How the tenant fee ban affects your rental property

Posted by

Mark Gaukrodger

on January 17, 2020

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If you’re a landlord, you’ll likely know about the ‘Tenant Fees Act’, which came into effect in June of 2019. The law prohibits landlords and estate agents from charging tenants most letting fees – like those associated with reference checks, for example.

The response from landlords has been mixed, but letting agents said that they’ll need to make up for their losses, often by charging said landlords for the services that tenants once covered. Some have already begun to do so. Many in the industry warned that landlords would have to increase rents in order to accommodate for the change, or take on the costs.

Is the outlook really as dire as it seems for all involved? And what has the impact been so far? As it turns out, there are benefits for landlords that have yet to make headlines, and the story isn’t as bad as some estate agents are making it out to be. Here’s why the tenant fee ban could actually improve the market for landlords and tenants alike.   

More transparency – and choice – for landlords

Tenants aren’t the only ones that will benefit from increased transparency in the rental industry. The astronomical cost of some services proffered by agencies has historically been incurred on both sides of the tenant-landlord equation, with letting fees representing a massive 20 percent of agency revenue before the ban.

Those that were overcharging tenants and landlords will take a bigger hit than others, and less professional agencies won’t be able to compete with more efficient outfits. It's likely the ban will force the industry into changing for the better at a faster rate, as new business models force out the old. So landlords will have their pick of agencies and new services disrupting the market, who are able to offer lower fees and better value.

Increased demand

Letting fees have presented a serious barrier to prospective renters in the past, with Citizens Advice estimating that English tenants paid an average of £400 to move into a new property. Now that the barrier has been removed, it’s likely that the number of people able to rent – or move between rented properties – will increase.

Despite estate agents' warnings before the ban, landlords shouldn’t have to worry about agents passing the fees on to them, either - meaning they won’t have to raise rents to compensate and risk putting off potential tenants. In 2012, a similar ban was enforced in Scotland. Since then, rent prices have not increased any faster there than in the rest of the UK, and 70 percent of landlords did not notice any increase in agency fees. Government research has found that the private rental sector in Scotland grew steadily between 2012 and 2016.

Whilst it’s true that rents have been increasing in England since the ban,  a decline in buy-to-let house ownership and a rise in renters has been in motion for a while in the UK – inevitably leading to higher rents. There’s strong evidence that the fee ban can’t be blamed for rising rent costs, which were recorded well before the ban was put into place by the Office for National Statistics. In fact, their research shows that rents rose even faster before the ban.

If the numbers are anything to go by, the change will come without the heavy financial impact that some lettings agents warned of. If rent prices start to rapidly increase, it’s unlikely to be the fee ban that’s behind it.

A healthier private rental sector

The tenant fee ban may initially seem like a line of financial dominoes waiting to be nudged. For responsible landlords and transparent, professional agencies, though, it presents an opportunity to make the most of increased demand and a healthier industry. As the private rental sector modernises, so outdated practices (like unscrupulous letting fees) should fall by the wayside. It’s a big change, but it’s one that could actually increase the value of your rental property.