Rents will continue to increase next year, owed in part to a reduction in housing supply in the private rented sector (PRS), as more buy-to-let landlords exit the market as a consequence of recent tax changes.
The phasing out of mortgage tax relief from April 2017, coupled with the introduction of more stringent buy-to-let mortgage lending conditions as the Prudential Regulation Authority seeks to cool existing lending practices in the sector, will inevitably also push some landlords out of the market. But a new poll of letting agents conducted by the Association of Letting Agents (ARLA) specifically highlighted the potential adverse impact that a ban on letting agent fees may have on the market.
Following the chancellor’s announcement to ban letting agent fees for tenants during his Autumn Statement, 80% of agents surveyed said that they expect to see rents rise in 2017, as they naturally assume that the outright ban on letting agents’ fees to tenants will simply shift to landlord.
“The number of rent hikes reported by letting agents continued to decrease in November, and it’s a shame the ban on letting agent fees will have the opposite impact on rent prices when the measure comes into force,” said David Cox, managing director, ARLA.
He continued: “The buy-to-let market is becoming less attractive for investors as the ban on fees, combined with the scrapping of mortgage interest relief and the stamp duty increase on second homes push costs up for landlords. So unfortunately, regardless of the uplift we saw in supply this month, we expect to see the number of properties available to rent fall next year.”
But there is one major snag here for letting agents: an easy way for landlords to avoid incurring extra letting agent fees would be to simply not instruct a letting agent in the first place.
A significant number of buy-to-let landlords currently do not use letting agents to find or manage properties, and it has been suggested that many more should consider doing the same.
“We’re firm believers that as landlords’ purse strings are tightened by tax changes and the expected increases from traditional letting agents that landlords will look for alternatives,” said Gillian Kent, chairman at No Agent.
A prominent commentator recently suggested that it would be easy for landlords to avoid becoming “villains” after the tenants fee ban by choosing to simply “ditch rip-off agents” altogether.
Simon Lambert, editor of This is Money, wrote on the website: “Landlords are always ripe for a kicking in some circles, so it should come as no surprise that they were swiftly painted as potential future villains in the ban on tenant fees.
“The theory on the news that chancellor Philip Hammond would ban tenant fees in his Autumn Statement was that buy-to-let owners would respond by passing on higher costs through rent rises.”
But Lambert suggested that buy-to-let landlords have as much right to be “as angry as tenants over letting agency fees”.
“Many [landlords] pay handsomely for letting and management already and the fees they pay are meant to cover many of the things that some unscrupulous letting agents also charge tenants for.
“A check with their agent on the level of double-charging going on would leave a landlord as grumpy as their tenant.”
Lambert also pointed out that landlords do not profit from these tenant fees – “they go to the agent”. Consequently, while agents will be keen to maintain their revenues, the financial journalist believes that an attempt to simply claw back lost earnings by “lumping extra costs” on to landlords would be a “high risk strategy”.
“Those landlords, already facing a tax and mortgage squeeze, are likely to see any big hikes as a catalyst to move elsewhere,” he added.
Any “sensible agency” will not pass on the ‘tenant fee’ charges to landlords, due to competition in the sector, according to easyProperty's CEO Rob Ellice, who does not foresee rent rises “as there is no need to add the fees to rents”, he said.