The Tenant Fee Ban will soon impact landlords across the UK. This will come at a time when recent tax changes, the stamp duty surcharge and phasing out of mortgage tax relief are already taking a big toll.
In November 2017, 43% of landlords were completely unaware or knew very little about the Tenants Fee Ban. But landlords can’t afford to ignore the ban and not be prepared for what lies ahead.
What are Tenant Fees?
When landlords use a traditional letting agent to let out their property, the agent will charge ‘application fees’ from the tenants to cover the costs of credit checks, referencing, drawing up the tenancy agreement and registering the deposit. Charges can also include a mandatory inventory fee, renewal fees, and the agent’s ‘admin fee’.
A tenant pays on average £233 in fees, but 1 in 7 tenants will pay over £700, and some people paid over £2000 for renting one property.
With many people now moving home every year, this can put a huge strain of families and individuals. Research by the Citizens’ Advice Bureau (CAB) found that 42% of renters had to borrow money just to to pay their tenant fees.
What is the Tenants Fee Ban?
The Tenants Fee Ban will see almost all fees previously charged to tenants by letting agents and landlords banned. Landlords and letting agents will still be allowed to charge rent, as well as:
- Security deposits (capped at 6 weeks’ rent)
- Holding deposits (capped at 1 week’s rent)
- Tenant default charges
What is the risk of non-compliance?
Landlords and lettings agents will face an initial fine of £5,000 if they don’t comply. Those committing another breach within 5 years will be fined a further £30,000, or potentially be taken to court.
These changes are not proposed to be retrospective, so landlords and agents will not be penalised for fees already paid. They will, however, apply to all landlords, even those who only own one property. Going forward, landlords will need to be very careful not to breach the new rules.
It is still uncertain when the ban will be implemented. Estimates vary between the end of 2018 to Spring 2019. But leaving it too late to take measures is done at one’s own risk.
Impact on landlords
Tenant fees account for approximately 19% of a letting agent’s income, with some agencies reporting as much as 30% of their annual income from tenant fees alone. Agents will look to recover this by increasing the fees they charge the landlords.
While many argued that landlord will in turn increase rents to recoup their fees from tenants, there is evidence this might not be the case. The ban was introduced in Scotland in 2012 and only 2% of Scottish landlords were able to increase rents because of the fee ban. Which means the hit will be absorbed between landlords and lettings agents.
At present, experts agree that the most likely outcomes for landlords are:
- Face longer void periods because they increased rents to cover costs
- Cut back on making improvements, which will see them unable to raise rents or attract better quality tenants
- Decide to ‘self-manage’ their properties rather than use an agent, which will see many landlords struggling to stay abreast property rules.
The smarter solution
We started Howsy to provide a fairer lettings solution for both landlords and tenants. This is why we don’t charge our landlords OR our tenants for advertising the property on portals, for referencing and credit checks, arranging viewings or drafting and renewing contracts. And we don’t take any ‘admin fees’ either.
In fact, our landlords don’t pay a thing until AFTER the tenants have moved in. And our tenants don’t pay anything besides their rent and deposit.
We offer a complete property management service priced at £35 pm anywhere in England and £55pm inside the M25. As a landlord, you will be completely covered for repairs, inspections and rent collections – and even for the eventuality you will need new tenants.
For savvy landlords, this is the time to start looking around for better alternatives to your letting agent. Unlike Howsy’s model, getting out of a contract with a traditional letting agent can take up to 6 months. So waiting until the last moment to start shopping around could mean you will be faced with the double impact of increased letting agent fees and the next Section 24 increase.
To find out more about what we can do for landlords, email us or call us on 0330 999 1234 today.