In his Autumn Statement today the Chancellor Philip Hammond announced plans to ban letting agent fees in England “as soon as possible” which may be save 4.3 million households hundreds of pounds.
Currently many tenants face charges to draw up tenancy agreements, conduct immigration and credit reference checks in addition to the payment of a non-refundable holding deposit paid before signing up to the deal.
The move comes as numerous reports have indicated that many tenants living in sub-standard housing are discouraged from moving out because of extra fee charges. A report published by the English Housing Survey covering April 2014 to March 2015 found that 69% of tenants living in poor quality homes are discouraged from moving out because of agent fees.
Nonetheless, landlords groups have claimed that banning letting fees will not necessarily reduce rental costs with landlords and letting agents increasing rental values to offset loss of income. However, renters groups assert that the ban will make it easier for tenants to compare the cost of different properties and reduce the incentive for letting agents to replace tenants.
The move is a culmination of greater regulation of the letting market and will move England further in line with Scotland where lettings agency fees to tenants have already been banned. Since 2015 lettings and managing agents in England and Wales have legally been obliged to clearly publicize their fees.
House prices in Chelsea have fallen by 9.8 per cent annually with prices for high-end homes in central London falling by 2.6 per cent in September.
Property consultants Knight Frank claims that changes in stamp duty rather than the effects of the Brexit vote in the EU referendum is the main factor for the house price decline. The firm also claims that the Brexit vote may have been “a catalyst for overdue price reductions” in the sector.
Overall the picture across London as a whole has been mixed. Some parts of prime north London have seen price falls of 7.5 for Hyde Park and 5.3 per cent for Notting Hill. Islington on the other hand witnessed an increase in prices by 3.6 per cent. In the high-end rental sector the picture has been similarly varied with rental values for prime central London properties falling by 4.7 per cent on an annual basis with rent falls of 9.9 per cent in Marylebone and 8.3 per cent in Chelsea.
Properties are also spending more time on the market with the average number of days taken for a property to sell increasing by 14 per cent between January and August compared with the same period last year.
There are also advantages for renters in the capital with rental values also falling for high-end homes. In September, rental values for prime central London fell by 4.7 per cent on an annualized measure.
Chelsea and Marylebone notably saw rents falling by 8.3 per cent and 9.9 per cent annually. The picture for areas further out was quite different with Areas further out saw less dramatic rent falls with King’s Cross and the City Fringe seeing average rents rise by 1.9 per cent and one per cent respectively.
More than 170 tenants are being evicted every day according to 2015 Ministry of Justice figures.
More than half of the 42,728 evictions recorded in England and Wales last year were attributable to private landlords with rent arrears being cited as one of the most common factors. Retaliatory evictions of tenants who complain about poor property standards was also a factor in a significant number of the eviction cases. Many such evictions may have been brought forward in anticipation of laws against revenge evictions which entered into force on 1st October 2015.
It is believed that a significant fraction of the rise in evictions originated from the private rather than the social rental sector. Ministry of Justice figures show that the majority of evictions in 2015 resulted from a section 21 accelerated procedure which are usually a feature of private landlord evictions.
This situation is set to deteriorate as increasing numbers of people are forced into the rental sector due to the housing affordability crisis. According to information from the Association of Residential Letting Agents (ARLA), home ownership is expected to be permanently out of reach of around a fifth of people in the UK. Property unaffordability is exacerbated by rising rents with an average renter in the North East and London estimated to spend around £31,300 and £68,300 respectively on rent over a decade. To compound this situation further, rents are forecast to climb at a faster rate than house prices in future.
High agent fees are discouraging tenants living in unsatisfactory housing conditions from finding alternative accommodation according to the latest report on the Private Rented Sector.
The report published by the English Housing Survey covering April 2014 to March 2015 found that 69% of tenants living in poor quality homes are discouraged from moving out because of agent fees. In addition to complaints about fees, the report also found that private sector renters are less satisfied with their tenure than owner-occupiers and council housing tenants: overall 65% of private renters reported being satisfied with their current tenure compared to 98% of owner occupiers and 82% of social renters.
Important findings of the report include:
40% of private rented sector households were charged agency fees in 2014-2015, up from 34% in 2009-2010.
18% of private renters said that they felt some of the fees charged were hidden. 65% of private renters reported paying an administration fee
33% paid a finders’ fee, 7% of tenants paid a non-returnable holding fee, 5% paid a returnable holding fee and 4% paid an ‘other fee.’
The number of private renters who lived in non-decent dwellings rose from 1.1 million households in 2006 to 1.2 million households in 2014.
Surprisingly, despite the entry into force of deposit protection legislation in 2007 as part of the 2004 Housing Act, the Housing Survey found that only sixty four per cent of renters with a Assured Shorthold Tenancy reported that their deposit had been protected despite penalties existing for non-compliance with deposit protection rules.
Under deposit protection legislation, landlords must place tenancy deposits in one of three government-backed deposit protection schemes within thirty days of receipt or face a penalty of between one to three times the deposit amount with the penalty value determined by the seriousness and intent of the landlord’s non-compliance deposit rules. In general greater penalties for failing to protect deposits are awarded against experienced landlords or against landlords who have attempted to avoid protecting deposits for financial gain.
Despite charging for protecting deposits being against the spirit of the deposit protection legislation the Renters Alliance has encountered numerous examples of landlords and letting agents charging renters extra fees to protect their deposits. In one landlord’s forum for example, one landlord reported charging £120 for protecting tenants’ deposits recommending to other landlords that they call similar fees “Admin fees” rather than “deposit fees” for legal reasons.
Private landlords received £9.3bn in housing benefit payments, almost double the amount a decade ago according to a study published by the National Housing Federation.
This situation is set to deteriorate with the decades long trend of decrease home ownership exemplified by a House of Commons research report published earlier this year which reported that 48 per cent of 25-34 year-olds in England now rent, up from 21 per cent in 2003-04.
The National Housing Federation report found an increase of 42% in the the number of households using housing benefit to pay rent to private landlords since 2008. Housing benefit is paid to households that cannot afford to cover rental costs in addition to essentials such as food, clothes, heating and lighting.
This situation has been exacerbated by stagnation in real middle-income household earnings with the greatest increase in housing benefit claims coming from households with net incomes between £20,000 to £28,000 per year. Furthermore, in 2008 around a quarter of private sector tenants in receipt of housing benefit were in employment, a figure which has risen to almost a half today.
In order to address the crisis in property ownership in the UK both parties have adopted standard policy positions. The Conservatives have signaled a preference for supply-side solutions to improve housing affordability with little detail on easing planning restrictions and tackling construction sector skills shortages. Labour on the other hand have suggested a combination of rent-controls and investment in social housing with few details on the practicability of such proposals.
The National Housing Federation claims that if all those housed in the private rented sector lived in affordable housing, taxpayers would save £1.5bn a year in housing benefit payments. The federation’s chief executive, David Orr has said, “It is madness to spend £9bn of taxpayers’ money lining the pockets of private landlords, rather than investing in affordable homes. Housing associations want to build the homes the nation needs. By loosening restrictions on existing funding, the government can free up housing associations to build more affordable housing at better value to the taxpayer and directly address the housing crisis.”
New research has shown that London renters looking to save money by moving into shared accommodation are paying an average of £2,000 in agency fees. The figure, mostly made up of up-front deposits and letting agent fees is almost £1,000 more than the national average. On average London renters moving into a flat-shares have to pay £2,043 on top of their deposit compared with the national figure of £1,175. Around 20% of these fees are paid to letting agents according to the flat-sharing website Spare room.
A further impediment to moving also includes a six-week deposit which is now normal across large parts of the UK, up from an average of a four week deposit a decade ago. Often tenant cash-flow problems may be exacerbated by deposit disputes between landlords and tenants despite the introduction of deposit protection dispute resolution schemes in 2007.
Foreign tenants are at a particular disadvantage also in this regard with many reporting being required to pay a holding deposit in addition to paying six months’ rent in advance. The National Renters Alliance is particularly concerned that this may encourage letting agent intimidation of tenants who have sometimes committed the equivalent of 8 month’s rent and substantial agency fees before occupying a new rental property.
Despite calls to ban or impose tighter regulation of letting agent fees as in Scotland, the government has been unwilling to impose new legislation in this area. Letting agent charges can include drafting and amending tenancy agreements, credit checks, references and administration costs. Across the UK 95% of people who used a letting agent paid fees. Many letting agents also charge prospective tenants holding fees for reserving rooms in shared houses.
The issue of letting agent fees is leading to more tenants to look for properties managed directly by landlords. However, this might be a luxury for some with many areas particularly in places with high student populations where managed properties dominate the rental housing stock.
Despite the pessimism of most young people who voted to remain in the EU in June, there have been some suggestions that Brexit may be good for British renters.
Whether brexit is good or bad for renters depends fundamentally on whether house prices fall relative to the earnings of renters.
Following the referendum result, Zoopla predicted that house prices may fall up to eighteen per cent. KPMG envisages a more modest decline of 5 per cent with London hit harder than the rest of the country. Both cite possible limited future access to the European market which might make British property less attractive to overseas buyers. Others speculate that there will be no house price fall since demand has far outstripped supply over the past few decades. However one ought to bear in mind that over optimism in the Housing market is a constant feature of house price predictions in the UK. Few for example predicted the 2007 sub-prime mortgage crisis and subsequent recession.
The devaluation of sterling might also offset any reduction in the attractiveness of UK property due to exclusion from the single market for international investors.
On the side of earnings; before the referendum, the Treasury warned that Brexit would cut economic growth by 3% to 6%. The TUC also warned that leaving the EU could reduce average earnings by £1976 per year by 2030. However, it is still too early to say whether wage decreases offset house price falls.
Fundamentally the most important cause of Britain’s housing crisis is British government policy, not international investors or the EU. The remedy, liberalization of planning laws and regulation of the letting sector, is opposed by most English and Welsh MPs. It is therefore unlikely that Britain’s decision to leave the EU will improve or worsen the lot of private sector renters.
Almost half of 25-34 year-olds in England now rent according to a recent House of Commons research report. The briefing assessing Government initiatives to extend home ownership claims that 48 per cent of the 25-34 year old age group now rent their homes up from 21 per cent in 2003-04. However, given the choice, the report states that 86 per cent of this age category would prefer to own their own homes rather than rent.
The housing crisis is particularly acute in London. According to Alan Holmans of the Cambridge Center for Housing and Planning, the house-price-differential between London and the rest of the UK has climbed to a post-war peak and is currently 85 per cent higher than the UK average. However, the differential between average London household incomes and the rest of the United Kingdom, is only around 32 per cent higher.
The scale of the housing crisis has lead to a series of proposals in recent years including Chancellor George Osborne’s announcement of a “Five Point Plan to increase home ownership” in his 2015 Autumn Statement and Spending Review. This included a commitment to build 400,000 affordable houses by 2020-21 among other measures. This was soon followed by the launch of the “Help to Buy London” scheme in February 2016 in recognition of higher housing costs in the capital.
The effect of buy-to-let landlords was also highlighted by the Chancellor as a potential exacerbating factor in house price inflation. Accordingly in his Summer 2015 Budget, the chancellor announced plans to restrict tax relief on landlords’ mortgage costs. This decision is currently being challenged by landlord’s organizations which have hired to the legal firm Omina Strategy, which was founded and chaired by Cherie Blair.
Moreover, in order not to penalize buy-to-let landlords with mortgages against those who buy additional properties in cash through restrictions in mortgage interest rate relief, the Chancellor also announced that a 3% increase in stamp duty which will be levied against purchases of additional properties. The Chancellor argued that the buy to let sector had had a disproportionate impact on the housing market as a whole, and that many buyers had not been affected by earlier tax changes, announced in the 2015 Summer Budget.
60% of renters in London live in unacceptable conditions according to a survey carried out by YouGov and the housing charity Shelter.
The survey of 739 private renters in London between 13th June and 22nd July 2015 found that around 60%, equivalent to around 1.5 million Londoners, have experienced problems in the past year. According to the survey with vermin and damp commonly reported problems were found to be:
Damp or mould (39% of renters)
Poor insulation or excess cold (26%)
Animal infestations such as mice and cockroaches (25%)
Problems with a leaking roof or windows (18%).
In addition to poor disrepair, a significant fraction of renters had experienced unsafe conditions with 14% reporting electrical problems and 15% living in homes which are poorly secured. Most worrying were the 3% of renters who reported gas leaks. According to the English Housing Survey 2013/14, 16.5 per cent of private rented homes fail the Government’s minimum standard under the Housing Health and Safety Rating System.
The poor state of rental housing stock in the capital stands in stark contrast the the cost of rented accommodation with the average London renter paying just under 60% of their income on rent.
The seriousness of the rental crisis in the capital and across the country as a whole has led renters rights groups to campaign for the introduction of greater council powers to address disrepair in the private rental sector.
Other proposed initiatives include the establishment of landlord licensing to better protect renters from rogue landlords and letting agents. Landlord and property licencing is currently mandatory for large HMOs (homes in multiple occupation) although there are calls to extend this regime to all HMOs irrespective of size and to other private rented accommodation.