The government has confirmed a tenant fee ban is in the pipeline – but what will happen to the billions of pounds generated for letting agents every year?
On first look, tenants come out as winners and letting agents the losers when the Tenant Fees Bill before parliament becomes law sometime after April 1, 2019.
An impact statement published with the bill clearly states the financial implications of the law.
The assessment explains the sector works by letting agents competing on price for landlord customers and charging fees to their tenants for managing tenancies and properties.
The Housing, Communities and Local Government Department believes letting agents make excessive profits because of market failure and supports this with evidence that:
- Letting agent fees are more than the same fees charged by landlords
- Landlords and tenants are sometimes both charged for the same service
- Letting agents do not explain their fees fully despite laws requiring they do so for tenants
“The department argues that the high initial costs of tenancy cause distress to some tenants and constitute an inefficient barrier to renting. In particular, the requirement to pay a substantial deposit alongside a month’s rent in advance and agents’ fees means that tenants incur large initial costs, which some cannot afford even if they can afford the rent,” says the assessment.
When the bill becomes law, the government expects the financial burden of letting a home to shift from tenants to landlords – and that landlords will recoup the costs by raising rents.
In the economic analysis, the government says just over 51% of landlords use letting agents.
Based on median fees – £223 to set up a new tenancy, £72 for a tenancy renewal and an average £26 letting fee charged by landlords who do not use letting agents – annual tenant fees are estimated as £314.5 million to letting agents and £8.7 million to landlords.
The balance is expected to switch to £157.1 million a year paid to letting agents – cutting their take in half.
Landlord costs will rise to £82.9 million and tenants will save £239.9 million a year.
“It is not clear whether the department has considered the impact of possible rent increases as a result of banning fees in its assessment of the impacts of capping deposits, but this is likely to be a small effect in any case,” says the assessment.
The question is if the lettings industry will have a major fee shake-out or if letting agents will switch their focus to charging landlords, who in turn will push the cost on to tenants.