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Labour’s plan will increase cost of rents

RLA
Written by RLA

Proposals by the Labour Party to end letting agent fees paid by tenants will only increase the cost of rents for many tenants…

Proposals by the Labour Party to end letting agent fees paid by tenants will only increase the cost of rents for many tenants.

The Opposition will today (13th May) propose an amendment to the Consumers Rights Bill calling for an end to the fees charged to tenants by letting agents

Despite Labour’s claim that this would cut costs for tenants, the RLA is warning that it would actually increase them.

Currently, in England, letting agents share the costs of providing their services including, marketing, contract preparation and credit checking between the landlord and the tenants. If all the fees are loaded onto the landlord, they will have to pass these on to the tenant through the rent.

Given that landlords would want to recoup these extra costs in the first six months of a tenancy, there is a danger that they would set a higher rent level which would then continue for the whole of the contract. For tenants remaining longer than say six months, this will mean they continue to pay more for their tenancy.

Simply put, such a policy would in fact leave many tenants far worse off than they are at present from paying a one-off fee to letting agents. This has been acknowledged by Shelter who said in a report last year:

“If letting agencies do not absorb the costs they currently charge to tenants, landlords may be justified in increasing rents to reflect their additional costs.”

The RLA is calling for letting agents to provide tenants and landlords with a breakdown of what is covered by the fees they charge. Such transparency would enable tenants and landlords to shop around for agents them to offer competitive fees.

Commenting ahead of today’s debate, RLA Chairman, Alan Ward said:

“There is a very real danger that political posturing is getting in the way of sound, evidence based policy.

“The reality is that today’s amendment would, if implemented, only increase costs for tenants – the direct opposite to what Labour is calling for. Tenants will continue to pay the additional charges throughout the length of tenancy.

“The only way to reduce  the cost of living for tenants is to boost the supply of homes to rent and yet all Labour’s policies will have the opposite effect by discouraging landlords from investing.”

About the author

RLA

RLA

The Residential Landlords Association (RLA) represents the interests of landlords in the private rented sector (PRS) across England and Wales. With over 23,000 subscribing members, and an additional 16,000 registered guests who engage regularly with the association, we are the leading voice of private landlords. Combined, they manage almost half a million properties.

1 Comment

  • Alan , initially this may be the case ,also in times of very high rental demand however as you know fifty percent of us never use a letting agent and work on this principles I have outlined to you many times ,keep the rents a little cheaper keep them in reduce your voids maximise your profit .

    Now I grant you eliminating LA fees to tenants would take a little time to work through but in the long term it would not have such an impact as has been shown in Scotland over recent years .

    Let’s run a scenario , letting agent fees have been outlawed .
    I own number 3 gasworks villas I run my own properties and have it available for rent after the current tenant has moved after three or four years , I turn the property around and re market it at £600 per month , fees are not a problem as I have not charged any other than very minimal in the past and may have put a fiver a month on the rent as a token to cover the loss .

    You own number 5 gasworks villas an identical property you have been letting through Swindle & Co letting agents which is now coming vacant after six months and because now agent fees are illegal good old Swindles are loading their fees to you and have advised you to market the property at £700 .

    There are a few different outcomes here but the upshot from the outset is that-

    whichever way you roll that dice you will loose money whether it be by not letting quickly and even a few months down the line when you have very resentful tenants in place you have lost all the chance of any social capital being built up between you and them and in six months time you will be in ground hog day .

    You lower your rent to compete with me in which case you are drastically reducing your margin but still use letting services .

    You sell up as you only have one or two properties and are not really cut out to be a landlord and what’s the point of going on when Swindle are taking your bit of profit and you are barely covering the mortgage .

    OR you sit down and think I could be doing this all myself like the chap at number 3 maximising my profit and benefiting the tenants at the same time .

    Overall the reality is that there will be a combination of all these things and to be honest many accidental landlords exciting the market is no bad thing .
    It will I believe in the long term have.no upward pleasure on rent levels ,quite the reverse it will stabilise ,however the rebalancing will not be immediate and may even take a number of years but the rule changes as proposed will create a virtuous circle where property owners using agents will not be able to compete so will begin to self manage or exist a process that will be repeated and repeated .

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