A ban on Tenant Fees is expected to be introduced in the Spring of 2019, but this doesn’t mean that the cost of renting will come down. Lettings agencies are looking at ways to make up for the lost income, and some of the plans could leave renters and landlords worse off.
What is the tenant fee ban?
The government announced plans to ban tenant fees in 2016 and introduced the Tenant Fees Bill. It is now going through parliament. Renters pay an average £223 in fees for each tenancy, according to the English Housing Survey. Yet lobby groups, such as Shelter and Which?, say that some agencies are charging up to £500 to carry out referencing or £200 to draw up a contract. These charges will be prohibited and tenancy deposits will be capped at six weeks once the ban is introduced.
ARLA Propertymark, a trade body, says that the ban could be detrimental to tenants and the wider economy because the loss of income from fees will result in job losses at estate agencies and extra charges for landlords, who could raise rents.
Increased costs for landlords.
As Adam Walker pointed out last month in The Negotiator many let-only businesses seem destined to fail, as when they started up they did not want the extra hassle of managing properties and therefore encouraged landlords to instruct on a let-only basis. As they could not make profits from their landlords alone they introduced charging extortionate fees to tenants. In contrast the long established managed letting agencies with a better service charged higher fees to Landlords for managing the properties. However the fees for the tenants in both scenarios are on average the same amount. Therefore with the tenant fee ban managed businesses are likely to pass on the extra percentage that they charge the tenants on to the landlords who in turn will charge higher rents to cover this. The let only agencies will only receive the fees charged to the landlord and are therefore likely to lose out. Indeed Adam Walker commented this month that let only businesses may face liquidation leaving landlords facing huge losses as these agencies will run up a client account deficit half from the landlords, half from the tenants. A change to their business model to recover these fees, say by offering rent guarantee insurance, from Landlords is likely to mean landlords charging higher rents.
Currently both types of agencies charge tenants for referencing and writing rental agreements. As mentioned these costs are likely to be passed on to landlords, who are already dealing with extra stamp-duty charges and the scaling back of mortgage interest relief, so it could also harm investment in buy-to-let.
With agencies working for their landlord client only future tenants could find it much harder for these letting agencies to co-operate with them for viewings and referencing etc. Whatever the situation it does not necessarily look good for tenants.
Contact the home finding specialist at Pavilion Relocation for help in looking for rental property on 01892 257001, we can also provide the latest information on Tenant Fees.