The tenant fees ban is coming into effect in 2018, and uncertainty is high. Officially known as the Draft Tenants’ Fee Bill, the ban will outlaw mandatory administrative fees levied on tenants, aside from certain “during tenancy” charges such as those for tenants losing keys (heard of Keyzapp anyone?)
Because tenant fees are a key earner for many agents, the ban is a growing cause for concern. But there is still some time before the new legislation comes into effect, so agents have the opportunity to be prepared. Here’s a breakdown of what the lettings fee ban will mean for your business, and how agents might best negotiate the financial losses that it implies.
What will be outlawed in the fees ban?
This will be a full ban on admin fees charged to tenants at the beginning, or renewal, of a tenancy agreement. Fees that will be banned include those charged for the following services:
- Creating a tenancy agreement
- Reference and background checks
- Ensuring a tenant has the ‘Right To Rent’
- Inventory processes
- Renewal and exit fees
On top of that, Drafts Tenants’ Fee Bill will also place a cap on holding deposits (no more than one week’s rent) and tenancy deposits (no more than six weeks' rent).
What impact will this have on agents?
David Cox from ARLA Propertymark recently told us, in our UK Lettings Industry Whitepaper, that “the ban on tenant fees will have massive implications for the sector.”
The lettings sector turns over around £4 billion annually. Lettings fees make up around £0.7 billion a year. An assessment carried out by Capital Economics shows that, in the event of an outright ban, agents will stand to lose about £0.2 billion in turnover, landlords lose £0.3 billion in income and tenants pay an increased rent of £103 per annum. “If tenants move more frequently they will save money, but if they stay in properties longer they are more likely to lose money.”
None of this sounds like good news for anyone, but that’s not the whole story. There are numerous ways in which agents can offset the financial losses of the ban...
Which agents will be hit hardest?
Unfortunately, the agents hit that will be hit the hardest will be the independent agents, small businesses. Not large enough so that the sheer volume of business can offset the loss in fees. Typically, these smaller companies aren’t the ones who make millions every year on fees in the first place, so it’s a frustrating outcome that those making the most also stand to lose the least.
What happened in Scotland after the 2012 ban on lettings fees?
Scotland has been living with a fees ban since 2012, and, so far, the reaction has been divided. Malcolm Warrack from Cullen Property tells us that “fear of increasing rents was well founded but in reality was temporary with rent rises soon falling back to a normal market”. Results from charity Shelter also indicate that letting agents adapted their business models to allow for the reduction in income. Even after the ban on lettings fees in 2012, the number of letting agents in Scotland continued to grow.
Why the smartest agents won't be passing the fees onto their landlords…
Because, quite simply, it's a surefire way of losing business. According to FixFlo, “90% of letting agents expect the cost to be passed on to landlords who will then pass it on to tenants in the form of higher rents”, but is that really the best way of offsetting the ban?
Maybe not: some agents already don’t charge tenants any fees at all. If agencies who charge tenants pass these costs onto their landlords once the ban comes into effect, their property owners will quickly move over to those who won’t. Charging landlords more seems unsustainable and likely to result in a loss of market share. This is especially relevant for the smaller firms likely to be affected.
So how can agents offset the effects of the ban?
Reducing costs or developing new revenue streams is a far more effective way of offsetting the ban than raising rent or fees.
Save money on referencing and earn commission with Reposit
Agents can earn 5% PCM commission for every tenancy let with Reposit (for a £1000PCM property the agent would earn £50). With no deposit to pay, your tenant can move in faster and reduce property voids. The tenant is still liable for any damages at the end of the tenancy, but we stand behind them to make sure agents are always paid out within 28 days.
Reposit offers free referencing for tenants, so you don't need to charge your landlords for this at all. Plus, we reward good tenants with a lower fee each time they leave a tenancy without any pending charges, so tenants are still incentivised to take care of the property.