The Lettings Fees Ban: What Will the Impacts Be?

  • Lettings Fees Ban

Q: What do you think is most likely happen now that landlords and agents are banned from charging tenants letting fees?

Katy Hackling ARLA, Lettings Manager at Harrison and Hardie says:

According to Citizens Advice, the average tenant fee last year was around £400. Until recently, tenants could be charged any amount of admin fees – tenancy renewal fees, referencing fees and credit check fees, etc. Inevitably, these costs will now have to be met by landlords. It’s possible that with all the other disincentives compared with the benefits up to April 2016, and ongoing uncertainty over Brexit, that some landlords may now think about selling.

We do have some landlords who have chosen to let out a second home rather than sell, or who are letting out their main property whilst working elsewhere for example. If they do offload, it will increase the amount of entry-level properties available for sale in the local marketplace - clearly a win for young people hoping to get onto the housing ladder - but it won't help matters for tenants. When an average (non-shared-ownership) two-bed property is close to £250,000 we will always have far more rental applicants registered at any one time than we have suitable properties to offer - any large reduction in supply will ultimately just force an increase in rental values.

It's important to consider underlying capital growth in this hugely affluent North Cotswold marketplace. Even though Britain has faced a recessive economy for well over ten years, entry-level house prices in the North Cotswolds have increased by an average of around £30,000 over the same timespan. The vast majority of our instructions are professional portfolio / investor landlords focused on such long-term rewards, who will not be seriously concerned with relatively small increases in annual costs.

Jude Farrell, Senior Lettings Manager at Harrison and Hardie says:

As ever it’s been a sledgehammer approach to a London-centric problem. The amount charged on fees per tenant could easily have been capped and / or a formal definition of what might be classed as fees could have been addressed. The immediate benefit will be felt by those letting rooms for short term reasons in multiple-occupancy properties with a high turnover, where tenant fees will have been a hugely lucrative form of income for agents and landlords.

Now those agents presiding over a constant to and fro-ing of new tenants - in university towns, for example - could see a loss of around half their annual turnover.  Such agencies will either have to absorb those losses -  and no business can afford to do that, particularly in this climate - or pass the costs to their landlords.  If you're in a part of the world where there hasn't been a rigorously resilient marketplace, where those costs could make the difference between profit and loss, many agents and landlords could potentially be driven out of business.

The most obvious response from landlords (other than to offload) will simply be to increase rents to recover additional overheads, which means that tenants will end up paying more in the long term.  To illustrate: at the moment a tenant pays £400 one-off cost towards a two-bed tenancy charged at £900 per month. To absorb that cost, the landlord decides to raise the rent to £930 a month. Over the next two years - let alone a consideration for an annual rent increase in line with RPI - renting will cost £360 more than paying a one-off upfront fee.

Here in the North Cotswolds where many young people have been renting for over a decade, often staying in the same property for several years, the hidden cost of being unable to buy becomes more prohibitive than ever. With my own children on the verge of adulthood and as a reputable letting agent, I wholeheartedly agree that hidden charges and unscrupulous letting agents need to be targeted but I fear to ban fees will ultimately have a negative effect on those the bill has been designed to protect.

As the North Cotswolds' leading residential lettings agency, the company is renowned for superlative service standards and outstanding results. For more information about the local lettings marketplace or to book a free no-obligation marketing consultation, please contact:

Jude Farrell, Senior Lettings Manager

Moreton in Marsh: 01608 651000 / jude@harrisonjameshardie.co.uk

Katy Hackling ARLA, Lettings Manager

Bourton on the Water: 01451 822977 / katyh@harrisonjameshardie.co.uk