The aftermath of the letting fees ban
July 1, 2019
The long-awaited start date of the UK letting fees ban has now been and gone. In the lead up to the letting agent fees ban coming into effect there was much speculation about how it would affect renters, landlords and agents alike. But as the dust begins to settle and the rental market starts to adjust to the new legislation, what are the current market indicators and industry experts seeing in these early days of the post letting fees ban UK?
The knee-jerk reaction
The Tenant Fees Act, which came into effect 1 June 2019, made it illegal to charge tenants any fees relating to administrative procedures in the lead up to starting a tenancy, including drafting up tenancy agreements and tenant credit checks. It also banned letting agents from charging tenants for professional cleaning and gardenings services.
Historically, these fees constituted a fair proportion of letting agents revenue, particularly if they were charging landlords for the same fee, providing a double profit. One study found that tenant fees before the law was passed made up 20% of the industry’s overall turnover. By charging tenants for the majority of these fees, letting agents were able to keep the costs incurred to landlords low while still keeping themselves in the black.
Now the balance is changing: many letting agents are beginning to cover the losses caused by the ban by charging landlords higher fees instead. One assessment predicted that the first year of the policy being in effect will collectively cost landlords nearly £83m, while letting agents are predicted to take the largest hit, costing them an estimated £157m. The amount that landlords are expected to pay will vary from letting agent to letting agent, but these fee increases for property management, marketing and tenant administration could lead some landlords to raise rents to cover these new charges, costing tenants more despite the ban aiming to achieve the opposite.
Designed to increase the protection of both tenants and landlords from being exploited at the hands of some letting agents, the ban has had some pretty significant reactions already. Resistance voices continue to be raised from some parts of the rental industry, including ARLA Propertymark who has been a strong opponent of the ban from the get-go, and they are certainly not alone. But the real, systemic impact of the Tenant Fees Act will not be discernible for some years to come.
Looking across the border
It’s easy to see how the abolishment of tenant fees could send ripples through the rental industry, but although appearing drastic at first, like any major change to the property market before it, the industry will ultimately adjust to the changes in the long run. How? Well, for evidence of how the ban could impact the English renting market, we just need to look across the border. Supporters of the tenant fees ban have pointed to Scotland as an example of this type of legislation already in effect. Scotland placed a ban on letting agent fees back in 2012 and experienced minor disruption as a result.
Although rents in Scotland did marginally increase after the ban, it has not had a long-lasting harmful effect on the Scottish rental market. In fact, since the ban on letting agent fees in 2012, Scottish rents increased at the same rate as in all other urban areas of the UK. From 2012 to 2016, rents in England increased on average by 9%, compared to just 5% in Scotland.
Outside the UK, further confidence can be gained from countries such as Germany, who banned letting agent fees in 2015 and has also experienced little detrimental impact to their rental market in subsequent years. Based on the experience of the Scottish and Germany bans, the UK rental market will most likely readjust to its near identical pre-ban condition after a short spell of volatility.
To avoid any potential backlash of letting agents raising landlord fees, more property investors and landlords are well advised to go it alone. By deciding to manage their properties without the assistance of letting agents, landlords could avoid hefty upfront charges originally covered by tenant fees. Thanks to digital property management software and online property marketplaces such as Vesta, it’s never been easier to manage your property as a DIY landlord.
The ban on tenant fees is only one step towards the renting market becoming more transparent and nurturing better relationships between tenants, landlords and letting agents. One of the best ways to ensure mutual benefit for all in the post-ban era is for letting agents and landlords to shift to longer-term tenancies, instead of generating revenue through one-time renters or over-charging landlords.
Traditionally in the UK, stepping onto the property ladder and buying your first home is seen as a milestone in your life. But with house prices rising and people becoming increasingly mobile in their job prospects and living arrangements, serial renting is becoming more of an established part of the UK’s private housing market. By the end of 2021, one report has predicted that a quarter of households in Britain will be renting privately.
Providing tenants with security
While part of this shift to long-term renting is due to the gap between earrings and house prices making securing a mortgage difficult for many renters, many tenants are choosing to rent for longer due to the flexibility it affords. The lack of tenant fees will only increase this flexibility, as renters can now move around with minimal costs, making happy, grounded tenants more sought after by buy-to-let investors. By providing the growing supply of renters with smooth tenancies and long-term security, renters are more likely to continue as your tenant. This security will provide long-term revenue for landlords and long-term peace of mind for tenants. Not to mention avoiding time-consuming tenant screening, marketing and reference checks.
Going down the tenanted property route helps facilitate this security, and most tenants will actively seek it out. By renting a property that they know can be sold with tenants in situ, these renters will be reassured that even if their landlord sells the property, they can remain in the property under the new landlord. This makes such properties infinitely more attractive to tenants who are looking to rent in the same area long term without the fear of eviction if their landlord sells up.
Enter tenanted properties
Here at Vesta, we make it easy for you to invest in buy-to-let properties that have loyal and dependable tenants. Our tenanted properties not only allow you to start generating income from day one but also afford you the insights that come with every property. From financial analysis and location insight to tenant rental records, you’ll have all the information you need to know that you’re making the right choice for a reliable, long-term investment.
If you’re looking to sell a tenanted property, we can help you put it on the market while promoting you as the ongoing management. You can maintain an income from the management of the property, helping to mitigate some of the lost revenues from the tenant fee ban. Get in touch with the Vesta team today to find out more.