Speculation is already rife on how a ban on lettings agent fees would hit the sector in England, but for some clues it is worth looking north of the border.
Scotland introduced a ban on lettings agent fees to tenants in 2012, and four years later there is little consensus on whether this has pushed up rents to cover the increased costs for agents and landlords.
David Cox, managing director of ARLA, told EYE that the ban in Scotland had driven up rents.
He said: “Since the ban came into effect in Scotland in 2012, we’ve seen rents rise quite significantly. According to official Scottish government statistics, average rents rose by 4.2% in the first 12 months after the ban was enforced, and for the same period in England, rents went down by 0.7%, so we do see quite a stark difference north and south of the border.”
Industry consultant and trainer Adam Walker says costs have been passed on to landlords and then on to tenants in Scotland. He said: “Yesterday’s ban on tenant fees in England was a nasty surprise but the impact will be less than it might first appear.
“Tenant fees make up about 15% of most agents’ income and they cannot afford to lose this amount of revenue – it would wipe out their entire profit. They will therefore have no choice but to pass the cost on to landlords who will increase rents to cover it. A tenant fee of £360 will equate to a £30 per calendar month increase in the rent.
“This is what happened in Scotland and my main client there recovered all but £6 per case of the tenant fees in the first year.”
However, Thomas Ashdown, of Scottish rental portal Citylets, told EYE there were other factors at play in rent inflation.
He said: “Rents have gone up, but supply and demand imbalance in major cities is a major if not the driving factor for that. Conversely, in Aberdeen they have tumbled.
“Rents are wholly sanguine and under-performing inflation in just about every single town in the country, so that suggests there has been no clear effect on the whole.
“The going rate of annual rental inflation is a steady 2%.
“Fees here were relatively small compared to what we understand down south, so perhaps a smaller pill for Scots agents to swallow.”
One Scottish reader, Scotlandagent80, commented on EYE: “The ban hasn’t impacted us too much as our fees to tenants were very little as there was a grey area with being able to charge fees in the first place. We have had to pass referencing costs on to the landlord. Rents have risen ever so slightly as landlords want to recoup their costs.
“We have had to improvise by generating other sources of income through in-house inventories, legionella risk assessments and PAT tests.”
In Westminster, MPs looked at the impact of a ban on lettings agent fees on the private rented sector in 2015.
It couldn’t find “strong enough evidence” that rents had been pushed up as a result of the ban in Scotland.
Shelter Scotland stated at the time that there was “no conclusive evidence” that the ban on fees in Scotland led to an increase in rents. It said that the “independent analysis found that other market pressures were far more likely to have contributed to rising rents in the private rented sector”.
However, the Scottish Landlords Association and the Council of Letting Agents said it was realistic to suggest an increase in rents which they identified was due at least in part to the ban.
A poll by the CLA found 20% of its members reported an increase in rent as a result of the change and 9% reported the introduction of other fees for tenants. A third of respondents had started charging fees to landlords that tenants previously paid and 23% had increased management fees charged to landlords.
Homelet’s latest rental index for Scotland shows that new rents grew 0.4% on average in October to £606 per month, up from £584 a year ago.
source http://blog.evolutionproperties.co.uk/2016/11/24/will-lettings-fee-ban-prompt-rental-inflation-how-the-scottish-market-reacted/
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