While there’s no official date for the tenant fee ban for your diary yet, it is happening. The legislation that was announced back in 2016 by Phillip Hammond is thought to be put into affect from April this year, so you need to be prepared.
Parliament’s most recent and agreed upon summary of the new legislation is to “ensure that tenants are only required to pay their rent and deposit when securing a property in the private rented sector.”
This entails the abolishment of most upfront fees and enforcing a cap on security deposits at the equivalent of five weeks’ rent where the annual rent is less than £50,000. The cap will be six weeks’ rent where the annual rent exceeds this sum.
In short, it’s great news for private renters and a disaster for agencies that have failed to prepare for the ban. But what does it mean for landlords?
It’s impossible to know exactly what the consequences will be, but there are many predictions out there, so here’s my assessment:
The Positive Outcome for Landlords
Let’s start with the good news. The aim of the ban is to produce a more professional and regulated rental sector.
With that in mind, the right agency partner must be transparent and add value to your buy-to-let business by using the latest technology available.
Ultimately the goal is is to create a more attractive situation for tenants and, hopefully, with a more trusting landlord-tenant relationship, you are more likely to end up with great tenants in your property which is essential for success.
While the biggest dispute is that the ban will inevitably raise rent prices, it’s arguable that this is still a better outcome for tenants, with fees spread across 12 months rather than in one up front lump sum.
When Scotland implemented the ban in 2012, it was reported a year later that just 2 of landlords in Scotland increased rents specifically because of the fee ban.
The Negative Outcome for Landlords
As mentioned, the main suspicions are that letting agents will pass on the tenant fee costs over to landlords with higher charges, and in turn, landlords will increase the rent to cover these additional costs.
If we look again to Scotland for an example, there have been rumors recently that some property management companies have been requesting tenants pay for their own reference checks in order to move in. This somewhat defeats the goal of the ban altogether.
Another prediction is that there will be a rise in the number of DIY landlords in order to avoid potential increases in agency fees and go it alone instead. While this may make sense financially, it is legally not affordable for most landlords. Almost 1 in 5 landlords admitted they find it ‘impossible’ to keep up with constant regulation changes, so deciding to self-manage isn’t an easy decision to make.
Some wholly negative reports suggest that with additional legislation such as changes to Mortgage Interest Relief and Stamp Duty for second homes, landlords could find that the industry is increasingly unaffordable or no longer as profitable.
At the end of the day, Britain’s private rented housing market is valued at £1.4 trillion and won’t be slowing down any time soon. An increasing number of renters is forecast, with the thought that by 2025, half of those in the 20-39 year old age group will rent within the UK due to unaffordable housing and a desire for mobility.
Ultimately, these are just suggestions of what could happen when the tenant fee ban comes to fruition and all evidence shows that it is still beneficial to invest in the buy-to-let industry.
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