Generation Rent - Are letting agents the problem?

In my spare time I do hashing.  Which is basically running club with frequent beer consumption en route! (Yes, it really is a lot of fun!). Anyhow, on a recent run we went past a property that we had just let, and one of the other runners seeing our board asked what the property rented for?  When I told him, he became quite irate and told me, and I quote “How can you justify charging such a criminal rent?!”

In between my huffing and puffing I said that I felt the word 'criminal' was somewhat pejorative and explained that this was what the market was prepared to pay for this property.  To which he replied “Then the market is wrong and there needs to be intervention to help people afford rents”.

Lo and behold the next day Ed Milliband said pretty much the same thing although with the added nugget that it was all the fault of letting agents and when he comes to power he will ban the practice of letting agents charging tenants a fee.  The opposition promptly tabled an amendment in the Consumer Rights Bill looking to ban tenants’ fees.  This was defeated by the coalition but as a result letting agents will be forced to list all fees due to BOTH landlords and tenants, and not before time.

This time next year Labour could well be in Government and I thought that in this blog we would look at Mr Milliband’s proposals and what it would mean for the lettings market.

PROPOSAL #1 – Minimum 3 year tenancy agreement

Reason why: The current system does not offer security to tenants, and landlords can serve a Section 21 notice without giving good reason.  Tenants therefore are under constant threat that the landlord will kick them out in order to hike up the rent. 

Reality: The vast majority of landlords do not want the upheaval and costs of changing tenants.  If a landlord has a good tenant who looks after the property and pays their rent on time, why would they want a change? As I have said in many of these blogs occupancy is king. Giving a tenant notice and risking a void just to get an increase in rent does not make good business sense.  Negotiating a reasonable rent increase with your current tenant does.

The Future: The benefit of the current Assured Shorthold Agreement is that there is flexibility for both sides. Tenants can fall out, get new jobs, buy somewhere to live and move quickly.  Landlords can realise their assets just as quickly, and so the market flows. 

By comparison, do you know what you will be doing in 3 years?  No, I thought not!
 

PROPOSAL #2 – Rent Controls

Reason Why: Rents are rising out of control forcing good tenants out of their homes as they are priced out of the market.

Reality: Rental property is pure market economics.  A property is only worth what someone is willing to pay.  Sometimes that is considerably less than the quoted rent.  Tenants aren’t on the whole idiots.  It is very easy to gauge a market rent.  Visit Zoopla or Rightmove search for the type of property you are looking for in the postcode you want to live in or are currently living in and bingo there is the market rent.  If there are properties that are significantly higher than other properties it is quite simple… DON’T VIEW THEM!

The Future: Artificial ceilings that are set by outside authorities are an invitation for the more “creative” person to look at ways of beating the system and this will be no exception. 

There will be rents that include “All Bills” where the bills will be artificially high.  Parking spaces and garages will be let separately so that the headline rent complies, but the extras make up the rent. 

I would expect the return of the bad old days of  “Company Lets”.  You will see landlords “renting” furniture to prospective tenants.  And the list goes on…
 

PROPOSAL #3 – Ban Tenants Fees

Reasons Why: Every time a tenant moves the fees incurred are an added expense they can ill afford to pay, and letting agents should be charging the costs to landlord

Reality: Transparency here is key.  There are plenty of agents who hide or mislead tenants regarding the level of fees.  Some companies advertise No Tenants Fees but charge an administration cost for references, a guarantor expense or a tenancy agreement charge. 

There is also the abomination that is renewal fees.  The practice of charging a tenant to stay on in the property they have been happily living in, is in my opinion plain wrong and the sooner that is banned the better. 

Accommodation Unlimited charge a flat fee of 35% of one month’s rent + VAT.  This covers references, guarantors, tenancy agreements and there is NO RENEWAL CHARGE.  Our charges are prominently displayed on the tenants’ page of our website and for telephone enquiries we explain our charges before we confirm a viewing. 

The Future: Someone will have to make up the shortfall in agents income, and guess who that will be?  Yep, you guessed it, the landlords.

For managed properties, we currently charge between 9 - 11% per month for full management + VAT.  In order for us to keep our current income the same as now we would have to increase our landlord fees by 50% to 17.5% + VAT.

For let only properties, we would have to charge a one off fee of 80% of a month’s rent to keep us standing still. 
 

In conclusion

The truth of the matter is that there are rogue letting agents just as there are tenants from hell and MP’s that fiddle their expenses.  It doesn’t mean all of us are crooks ripping off tenants. 

There are 3.8 million households renting in the UK, which equates to 9 million people - that is an awful lot of voters! Excuse my cynical suggestion, but is this just a ruse to get votes or a genuine concern for the plight of tenants?  I will let you be the judge.

Once again, thanks for reading. Please feel free to add your thoughts and comments, I’d love to hear from you and take the conversation further.

Many thanks
Peter Ellis

Ps. If you have any other burning lettings, tenants or property issues that you’d like to discuss or hear my thoughts, then please give me a shout – I’m very open to suggestion and as you can see, not afraid to give an honest opinion!

Comments:

Peter, on the whole I would agree. However, I am hearing about sealed bids for rental properties in certain areas, which sounds like capitalism gone mad. And this is kind of the point - capitalism cannot control itself, thats why we have boom/bust cycles. While not at the draconian levels the Millipede suggests (which, I agree, sounds like cynically motivated posturing), some measures may be useful to keep rental prices at a reasonable level. Just as we could do with a few more weeapons to stop house prices doing the same thing, because the only tool available is interest rates and the recovery may be a little too delicate to cope with significant rises on those right now.Barry Harvey June 5th 2014 11:25:18

Barry Thank you for your comments, and they are very perceptive. The problem is a lack of stock. As with all markets if demand exceeds supply the price rises. At the moment for every 1 bed flat within a mile of the city centre we are getting approximately 40 enquiries. This then encourages landlords to either a) Hike up the rent or b) be very picky when it comes to chosing tenants usually they do both. What it needs is for tenants to stand up as one and say NO MORE but that wont happen as someone always breaks ranks. As I pointed out capped rents are jus an invitation for unscrupulous landlords to find creative ways of circumventing the rules. What could be an idea would be to ban sealed bids Peter Ellis June 9th 2014 11:27:40