Under new rules to ban letting fees for tenants, who will really pick up the costs?

Under new rules to ban letting fees for tenants, who will really pick up the costs?

One of the big talking points for the property sector to come out of the Autumn Statement was the banning of letting fees for tenants.

Although a date for the regulatory change wasn’t given, this wasn’t merely a proposal, with the Chancellor saying it will be implemented as soon as possible

Not many details were given, however, which has left many people wondering who will be expected to absorb this cost; will it be letting agents, landlords or even, indirectly, still tenants?

At present, tenants can be charged various administration fees, such as reference, credit and immigration checks. They may also have to pay a fee for the agent to draw up the agreement, as well as a holding deposit which in some cases is non-refundable. As a result, it’s become costly for tenants to even get in the door of their rented home and that’s what the Government is aiming to redress.
 
The average letting fee in 2015, according to the English Housing Survey was £223, but it varies between agents, and those looking to rent in city hotspots, particularly London, can face much higher fees than this. When you add deposit and rent in advance, the average costs which renters using a letting agency need to pay upfront are more than £1,000 nationally and over £2,000 in London, according to a leading housing charity.


Whilst tenants have welcomed the news, therefore, that will see this cost come down, landlords are obviously concerned that alongside the tax changes they’re facing, they simply can’t take on the administrative costs as well, and still make a profit, with some suggesting they would have to increase rents as a result, if the fees are passed to them. If this were to happen, the new measure would in fact hurt the very people it was meant to help.

However, since rent is predominantly governed by the market, this would seem unlikely, and it’s more probable that it’s the letting agents, rather than landlords that will take the hit on these fees.

Scotland banned letting fees many years ago and in good news for landlords, or those looking to invest in their first buy-to-let property, the agencies have been the ones to absorb the cost there, so it’s likely the same approach will be taken in the UK.

Essentially, letting agents need to remain competitive to stand out in the sector and they can’t be if they are passing on fees to landlords, who will either shop around for the cheapest agent, or  may even take a different approach to finding tenants if they don’t want to face additional fees.

With little information available at the moment on how and when this change will be implemented, speculation is rife, but we’ll certainly be keeping an eye on the market once the ban in enforced to see what effect this really has on agents, landlords and tenants.

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Comments

  1. akbar ali dayalaakbar ali dayala20 December 2016 17:53:06

    I am a landlord and director of an online letting agents at the moment we charge tenants minimal fees and landlord also meaning we can get best deals for tenants all around if the ban comes in it wont affect me as I will add the fees to the 1st months rent, or tenants can pay over 3, 6 , 9 12 months with interest! so who are the actual winners? not the tenants! well done government !

    Reply to this comment

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