The Autumn Statement of November 2016 is one that will be reviewed and analysed in the days, weeks, months and years to come. The political turmoil in the United Kingdom leading up to this statement has ensured that this is an Autumn Statement that will be scrutinised down to the last detail. There will be aspects of interest for everyone but in the initial aftermath, many people have focused on the abolition of letting fees in England and Wales.
Letting fees are traditionally accepted as a way for landlords to allocate funds for upfront costs they have to deal with including credit reference checks and inventory checks. As you can imagine, the response to the abolition of letting fees has been met with differing views.
For many people, the removal of a fee that can add as much as £500 to the cost of renting property will be seen as a good thing. Anything which helps to make renting more affordable for people, especially the people who are already priced out of the property market, should be viewed as a positive thing.
Of course, there are people who are opposed to the abolition of rental fees, including many who do not believe this will make renting more affordable for people. As you would expect, groups that consist of letting agencies and landlords have stated their displeasure at the announcement, saying it will cost them money at a time when they are already being tightly squeezed by various Government proposals. These groups can also rightly point to costs that they incur at the start of the letting process in defence of why these fees are actually required.
Disagreement exists over general level of fees
There is disagreement over the general level of fees at this point in time. The Association of Residential Letting Agents (ARLA) says the average fee stands at £202 while Citizens Advice says the average figure stands at £337. This charity has also stated that the average price has risen by 60% in the past 5 years. Shelter has stated that fees can hit the £500 mark. It is believed that the level of fees amounts to more than £300m each year.
The impact may come down to individual landlords and how they view the market. Any landlord that has been inflating fees at the start of a tenancy as a way to make money will find that this channel is no longer available to them. Of course, a landlord who is likely to take this sort of action will usually find another method to bring in additional funds, even if it is by increasing monthly rental charges.
The fact that countless legitimate landlords who charge these fees to cover their costs will now be forced to find money from elsewhere or take another financial hit is the real cause for concern for many in the sector. There is always the argument that a landlord’s rental yield depends on a number of factors and it is up to the landlord to determine how they come to a figure they find to be satisfactory.
The issue with this step is that it may result in many landlords being forced to raise their rental income in order to justify their role and make any form of income. While there has been consistency in the Governments role to impact on the letting market to try and discourage tenants and investors to promote people and families in the property market, there are many times when the real victims have been tenants.
Every landlord will carry out their own calculations but it is likely that this removal of income for a landlord will be replaced by a rise in monthly rent. For some tenants, a lower up-front fee but slightly higher monthly payments may be suitable, for others, it could inhibit their ability to find suitable property.
Other property market announcements in the Autumn Statement include:
- £1.4bn being used to deliver 40,000 affordable homes
- £2.3n being spent to provide 100,000 new properties in areas where there is high demand
On paper, these are generally positive steps that most people will back for the property market but it is clear that the proposed changes in the lettings market, which are scheduled to be implemented as soon as possible, will take a lot longer to dissect and evaluate.
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