Letting agents fees must be transparent not abolished
FOLLOWING THE news that all tenancy fees have been outlawed in Scotland, the housing charity Shelter has broadened its attack on upfront fees charged by letting agents in England.
However, one lettings specialist in Leeds argues that if the same thing were to happen in England there will be no private sector letting industry left. Jonathan Morgan, Managing Director of Morgans which operates across city centre and North Leeds offices, explains: “If there are no fees agents won’t be able to trade. What’s needed isn’t an outright ban on fees charged to tenants but simply a reasonable and transparent fee structure that tenants are made fully aware of before they sign for or move into a property.
“Any agent worth its salt would sign up to such a scheme where they provide tenants with a breakdown of charges before a tenant has to commit to anything. To ban all lettings fees is crazy, it’s like saying a mortgage broker can’t charge a fee for finding a mortgage.”
Shelter’s recent YouGov survey said 23% of tenants felt ripped off by letting agents but Morgan believes that by introducing an agreement that clearly shows what fees are charged, any mistrust between agents and tenants would be eradicated.
Jonathan explains: “Of course it’s essential that fees are fair, with such a booming lettings market and some unscrupulous agents entering the market to take of advantage of this, tenants must feel safe and secure in the lettings process and landlords should also have a clear understanding of what their agent is charging their tenant.
“To talk of outlawing all charges is just not practical as there are significant cost implications for operating a business in the first place, not to mention carrying out viewings, processing applications and general administration that have to be met.” This sentiment is echoed by Jane Ingram, president of ARLA, she said: “It is important to bear in mind that a professional lettings service cannot be provided to either a landlord or a tenant at low cost. However, both parties should be aware of their costs and feel that they have had a professional service, and should have somewhere to seek redress if they feel otherwise.”
Shelter has also recently called for a new five-year private rental contract to be introduced to give people renting greater stability. Shelter believe that a new type of tenancy called the Stable Rental Contract should become the norm across the rental market in England to help tenants put down roots and give landlords greater certainty over returns. It suggested that under the five-year contract, rents should increase in line with inflation each year, giving tenants and landlords predictable outgoings and incomes.
Jonathan comments: “The premise of a five year contract with the ability to give notice on either side is not sound. Currently the average tenancy length in our city and the North Leeds area is around 8-10 months and this is a reflection of the lifestyle of the vast majority of our client group. They rent for a shorter period because they actually want short term commitment and flexibility and have no interest in being committed for a longer term. If it’s the case that renting is a stepping stone for most people, and evidence suggests that this is very much the case, then it follows that a five-year tenancy will only appeal to those who do not envisage buying in the next five years.”
Jonathan believes that the European model has long been held up as a reference point for what is happening in the UK housing market but that it is highly unlikely that the UK will follow the same path. He says: “In Germany, for example, the most pro-rental market in the EU, around 54% of people rent their home (as at 2007) but it is also true that the cost of buying a property has always been much higher, with average deposits at around 40%. In simple terms, the buying public have always had to have significant equity. This is not what the British public have become used to, and whilst it might take a while, the consensus is that loan to value requirements will fall over time back towards levels at which the volume of transactions will once more increase.”
Jonathan adds: “We are bemused by the proposal to introduce a five year tenancy, particularly when this would include break clauses on both sides, thereby providing the tenants with no security whatsoever. Inflation based rises are well enough for the tenant if inflation is low but not so should this fundamentally change, at which point I suspect, so would the degree to which such a model would appeal.”
Morgan believes that at the moment reluctant landlords are inadvertently filling a gap in the rentals market by letting a property they would rather sell, which means that a lot of these properties will be released for sale as the market recovers to a level at which they can recover their investment. Jonathan says: “Under the five year model, the tenants would then be given notice and we would be back to square one. The answer is to provide sufficient medium term built-for-purpose rental property to satisfy current and likely demand, but not to panic into re-structuring the private rented sector which we believe is likely to see modest rather than significant permanent growth.”
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