics rather than his own members, adding that the Office for Budget Responsibility had also warned that rents would rise as a result of this policy.
The segment was then closed by Robinson after just under ten minutes to move on to the next subject of self-help books.
It’s fair to say that landlords have been hammered by the government’s private rental sector legislative changes. Why? It’s a paradox really, people need housing, landlords provide it and yet the government is determined to wreck it-quite silly really!
Ok, let’s take a look at the government’s recent crowd pleaser-The Fee Ban. I read the consultation paper again just to see whether I could find anything in there pro-agent. I tried and failed, still completely bias and in favour of prospective tenants.
I think it is fair to say that there is a small group of agencies who do over egg the pudding when it comes to fees, although that said most agents, certainly our clients are pretty reasonable and their fees being commensurate with the work involved.
I’ve read with interest what most agencies feelings are with respect to the ban, and how they will be affected financially; but how will it affect the tenants? In Scotland contrary to what Shelter stated, rents did increase post ban, around 5%! These figures are extracted from our own data and are fact and not the fictional figures derived from a factional survey.
Will it be better for tenants post ban? Probably not, rents will rise as landlords attempt to recover increased fees charged by agencies due to them losing the right to charge tenants anything. So the net effect is that tenants will pay through rent increases, of course we all knew this anyway!
Will the fee ban make the world a better place for tenants? I doubt it; and here’s why!
Due to little or no ingoing (application fees) tenants will continue to shop around and shop they will, resulting in multiple property applications with other agencies. This happens now even after prospective tenants have paid their application fees. At UKtenantdata this is a regular occurrence and results in cancelled applications and the agent’s clients being off rent for another month due to the property being placed back on the market, and yes the landlord loses their rental income and receives another blow to their finances. On the face of it you’d think how does this affect the prospective tenant? The answer is that agents are not stupid and will run multiple applications on the same property with the first across the line securing the property and the other applicants losing out on a property that they had their heart set on. The time factor is important for landlords and agencies when a property comes to market, for landlords they need to be on rent and the agency is pressured to secure a tenant in the shortest time possible to maintain client retention and their future fees. So for tenants what does this mean, and how does the future look? Simply put as a prospective tenant there is no guarantee that in the future (post ban) you will be successful in securing the property you really want, and I mean none! Your agent will take multiple holding fees on the property and when the first successful application is over the line you will receive the bad news and your holding fee will be refunded in full.
The guarantor problem! If an agency submits an application and when processed the applicant possibly a student requires a guarantor, will the agent pay for this application to be processed too? Unlikely, although an applicant can purchase guarantor insurance which is generally equal to one month’s rent for a 12 month policy and paid annually; so clearly the applicant is now having to find a huge amount of money to cover these additional cost and if this can’t be met the agency will move onto the next applicant in the mix. Result more cost for the applicant!
In the end the tenant loses in perpetuity
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Interesting comments but IMHO, i don’t agree with all your assumptions.
I went on a tenant fee ban workshop in Birmingham recently, and pretty much all the agents said, that due to demand, rents would/could not increase. I appreciate it will be different across England, but I spoke to another agent in East London and he claims he is already being asked to drop tenant fees by applicants because demand has slumped due to Brexit. Supply and demand will dictate rent levels not the banning of tenant fees. There are plenty of agents already not charging tenants fees so it must work in some shape or form.
On the issue of an applicant and multiple applications, you mention that this a problem NOW, so why do you feel the tenant fee ban will increase this problem considering the consultation will more than likely still allow an agent to take a holding deposit? If an agent and a landlord are generally proactive, then most properties come onto the market some 1-2 months before the property is available to let. In my experience void periods are generally not a problem if the landlords are asking a “fair” rent and the property is a good condition.
Lastly, on David Cox’s comments of 8 hours on average to conduct referencing, I found that figure a complete distortion from the truth. In your experience, beyond asking a referencing company to conduct the references, what other issues are dealt with by the agent in relation to referencing? I be interested to hear the issues which you dont cover which an agent has to do to ensure due diligence. Personally, I am sure if such issues were apparent, you would have provided a service which would have solved that problem. I be interested to hear how much you charge, and how long on average it takes your company to complete a full reference?
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Hi Ding Dong
You are quite right rents will fluctuate due to supply and demand. Ok, now consider this, what will affect supply and in turn increase demand. Firstly landlords are being driven away due to punitive tax increases and the loss of BTL mortgage relief which will result in less landlords investing in the BTL space. Secondly the loss of agency revenue will drive up fees to landlords which will mean that current landlords will exit the market all together, so all in all the perfect storm for rent increases.
The fee ban will present an issue whereby an applicant will shop around due to a real lack of financial commitment. Although holding fees have been mooted in the consultation, the logistics of when and if the applicant receives a refund are unclear. So for the hell of it let us assume the holding deposit is £100 (can’t see it being more than this to be honest) and the applicant is aware that their total loss will equate to just 20% of the holding deposit should they back out of the deal. Whilst their application is in the mix this applicant sees another property with another agent and applies again knowing their loss will equate to very little, the result will give agents no choice other than to hedge their position by introducing multiple applications on a property and having one winner thus preserving their client relationship and fees for another tenancy term. This will provide no guarantee that an applicant will succeed in securing their desired property as the agent, and rightly so will take the first applicant over the wire and simply refund the losers.
With respect to referencing times I like to think that we are the most efficient at what we do, although turning quality reporting around in a matter of hours requires a large amount of proactivity from referees and in some cases referees despite numerous request for inforamtion don’t consider our request a priority. Our processing times are generally 48 hours.
Hope that helps
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I think there is also a misconception both from the general public and from lettings agents about what is “needed” and what is optional.
You need to reference and make sure a tenant is here legally and can afford to rent the property. You need a contract and to take money from them etc. You do not “need” an inventory for example. It’s advisable, but its not compulsory.
Too many agents seem to charge tenants for X, Y and Z on top of the 8-10% they are charging the landlord. Some agents in London charge 17% plus VAT management when renting £2500pcm properties on a two year contract. Over 10k as a fee for finding a set of tenants and managing the property for two years. And you then want to effectively steal another £50 mark up from the tenant on an inflated inventory? Immoral.
The party is over for this ridiculous charges from immoral, lazy, greedy agents thinking about grabbing every penny now and alienating the possible longevity of the landlords and tenants they have worked so hard to get onboard in the first place.
A fair limit on fees should be agreeable to all, £99 plus VAT per adult, to cover referencing costs. It does cost time and money and tenants should pay something, but it is no more costly to reference an adult for a four bed house than it is a one bed flat.
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Fair points
You certaintly need an inventory if you are taking a deposit otherwise you will struggle to win any deposit adjudication on damage
If ARLA want to do some good, write a letter to all their members and get them to CAP their fees NOW? Lets see if that happens!!!
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@StatementOfFact
Inventories are mandatory if you want any hope of recovering any cost for damage caused by the Tenant from the Deposit. Adjudicators when disputes occur currently favour Tenants unless (and not even then sometimes) you can prove the condition at the beginning of the Tenancy and again at the end showing the damage. So unless you have a great crystal ball to know which Tenants will /will not damage the property in advance then you have to have an inventory.
Agree that fees should be fair, and reflect the amount of work involved (and associated overheads). Other professional bodies have set scale charges, so it should be beyond the wit of man to do the same in the lettings industry.
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So its highly advisable to have an inventory yes, but not mandatory. Car insurance is mandatory, inventories are optional. Sensible, advisable, recommended, not mandatory.
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Perhaps they SHOULD be made mandatory – along with photographic evidence. I’m surprised the deposit registration fraternity hasn’t made moves to get them made mandatory to increase protection for all parties. Would make a lot of sense actually.
Mind you, making car insurance mandatory hasn’t stopped something like a million people driving without insurance…..but at least you get done if you’re caught without it.
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I am an agent based in Witney, Oxfordshire. I run a small lettings only business from a home office looking after around 60 rent collection and fully managed properties.
I think an outright ban of charging a tenant any fees will result is the market being damaged in some shape or form, be it increased rents, landlords leaving the market or whatever – however, as a non “city” agent I feel very angry that the fees that seem to be charged in the city are the ones being used in examples – London/Oxford agent fees ARE ridiculous and the use of “set up fees” IS immoral. However, we as agents incur a direct cost for referencing from the referencing agencies and we incur a time cost too – the time is clearly up for debate but there is still a cost attached to it.
As an agent I would be in favour of a cap on tenant fees. Mine are currently £200 for a couple (no vat as I’m not registered). £100 per person is a reasonable cost and I based my fees on literally the direct costs incurred plus my time, plus a small element for profit. I would even go down to £75 per person and it would still be viable for me. I think my fees are very reasonable both for tenants and landlord. I have many tenants who tell me the larger or corporate agents are charging £200 each, plus set up fees even in Oxford which to me is a disgrace, but also makes me very competitive. (By the way the fees I charge include everything – referencing, share of inventory, share of contract, deposit registration). Costs for inventory should be shared as it is in both the landlord’s and tenant’s interests that a good record is kept and it can be used by both parties in the event of a dispute – so the cost should be shared without a doubt. The landlord should not pick up this tab alone. I also agree that tenant will submit multiple applications where there is no real financial commitment involved wasting many agent’s and landlord’s time – that is simply not fair. The applicant is the one who should be covering the costs of showing that they are in a good financial position to proceed and that they are a good risk and of good standing, and that it is they who should be proceeded with over the next guy – why on earth should the landlord have to pay for this through increased fees to them, or why should the agent suck up these costs?
What about a holding fee that more repesents part of the potential full deposit – so it’s more substantial than £100/£200. It would represent a more firm commitment to the application. This may prevent multiple applications. If they are succesful then perhaps no fee is charged to them, (or perhaps a very modest one) but if they withdraw or are rejected due to poor credit, then an agent should be allowed to recover his direct costs from those funds and refund the balance – and again reasonable costs, nothing stupid.
It’s all about “reasonable” costs – and unfortunately, the big city agents seem to like tarring all of us as rogue, rip off agents just because they impose unjust fee regimes.
I am a small business under the VAT threshold in terms of turnover – an outright ban on tenant fees WILL affect my business detrimentally. The larger chains may be able to swallow some of these costs but the small guy cant. Couple this with a potential increase in corporation tax by some 8-9% and that could be enough to finish me off!
Where are the campaigns to protect the small guy in all of this who is providing a far more hands on, personal service to clients than the big guys who are just interested in numbers and profits?
Slightly off the subject but also why are the likes of Rightmove not being hit by the monopolies people as they have just increased their fees to me by 17%!!!!! and I have no real alternative but to pay these increases….and they’re pretty much every year. We have to cover these costs somehow and not all increases can be either swallowed by the agent or passed on directly to landlords!!.If I raised my fees by 17% I would lose all my clients……….
DON’T BAN FEES, IMPOSE A REASONABLE CAP TO CURB THE GREEDY AGENTS RIPPING TENANTS OFF- as a small business owner, I think this is a fair and reasonable compromise.
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Has anyone got a link to the interview , I haven’t heard it yet ?
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