Britain's real estate agents hit by ban on tenant fees

LONDON (Reuters) - Shares in leading estate agents tumbled on Wednesday after Britain said it would ban one-off tenant fees to try to bring down the cost of renting, the latest move to hit landlords.

A Foxtons car is seen parked in west London, Britain July 29, 2016. REUTERS/Peter Nicholls

Rising housing costs have become a major political issue in Britain as successive governments have failed to build enough homes to meet demand. Many younger people now rent for longer or stay with their parents to save up a deposit to buy.

The ban will be welcomed by millions of households who have had to absorb rises in private rents at more than double the rate of inflation over the past two years.

Tenant fees, which go towards the cost of conducting viewings, verifying references and drawing up contracts, have become an increasingly important money-earner for the industry, averaging 337 pounds, according to independent group Citizens Advice.

“We’re delighted with the government’s decision to ban them,” said Campbell Robb, the Chief Executive of charity Shelter, which helps people struggling with bad housing and homelessness.

“This will make a huge difference to all those scraping by in our expensive, unstable renting market,” he said.

But some landlords have suggested the cost of this move, which already applies in Scotland, could be passed on to tenants as higher rents.

The ban, to be announced by finance minister Philip Hammond in his budget statement later on Wednesday, would be the latest measure to try to cool the rental market after a property tax hike in April on houses bought by buy-to-let landlords.

The government has already said it would give the Bank of England the power to regulate buy-to-let mortgages and that it will limit the amount of tax relief available to landlords.

Shares in Foxtons, a symbol of London’s booming property market known for its chain of coffee shop-style outlets and fleet of Mini cars, plunged 11 percent in early trading.Countrywide shares fell 7 percent and shares in online agent Purplebricks were down more than 4 percent.

Foxtons said earlier this year that its full-year earnings would fall as sales revenues were hit by the Brexit vote but it has continued to benefit from strong lettings revenue which rose modestly in the third quarter.

A Foxtons’ spokesman said the ban was unexpected and it would now review the impact on its business.

Other industry representatives suggested that the loss of the fees would be recovered through rent increases.

“This decision is a crowd-pleaser, which will not help renters in the long-term,” Managing Director of the Association of Residential Letting Agents David Cox said.

“If fees are banned, these costs will be passed onto landlords, who will need to recoup the costs elsewhere, inevitably through higher rents,” he said.

Editing by Paul Sandle. Editing by Jane Merriman