The possibility of a letting agent fees ban is currently on most landlord’s lips. But how will this introduction really affect landlords? Not only could this ban bring about problems for landlord’s relationships with agents, but also issues for tenants. With all the unknowns it’s no wonder landlords are trying to gain some understanding about the proposed changes.
What are letting agent fees?
When a landlord lets out a property through an agent, they are usually charged fees by the company. These fees are to cover the costs of marketing and viewings.
At the same time, tenants also pay ‘application fees’ to cover the costs of credit checks, referencing, drawing up the tenancy agreement and finally registering the deposit. On average, a tenant will pay £233 in fees, however we see some tenants currently paying over £1,000. Of course, this is the extreme and perhaps the real reason behind why the government has decided to take action.
Many say that a letting agent fees ban could backfire on tenants. With tenant fees accounting for approximately 19% of a letting agents income this money will surely have to be recovered somehow. Current thinking says that agents will end up charging landlords more for their side of the transaction. Rather than save money in fees we could see tenants pay more in rent to landlords as they seek to recover their increased costs.
When would the letting agent fees ban be enforced?
There was an initial proposal for the ban in 2016’s Autumn Statement by Chancellor Philip Hammond. Additionally, on June 19th, 2017, details surrounding the lettings agent fees ban were declared in the Queen’s Speech. Although the ban isn’t in place yet, the government have stated a draft will be published later this year. If things go to plan we could expect to see a letting agent fees ban happen by mid 2018.
What does it mean for Landlords?
It’s common to find more unscrupulous agents discounting fees for landlords and then charging the tenants to supplement the cost. However, the issue arises when the tenants have unfair sums and harsh penalties masked in their contract. With a lettings agent fees ban this would leave agents with very little choice. They would have to increase the fees they charge the landlords. The more professional letting agents will be already be working on ways to increase income levels. These could include charging landlords for each individual aspect of the letting process under a new menu of charges. Other ideas include introducing charging landlords for time spent on property investment ‘advice’.
After the recent changes to mortgage interest relief taxation, landlords will probably find themselves in one of three positions:
- Having to increase rent to cover the costs, which in turn may lead to longer void periods
- Deciding to ‘self-manage’ their properties rather than using an agent
- Considering whether to just sell their properties and move out of the market
You can find out a great deal more about the government’s action to ban letting agent fees here.
Who will be affected?
The biggest impact is likely to be on letting agents who charge unusually high fees. This is because landlords will be much more inclined to look around for better offers. It’s just possible that a ban could create some healthy competition that ultimately lowers the fees and minimises their impact.
At the end of the day it is the tenants that are expected to bear the brunt of any letting agent fees ban. It is widely expected that if the proposed ban does come into law landlords will push up rents to recover there increased costs.
For further information on the proposed letting agent fees ban please don’t hesitate to call the team at Slater & Brandley on 0115 981 9651. Alternatively, you can visit us online here.