Will lettings fee ban prompt rental inflation? How the Scottish market reacted

Speculation is already rife on how a ban on lettings agent fees would hit the sector in England, but for some clues it is worth looking north of the border.

Scotland introduced a ban on lettings agent fees to tenants in 2012, and four years later there is little consensus on whether this has pushed up rents to cover the increased costs for agents and landlords.

David Cox, managing director of ARLA, told EYE that the ban in Scotland had driven up rents.

He said: “Since the ban came into effect in Scotland in 2012, we’ve seen rents rise quite significantly. According to official Scottish government statistics, average rents rose by 4.2% in the first 12 months after the ban was enforced, and for the same period in England, rents went down by 0.7%, so we do see quite a stark difference north and south of the border.”

Industry consultant and trainer Adam Walker says costs have been passed on to landlords and then on to tenants in Scotland. He said: “Yesterday’s ban on tenant fees in England was a nasty surprise but the impact will be less than it might first appear.

“Tenant fees make up about 15% of most agents’ income  and they cannot afford to lose this amount of revenue – it would wipe out their entire profit. They will therefore have no choice but to pass the cost on to landlords who will increase rents to cover it. A tenant fee of £360 will equate to a £30 per calendar month increase in the rent.

“This is what happened in Scotland and my main client there recovered all but £6 per case of the tenant fees in the first year.”

However, Thomas Ashdown, of Scottish rental portal Citylets, told EYE there were other factors at play in rent inflation.

He said: “Rents have gone up, but supply and demand imbalance in major cities is a major if not the driving factor for that. Conversely, in Aberdeen they have tumbled.

“Rents are wholly sanguine and under-performing inflation in just about every single town in the country, so that suggests there has been no clear effect on the whole.

“The going rate of annual rental inflation is a steady 2%.

“Fees here were relatively small compared to what we understand down south, so perhaps a smaller pill for Scots agents to swallow.”

One Scottish reader, Scotlandagent80, commented on EYE: “The ban hasn’t impacted us too much as our fees to tenants were very little as there was a grey area with being able to charge fees in the first place. We have had to pass referencing costs on to the landlord. Rents have risen ever so slightly as landlords want to recoup their costs.

“We have had to improvise by generating other sources of income through in-house inventories, legionella risk assessments and PAT tests.”

In Westminster, MPs looked at the impact of a ban on lettings agent fees on the private rented sector in 2015.

It couldn’t find “strong enough evidence” that rents had been pushed up as a result of the ban in Scotland.

Shelter Scotland stated at the time that there was “no conclusive evidence” that the ban on fees in Scotland led to an increase in rents. It said that the “independent analysis found that other market pressures were far more likely to have contributed to rising rents in the private rented sector”.

However, the Scottish Landlords Association and the Council of Letting Agents said it was realistic to suggest an increase in rents which they identified was due at least in part to the ban.

A poll by the CLA found 20% of its members reported an increase in rent as a result of the change and 9% reported the introduction of other fees for tenants. A third of respondents had started charging fees to landlords that tenants previously paid and 23% had increased management fees charged to landlords.

Homelet’s latest rental index for Scotland shows that new rents grew 0.4% on average in October to £606 per month, up from £584 a year ago.

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7 Comments

  1. Realitycheck97

    ARLA quoted Gov stats compelling, but reality is without a second “control Scotland” in a no-ban world to compare, it is disingenuous unfounded unsupportable politically motivated spin (@Shelter) to make any claim on rental evidence.

    But you don’t need evidence. Here’s reality. A market has a given capacity.  As many landlords will enter the market as the market can viably hold. At some point, that last marginal landlord decides to enter, just. ANYTHING that increases costs to landlords HAS TO change viability.  That last landlord in, teetering on viability, goes non viable – doesn’t enter.  Supply is therefore reduced. Rents therefore increase.  End of.  Whether rents actually rise or not in poor oil-bust Aberdeen is not the point.  Point is, if you harm viability, you harm supply and viability threshold rises. I.e. rents are higher than otherwise.  How hard is this?

    Questions:

    Where is the Government Impact Assessment for a fee-ban?

    Will the “consultation” be a token pre-determined fig or an evidence based process?

    Will those campaigners whipping up hatred over “disgusting fees” be answerable to the JAMs and HBen tenants who will find themselves even further priced out of the market?

    Rents and homelessness are already on the rise people. Train crash coming…

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    1. hardly impartial

      a couple of reality checks for you to consider….the scot Gov stats on rents aren’t really yet embraced by the industry but moreover comparing what happened in england and scotland in a year is apples and oranges. Also, what were the figures for 2011?

      agreed that ultimately landlord viability is the issue and trying to identify the associate rises or falls in rent to a single factor requires sophisticated analysis which sadly is in all cases almost without exception simply lacking.

      parties latch on to whatever suits them and few really attempt to know whats really driving what.

       

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  2. Neilw

    Industry consultant and trainer Adam Walker says …… “A tenant fee of £360 will equate to a £30 per calendar month increase in the rent

    This is incorrect..if an Agent is to recover the £360 over six months and has a management fee of 10% the rent would require to go up £300/mth to get him his fee of £30

    “A third of respondents had started charging fees to landlords that tenants previously paid and 23% had increased management fees charged to landlords”

    Do these Agents not have contracts with their Landords…if so I would love to to know how they presented their case. If I went to my Landlords and said “not making as much profit this year so all my additional overheads and profits are going to be charged to you”. P*** O** would be the most likely reply.

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  3. HLFSCC87

    “We have had to improvise by generating other sources of income through in-house inventories, legionella risk assessments and PAT tests.”

    If this agency had the time, staff and resources to do this anyway, why weren’t they in the first place?

    It costs the agents time and money to train staff, possibly employ more staff to cover these extra income earners (because let’s face it, most of us are stretched anyway with the increasing legislations and red tape we have to adhere to) that the letting agent is then at a further loss …

    The government is against us and Landlords it seems. Would tenants be better off living in council properties – where they have to pay for their own maintenance, carpets, décor … where the same legislations they impose on us for relevant safety checks don’t seem to apply …. SMH.

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  4. Alan

    It certainly does seem as though the government have letting agents and landlords in their sights. I’m not quite sure what the rationale is with ensuring tenants don’t have any costs at the outset of a lease. In a house sale the government seems quite happy that the purchaser has stamp duty, solicitor’s fees and in most cases mortgage costs while the seller has home report/survey costs, agent’s and solicitor’s fees.

    The costs to tenants and landlords have effectively gone down as tenancies are, on average, considerably longer than they were 10 years ago. (certainly here in Scotland anyway). This means less set up fees and void periods to landlords and less agents/referencing fees to tenants as they are moving less.

    For me its just another headline grabbing policy that looks as though the government are protecting a supposedly vulnerable group when in fact it will ultimately have a negative or neutral effect on that group Factor in the 3% extra stamp duty for new landlords, increased legislation and costs, combined with lack of supply and rents will only go one way.

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  5. Votta583

    In house inventories legionella and PAT testing will not generate nearly enough income.  Reed reins were dragged over the coals for informing their landlords need to pay for a risk assessment chargeable at £150 + VAT.

    PAT testing needs doing anyway as you have a criminal and civil liability to do it but again needs doing by someone trained to do so and can’t make too much money on top. Especially if so many agents are “gifting” appliances. They won’t listen to an agent that requests compliance.

    Inventories ideally need doing by a third party so it’s not deemed biased on behalf of the landlord otherwise. Software to do it as well is another cost.

    which backs up what HLFCC87  says above

    Banning of fees was a draconian decision FULL STOP.

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