1. Governance
November 25, 2016updated 04 Aug 2023 8:54am

Don't believe the letting agents: banning fees is good for tenants

By Dan Wilson

The government’s decision to ban letting fees to tenants is a victory for the country’s 11m renters, and a victory for common sense. It has also enabled the chancellor Philip Hammond to announce what is effectively a several-hundred-pound giveaway for “just about managing” households that, conveniently, doesn’t cost the government anything.

One in three private renters move home each year, and upfront fees cost the typical two-adult household £400 when starting a tenancy. The giddy prospect of not having to raid your savings or take out a loan in order to move is just the start – the chancellor’s move could reshape the rental market.

Tenants pick a property based on its rent and suitability: they have no say over which agent the landlord appoints to manage the tenancy. As a result agents have a captive market that they can charge whatever they like. This has resulted in fees for the same basic service ranging from £40 to nearly £800, according to Generation Rent research.

With a ban on tenant fees, the agent’s actual customer – the landlord – will have to foot the bill, and if they think the cost is too high they will be able to negotiate with the agent, or just appoint a cheaper one.

The government’s previous opposition to this policy was based on the claim that it would push rents up. But landlords can only charge as much as market demand allows them to. The basic mismatch between supply and demand is keeping rents high, and increased costs for the landlord won’t alter this.

While a fees ban would harness landlords’ existing power to minimise agent costs, it would also enhance the power of the tenant. Rolling all the tenant’s costs into the rent gives them a much more transparent system of comparing prospective homes. And if a landlord tries to raise the rent, the lower cost of moving home gives a threat to do so more credibility and puts the renter in a stronger position to negotiate.

Then there are the half a million households who are living in unsatisfactory accommodation but cannot move out because of the cost of fees. Negligent landlords will now face the prospect of having to replace their newly empowered tenants – so we should start seeing boilers, floorboards and windows fixed with a bit more enthusiasm.

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This new system will also transform letting agents’ incentives. Currently it’s more profitable for agents with high fees to encourage regular tenant turnover than have them stay put year after year. With a ban on tenant fees, the most profitable thing for an agent to do is encourage tenants to stay for the long term, minimising periods where the property is empty.

Banning fees creates a much healthier, more efficient market, with consumers empowered to get a good deal. It’s surprising that the Conservative party resisted it for so long.

Unfortunately, despite this move, high rents will continue to suppress renters’ living standards, and landlords can still evict tenants without giving a reason. With millions of us facing decades stuck renting, the government must address this urgently.

Years of campaigning by a coalition that includes Generation Rent, Shelter, Citizens Advice, the Debrief and tenant groups around the country made the fees ban happen, but the fight for renters’ rights is not over yet. This week’s announcement offers a glimpse of what is possible.

Dan Wilson Craw is head of communications for Generation Rent.

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