So what will happen in the Medway rental market in the short term?
Well, nothing will happen in the next 12 to 18 months. It’s business as usual!
And the long term?
Rents will increase as the fees tenants have previously paid will be passed onto Landlords in the coming few years. Not immediately. But they will.
As a responsible letting agent, I have a business to run. It takes, according to ARLA, (Association of Residential Letting Agents) on average 17 hours work by a letting agent to get a tenant into a property. We need to complete a whole host of checks prescribed by the Government; including a right to rent check, Anti Money Laundering checks, Legionella Risk Assessments, Gas Safety checks, Affordability Checks, Credit Checks, Smoke Alarm checks, Construction (Design & Management) Regulations 2007 checks, compliance with the Landlord and Tenant Act, registering the deposit so the tenants deposit is safe and carry out references to ensure the tenant has been a good tenant in previous rented properties.
All of which the vast majority of lettings agents take very seriously and are expected to know inside out making us the experts in our field. Yes, there are some awful agents who ruin the reputation for others, but isn't that the case in most professions?
Business is business and I know for certain that no landlord, no tenant and certainly no letting agent does work for free.
I, along with every other Medway letting agent will have to consider passing some of that cost onto my landlords in the future. Now of course, landlords would also be able to offset higher letting charges against tax, but I (as I am sure they) wouldn’t want them out of pocket, even after the extra tax relief.
So what does this all mean for the future?
The current application fee for a single person at my lettings agency is £200 and for a couple £400 meaning on average, the fee is around £400 per property.
I am part of a Group of 500+ Letting Agents, and recently we had to poll to find the average length of tenancy in our respective agencies. The Government says its 4 years, whilst the actual figure was nearer one year and eleven months, so let’s round that up to two years.
That means £400 needs to found in additional fees to the landlord, on average, every two years.
In actual pound notes.
In 2005, the average rent of a Medway property was £771 per month and today it is £946 per month, a rise of only (against an inflation rate (RPI) of 38.5%).
Using the areas average management rates of 13% this means the landlord will be paying around £1475 per annum in management fees.
If the landlord is expected to cover the cost of that additional £400 every two years, rents will only need to rise by an additional 2% a year after 2018, on top of what they have annually grown by in the last 5 years.
So, if that were to happen in Medway, average rents would rise to £1161per month by 2022 (see the red line on the graph) and so the landlord would pay around £1811 per annum in management fees , which would go towards covering the additional costs without having to raise the level of fees.
So, is that bad news for Medway tenants?
Quite the opposite. Look at the blue line on the graph). If the average rent Medway tenants pay had risen in line with inflation since 2005, that £771 per month would have risen today to an average of £1068 per month. (Remember, the average today is only £946 per month) and even if inflation remains at 2% per year for the next six years, the average rent would be £1161 per month by 2022. This means that even if landlords increase their rents to cover the costs tenants are still no worse off.
The banning of letting fees is good news for landlords, tenants and agents.
It removes the need for tenants to find lump sums of money when they move. That will mean tenants will have greater freedom to move home and still be better off in real terms compared to if rents had increased in line with inflation.
Landlords will be happy as their yield and return will increase with greater rents whilst not paying significantly more in fees to their lettings agency. Letting agents who used to charge fair application fees won’t be penalised as the rent rises will compensate them for any losses.
And the agents that charged the silly high application fees? Well, that’s their problem. At least I know I can offer the same, if not a better service to both my landlords and tenants in the future in light of this announcement from Phillip Hammond.
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