Liam Reynolds
Liam Reynolds

By Liam Reynolds

Letting agent fees ban is great news, but will it push up rents?

The forthcoming ban on letting fees is great news for England’s private renters. Renters have no real power to negotiate over fees and too many currently get stung with massive fees just to sign or renew a contract. This makes the impact of our unstable private rental market even worse.

But since the ban was announced there have already been claims that costs will just get shunted back onto tenants through rent increases.

This was also a hot topic when the legal clarification explicitly banning fees was going through in Scotland in 2012. Today some have claimed that there was abnormally high rent inflation in Scotland as a result of that change.

What happened when fees were banned in Scotland?

Back in 2013, when we commissioned research on the likely impact on rents in Scotland, we found a complex picture. But of 120 landlords interviewed for that research, only one noticed an increase in what they were charged by their letting agent and passed it on in higher rents. It was clear that things like employment rates, wages and the oil industry in Aberdeen were playing a much bigger role in driving  rents in Scotland than whether tenants pay fees or not.

The research did suggest a change in the law may have caused a very small uplift in rents – it would be surprising if some increase in costs to landlords didn’t – but that this would be small and short-lived.

Three years on from the change in Scotland, we have lots more data. This gives us even more insight into what happened in Scotland, and can help us understand what the impact of this change may be on rents in England.

The Office for National Statistics now produces an index of private rental prices, allowing us to compare movements in rental costs in England and Scotland– see the chart below.

impact-of-letting-fees-on-rent-increases-in-england-and-scotland

The change in Scotland came in November 2012, but it was known about for some years prior. So it is worth looking back to the beginning of 2011 to look for any impact before the legal clarification. But the data shows rents clearly rose much quicker in England than in Scotland in the years since 2011. There was a marginal narrowing in the gap, in 2014, but at most this backs up the ‘small, short lived’ effect theory.

Rebasing the index to late 2012, when the law banning fees was confirmed shows a slightly different picture. Here we can see rents inflated at about the same rate in England and Scotland for the two years after the legal change, and that rent inflation in Scotland has slowed markedly since 2015.

This again backs up the ‘if anything, small, short-lived’ theory, and other changes in Scotland, such as a requirement to retrospectively protect deposits were probably feeding in too.

impact-of-letting-fees-on-rent-increases-in-england-and-scotland-2

So the official data shows us that banning fees in Scotland did not coincide with any significant spike in rents. If there was an impact, it was short-lived – rents are up 5% in Scotland since fees were banned there, and by 9% in England over the same period.

The things that push up market rents

Useful as this is, though, it only tells us how rent costs have moved, it doesn’t tell us why. To get this insight, we have previously polled landlords on the factors that push them to increase their rent:

And which would you say is the MAIN reason why you increased the rent?
Base: UK Landlords who increased the rent the last time they renewed, extended OR set up a new tenancy 443
Because the market is going that way in the area 32%
My letting agent advised/ has advised me to 26%
Because my costs in general have gone up 18%
To cover costs of renovation/ redecoration 10%
Because the tenant demand is so high 3%
Because the fees/ commission I am being charged by letting agents have increased/ are increasing 2%
To cover the cost of license/ accreditation/ registration schemes 2%
Source: YouGov survey of 1071 private landlords, online, July 2015. (lowest scoring few answers removed)

 

The table above shows that costs are not the main reason why landlords increase the rent. Instead, a perception that the market is going that way and pressure from agents themselves are cited by far more landlords.

So, both our study and the available data released since shows that the change in the law in Scotland had – at most – a negligible and short-lived impact on rents. What’s more, other data on the reasons that landlords increase rents, show that there are more important factors that determine market rent levels than landlord costs.

This is what we have on the one hand, then: a potential risk of a small and short-lived increase in rents. Stacked against it is the incontrovertible benefit that millions of tenants will feel by not being forced to pay exorbitant fees. So for us, there’s no question of whether that benefit for tenants will outweigh the risks.

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