The letting agency business is a highly profitable one. Each one of the agents for Foxtons who spin around London in their Vauxhall Adams (those branded Minis are very last year) rake in an average revenue for their company of £113,000 a year. The profit margin on lettings at the company is a juicy 30%. Other letting agents enjoy similarly wide margins: LSL Property Services, the UK’s biggest independent chain, with brands such as Your Move and Marsh & Parsons, saw its lettings revenue grow 12% in both 2014 and 2015, much faster than other parts of the business. And unlike the feast and famine world of house sales, revenue from lettings is far more stable.
But nothing infuriates Generation Rent more than eye-watering fees charged by agents. You can be charged £60 or more for a credit check, which costs the firm doing it little more than £5. The renewal fee can be as high as £300, when it amounts to little more than printing off a contract to sign. And usually at renewal the agent pushes through a rent rise.
Not all letting agents behave this way. My own letting agent is a model of decent behaviour. But enough do to have triggered widespread resentment.
Michael Green, whose legal firm Casehub is launching a class action lawsuit against Foxtons, thinks letting agency fees fall foul of the laws around unfair contract terms enshrined in the Consumer Rights Act 2015. Foxtons disputes his case, and we have no idea if the courts will rule in his favour.
What we do know is that in Scotland we have a working example of a country where fees to tenants have been banned, and what that has meant to tenants.
In 2012 it was ruled that tenants in Scotland renting a property could be asked for just the rent and the deposit. Everything else had to be paid by the landlord. Before the ruling, letting agents said that banning fees and charges to tenants would just mean that the rent would have to rise instead; in other words, tenants would be no better off – and possibly worse off. It’s a line that continues to be peddled by letting agents in England and Wales today.
So what have been the lessons from the Scottish market? The housing charity Shelter was among the first to attempt detailed research, commissioning two independent agencies. The research showed that landlords in Scotland were no more likely to have increased rents the year after the ban came into force than landlords elsewhere in the UK. The majority (59%) of letting agency managers interviewed said the new law had no impact on their business. Among landlords (some of whom battle with letting agencies as much as tenants), 38% of those who expressed an opinion were positive about the change, and only 8% were negative. But Shelter did admit that 1%-2% of the rent rises in Scotland could have been caused by the fees law on fees. Nonetheless, it remains adamant that letting fees to tenants should be banned in England.
But the Scottish Landlords Association and the Council of Letting Agents, along with the National Association of Landlords, firmly disagree. They said an increase in rents in Scotland was at least partly due to the ban, and that letting fees had been transferred into higher rents.
A House of Commons select committee concluded that the evidence was, well, inconclusive. It decided not to call for a ban in England – for now.
It was a cop-out. It should have listened to the likes of Vicky Spratt who is fronting a Make Renting Fair campaign run by lifestyle website the Debrief. Vicky says that over the past nine years agency fees have cost her more than £2,000. “I have paid as little as £80 and as much as £552 in agency fees on different properties. How is it possible that fees can vary so much from agency to agency?” She makes a good point – which is why 253,000 people have already signed their petition. Good luck, Vicky.
