How will the ban on tenant fees affect landlords, agents and tenants?
In what has been widely stated as the biggest change to hit the lettings industry in decades, the ban on agents charging fees to tenants in Wales comes in on 1st September 2019.
But it's been the law in England since June, so we already have a good idea of what the lettings market will look like in Wales in the immediate aftermath of the ban.
Our Lettings Manager, Tamara Price, explains how the ban will affect landlords, agents and tenants alike.
A bit of background
For those who haven't been following the introduction of the ban, it puts a stop to letting agents charging any form of fee to tenants. No administration fees, no referencing fees, no renewal fees, no inventory charges; nothing.
The legislation is so watertight, lawmakers had to include the allowance for agents to collect rent.
Why is the ban coming in?
There are an estimated 4.7 million households living in the private rented sector in the UK and the vast majority will have paid some form of administration fee to an agent before moving in.
The powers-that-be would prefer that money spent on fees is saved and put towards a deposit to buy a property, resulting in more homeowners and less people renting.
Most agents charge just enough to cover their time and expenses, but there are some who ask for considerably more and deliberately aim to make a big profit out of tenants. It's arguably those agents who have prompted the Government to act, but critics say it's simply another way of them hitting agents and landlords from any conceivable angle.
How will it affect agents?
In a word: massively. Agents have effectively been told: “You know you used to charge tenants for your time referencing them and setting up the tenancy? You can't do that now.”
It's estimated that agents in England and Wales will collectively lose close to £200m in fees within the first year of the ban, which we predict will force many out of business. The industry's governing body, ARLA Propertymark, claim that 4,000 letting agent jobs could be lost.
How will it affect landlords?
A lot of landlords we've spoken to about the ban are either unaware of it or believe it's not relevant to them. Forgive us for saying it, but this is naive thinking.
Given the amount of money agents stand to lose, it's inevitable that they will seek to increase landlord fees as a means of recovering some of their lost income.
Over the years, agents have been able to keep landlord fees as low as possible – often undercutting competitors in the process – because of their ability to charge tenant fees. With that income stream no longer available, landlord fees will have to rise if many agents are to survive and continue providing the same level of service.
Every landlord wants their tenants fully referenced in order to ensure they will be suitable, so where agents used to be able to cover some or all of their time completing this process by charging tenants, they will now need to pass it – at least in part – to landlords.
Agents will find it extremely difficult to recover their entire loss, however, as landlords are unlikely to be able to absorb the full cost and still turn a profit, even with an increased rent.
Additionally, it's worth noting that the ban applies to agents and landlords, so if there are any landlords out there who charge their tenants for anything other than rent, deposits or specific breaches of tenancy, they will need to cease.
How will it affect tenants?
You'd be forgiven for thinking the ban is nothing but positive news for tenants. No longer do they have to pay a fee upfront to rent a property, so they can spend that money elsewhere or put it towards a deposit to buy a home instead. But it's not quite that simple.
As and when agents do increase landlord fees, a lot of landlords will seek to recover some or all of that extra cost from somewhere. The most obvious way of doing that is to ask tenants to pay more rent.
In May, ARLA Propertymark warned that rents would rise by £103 a year as agents and landlords sought to recoup lost revenue, so we could well end up in a situation where tenants are paying out the same, if not more, over the course of the tenancy, instead of upfront.
To back this up even further, when Scotland introduced the same ban in 2012, rents rose by 3% in the first year.
Read how CPS Homes has become the first letting agent in Wales to scrap tenancy fees.
