Banning letting fees could see estate agency revenue decline by 20% per letting, according to research by CBRE.
Its report on letting fees says that, on average, tenant fees account for 20% of agency revenue per let, ranging from 12% in London to 24% in the North East. The average administration fee incurred by tenants is £300.
While banning fees could make rents higher, CBRE said that in the case of an outright lettings fee ban, whereby the fee cannot be passed on, the main impact will likely fall on agent’s revenue and profit.
The government revealed plans to ban letting agent fees in last year’s Autumn Statement. CBRE’s report outlines the arguments supporting and opposing the ban, and assesses the potential impact on the rental market.
For:
- Fees lack transparency
- Fees do not always relate to actual costs
- Arguably, as the agent’s primary customer, landlords should pay
- Tenants have no choice but to pay fees
- Fees can increase professionalism, competition and standards
Against
- Fees could be passed on to landlords, resulting in higher rents
- The tenant will still pay more; as the fees are rolled up into rent they will be even less transparent
- Banning fees could jeopardise service provided to tenants, as well as industry standards
CBRE said that higher rents would only really be passed on to tenants in a supply-constrained market; in many places, increasing the rental cost of a property could mean that it simply will not let.
In Scotland, it has been illegal to charge premium tenant fees since November 2012. CBRE said that average rental costs have not increased any faster since the ban was introduced, compared with growth rates in England.
Jennet Siebrits, head of residential research at CBRE, said: “Regardless of when the government brings this policy change into effect, the bottom line is that revenues and profits will be lower.
“This could have wider implications on ongoing operations and investment in to initiatives such as staff training, the consequences of which could affect service standards across the industry.”
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