Tenant Fees Bill

Written evidence submitted by Jonathan Morgan, Managing Director – Morgans City Living (TFB22)

Dear Committee,

With regard to the current Tenant Fees Ban that is passing through the House of Commons we would like to make the following comments as we believe that the proposed fee ban is a mistake and will not achieve the desired results.

The proposal shows a distinct lack of understanding of the sector and the role of the letting agent. If introduced, it will have a profoundly negative and far-reaching impact on tenants, landlords and agents.

We fear a rise in monthly rents – as has already been evidenced in Scotland - that would ultimately lead to tenants being significantly worse off; a surge in disreputable operators with tenants’ safety at risk and large job losses.

We would also like to take this opportunity to dispel the myths that have appeared in a recent Parliamentary briefing paper.

In it, the Government argues that a ban on letting agent fees will:

"…recognise the stronger market position of landlords and recognise that agent services are primarily provided on their behalf; landlords will choose the agent that provides the quality of service that they are seeking at a price that they are willing to pay. This will sharpen letting agents’ incentives to compete for landlords’ business resulting in lower overall fee levels and a good quality of service.

Agents will need to be upfront and clear with the costs that are being charged in order to secure landlords’ business thus improving transparency. Letting agents that provide services that represent good value for money to landlords will continue to play an important role in the market due to the support they provide in the letting process.

On the tenant side, the ban will ensure that tenants can – at a glance – see what a given property will cost them in the advertised rent level and compare properties for their suitability and affordability on that basis. Tenants therefore will be better able to shop around for a property that fits their budget, improving competition and transparency on that side of the market as well."

This is simply not true. Firstly, this implies that agents are charging landlords excessive fees, and that they need to compete harder to win their business. Agents already operate in an intensely competitive market, facing downward pressure on landlord fees all the time in order to retain existing customers and win new ones. The implication that agents are currently not competitive, is wholly wrong. Ironically, it is this downward pressure on landlord fees that has led to some agents, wrongly, of course, to increase their tenant fees to compensate for lower landlord income.

A policy that attempts to force letting agents to reduce landlord fees, whilst expecting them to ‘provide the quality of service that landlords are seeking’, will inevitably lead to, at best,

redundancies and more likely, business closures. This will result in less choice for tenants and landlords at a time when the Government is trying to increase choice and widen accessibility.

Secondly, from the tenants’ perspective, the law already allows for complete transparency. Tenants should be able to see at a glance what they would pay for a property. It is not the fault of agents if there has been a lack of enforcement regarding the agents’ obligation to display fees, albeit most agents are compliant and tenants can see what a tenancy would cost. There is already a competitive market for tenants’ business although competition will decline if this policy is introduced as the number of agencies reduces.

We have carried out our own research including a two day study tour to Scotland during which it became clear very quickly that the loss of income from tenant fees has been compensated for by increased rents- rents in Edinburgh have increased by over 40% since the fee ban was enforced.

*On what basis is it the Government’s responsibility to ensure that the service provided by letting agents is affordable? You will appreciate that the housing market is not one but many and the unintended consequences of this ban could well come back to haunt you.

*Why should a tenant not pay a success fee to an agent who will probably have viewed 6 or 7 properties before making a decision, according to average viewing ratios quoted by ARLA?

*We should not be penalised as an industry because Trading Standards Officers are not enforcing the Consumer Rights Act.

*If a fee is advertised according to the law, then the tenant does in fact have the opportunity to decide whether or not to view with that agent.

*We genuinely believe that the role of Shelter in this legislation should be looked at and has to be questioned- how can they, as a housing charity, possibly have an objective view of the commercial realities of the lettings industry?

*What you are now faced with is an entire industry that is investing a considerable amount of energy in working out how to mitigate the crippling financial implications of a fee ban. In our honest opinion, the average tenant will be worse off post-ban and you run the risk of having  to have an ongoing interventionist approach in order to counter the inevitable initiatives and new ways that letting agents will introduce to replace lost income.

A document has been drafted by a group of Yorkshire letting agents which captures these concerns in more detail and defines an alternative solution. A copy of the document is attached [1] . However a summary of its key advantages being:

· At its cornerstone is the launch of a mandatory levy – paid into an independent fund by all agents on every transaction – that would break new ground for the industry.

· It would generate an estimated £30m-£50m each year to pay for long-awaited regulation of the industry and research solutions to our growing housing crisis – at no cost to the taxpayer. There would also be surplus to support the work of homeless charities.

A complete ban will lead to unintended consequences for the very people we seek to assist, the "Just About Managing". We want more investment in property and more choice not less.

Yours sincerely

Jonathan Morgan

Managing Director – Morgans City Living

May 2018


[1] Document not published with submission

 

Prepared 4th June 2018