Research suggests that the average fees charged to tenants in the UK sits around the £300 mark, increasing up to £700 in some cases in London.
A letting agent will typically charge a landlord between 10-15% of their rental income for a full management service – so based on the average UK rent for October 2016 of £902 per month, this would equate to roughly £95 per month, or £1,140 over the course of a 12 month tenancy.
Adding in the additional costs of passing on tenancy fees (£300), this would increase to £1,440, or an extra £25 per month.
While even this relatively small increase of £25 per month may seem unfair to some landlords, it will not have a significant impact on their overall return on investment. Using the average UK rent of £902 per month and the average UK yield for the last year of 5.00% (according to LendInvest.com), they have calculated the loss in rental income and yield from the potential fees increase for landlords using a full management letting agent.
Nick Marr, co-founder of the TheHouseShop.com, comments: “The figures above show that even if letting agents are forced to pass on the costs of tenancy fees directly to landlords, it will not have a significant impact on the landlord’s overall yield and profits. In fact, the additional loss in returns could be as little as 0.14% when compared to the existing landlord fees structure.
Some landlords will undoubtedly raise their rents as a result of the ban - as we have seen in Scotland - but many will be able to absorb the costs of this new system without substantial losses, meaning tenants should not face a barrage of rent rises once the ban is in place. The other side of the argument here is that perhaps it should be the letting agents themselves who swallow the loss in fees, but tight margins in the High Street lettings market make this an unlikely scenario.”
Nick Marr had this to say on the broader impact of a letting fees ban for agents and landlords: “Opponents of the proposed ban are claiming that a “short term fix” may seem appealing at first, but that in the long run it will be tenants who suffer as landlords raise rents to cover the higher costs of agency fees.
However, this is not necessarily true. The extra financial pressure on landlords will almost certainly result in them shopping around and trying to find the best price, and as landlords explore alternative options to the traditional letting agency service, I have no doubt that we will see a significant increase in the number of private landlords taking a more DIY approach to renting their properties.
It is important to remember though that there will always be a place for the traditional letting agency service, despite what some in the industry may have you believe. For some landlords, keeping costs down is the main priority, and they are therefore happy to dedicate more of their time and effort to renting out their property privately – cutting out agency fees altogether in the process.
However, there are a significant number of landlords who simply do not have the time or desire to take a hands-on approach to managing their rental properties. There will always be demand for the type of comprehensive service that High Street letting agents offer, and landlords will always be happy to pay a fair price for a quality service.
It essentially comes down to a trade-off between convenience and costs, and good, reputable, hard-working letting agents will still be able to justify their costs to landlords.”
