The real impact of the Tenant Fees Ban on landlords

What are Tenant Fees? 

Tenant fees are fees charged by landlords and letting agents that cover costs incurred during the letting process. They typically cover costs for: 

  • Basic administration
  • Referencing 
  • Credit checks 
  • Viewings 
  • Drawing up contracts

What is the Tenant Fees Bill? 

The Tenant Fee ban is expected to come in by spring 2019. It will make it illegal for letting agents and landlords to charge fees to tenants for these services. It also includes a ban on payments to third parties. 

The Government says it will create a more stable, secure and transparent rental sector. However, it is more likely to threaten the rental market.  

How will it impact landlords?

  1. Lettings agents still need to cover the costs of services. It is possible that letting agents will take the hit themselves, and will therefore see huge losses of a projected 200 million in turnover. This would not impact landlords. 
  2. It is more likely however that letting agents will pass on fees to landlords. They probably won’t pass these on completely, and so will take a hit, but they are likely to charge most of these costs to landlords. 
  3.  Landlords will then increase rent. They won’t be allowed to set the rent at a higher level at the start of a tenancy and then drop it down in order to offset the ban. However, they can increase the rent for tenants to cover the increases in their own costs.

If landlords’ cash flow position worsens, the most commonly cited coping strategy is an increase in rents for both new and existing tenants. 

http://www.arla.co.uk/media/1045728/letting-the-market-down-assessing-the-economic-impacts-of-the-proposed-ban-on-letting-agents-fees.pdf

Ultimately then, tenants won’t save money from the ban. The money for the fees will just come indirectly from rent. This means that: 

  • Less tenants will look to let privately, as more will see benefits to renting through a letting agent who can’t charge fees.
  • Property management will become more important as tenants will be able to move house more easily if they are unhappy.
  • Properties will become harder to let, as they become more expensive and less attractive. Properties are therefore less competitive. 
  • Less landlords will will look to enter the rental sector 

To summarise….

The Tenant Fee Bill is likely to increase rent and make the property market less competitive as landlords look to recoup the losses incurred by having to pay the fees themselves.  

With the ban in place, it will be beneficial for landlords to look at different options aside from traditional high-street letting agents. Using online letting options like Rentalist, that charge smaller fees for great landlord packages, can ensure properties are attractive by keeping prices competitive while maximising landlords’ rental income.

More information on maximising rental income can be found here.

Leave a Reply

Your email address will not be published. Required fields are marked *