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A recent survey conducted by Upad highlighted that 45% of private landlords are unaware of the Renters Right Bill proposals to scrap tenant fees. The proposed changes apply to properties and tenancies in England, Wales, and Northern Ireland. Tenant fees have already been abolished and made illegal in Scotland, although Shelter believes these fees are still being charged.

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Shelter runs the Reclaim Your Fees initiative in Scotland for tenants who have been charged letting agency fees since the Scottish Government clarified the law in 2012.

What is the Renter’s Rights Bill?

The Bill proposes that letting agents are banned from charging any fees that are not rent or deposits. This means charging registration, administration, inventory, reference, extension/renewal, and exit/check out fees to tenants will become illegal.

A 2014 report by the Chartered Institute of Housing and Resolution Foundation recommended this be one of several things done to improve conditions in the private rented sector.

Also included within the Bill is a proposed amendment to the Housing and Planning Act 2016, written into law in May 2016, to allow tenants to access the soon to be launched database of rogue landlords and letting agents. At present, only central Government and local authorities will have the right to access the database.

The Upad Landlord: How to Avoid Rogue Property Letting Agents

The Bill may also see five-yearly electrical safety checks become mandatory for all properties. They are currently only legally required for private landlords managing houses of multiple occupation (HMO’s).

Advertise your HMO with Upad from £50

Our survey specifically focused on the scrapping of tenant fees and the action landlords might take should the Renter’s Rights Bill be written into law in the coming years. What would the abolition of tenant fees in the rest of the UK beyond Scotland mean for landlords, both for existing tenancies and for when the time comes to find a tenant?

Is the Price of Letting Your Property About to Increase?

Before answering this question, landlords need to consider:

  • How they rent out their property
  • Any fees they currently charge to tenants themselves
  • Any fees they currently pay to letting agents
  • Their overall rental yield and how they manage their property, or property portfolio, as a business interest

What Happened When Tenant Fees Were Scrapped in Scotland?

Perhaps unsurprisingly, the abolition of tenant fees in Scotland was followed by an increase in rent costs by an average of £26 per month, or £312 over the course of a 12-month tenancy. Your Move reported that following the ban in Scotland, rents rose by over 3%. 

In 2015 Citizens Advice reported average tenancy fees charged by letting agents to be £337, while in September 2016 the Daily Mail reported the average rental cost of a 3-bedroom home in London was now £2,702. A 3% rise on top of that would leave a family needing to find an extra £81 per month, or £972 per year, to cover rent costs.

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While the figures for the average tenancy fees and rent rises seen in Scotland are similar, the Communities and Local Government Committee stated evidence that the ban on tenant fees directly led to rent increases was not strong enough to definitively say this was the reason for it, citing a still on-going debate in Scotland over whether rising rents were a consequence of the ban.

Private landlords in Scotland who let out their property with Upad cover the £75 tenant referencing fee themselves.

Will Your Letting Agent Charge You More?

Though letting agents have been legally obliged to publish the fees they charge since May 2015, controversy remains over a number of issues, including the fees themselves and whether the landlord, tenant, or even the letting agent should be responsible for them.

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Although reports of letting agents charging both tenants and landlords for the same thing – meaning they get paid twice for doing one job – have become less widespread in recent years, suspicion still exists, particularly when some letting agents still don’t appear to have a fees page on their website or are unable to justify, or adequately explain, certain costs.

It is no secret that the rise of online letting agents who provide cheaper, and depending on your opinion, fairer priced services has caused problems for traditional high street letting agents. Given the competition high street agents face both from each other as well as from online letting agents, it seems unlikely that they will react to any change in the law by absorbing costs themselves. Many simply won’t be able to as it will put their existence at risk.

Others may consider increasing their monthly management fee or percentage, and while this risks alienating landlords, it may prove attractive and viable to both parties in some cases.

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Chances are, the onus will fall onto you as the landlord.

How Will You React if Tenant Fees are Made Illegal?

We already know the likely scenario is that you, as the landlord, will at the very least have a decision to make. If your letting agent writes to you or calls you, whether in the near future or at some time in the coming years once the Renter’s Rights Bill has passed into law, what might your options be?

The table below highlights some of the options that you may want to begin considering even now, along with the potential pros and cons of each.

What Action Can You Take?

Pros

Cons

Absorbing increased costs yourself

 

When your rental property is on the market you may have an advantage over landlords who have taken a different action

Depending on the fees tenants currently pay you could be massively eroding your rental yield margins. Do you know the fees your tenants currently pay and would you be prepared to absorb them?

You can include in your property advert that rent didn’t increase following the ban

Likely to be unsustainable for portfolio landlords, particularly whose tenancies are typically short. Who wants to pay an average of £337 upfront every six months?

Increasing the rent

 

 

 

Depending on the extent of your increase you will maintain your rental yield and may even increase it if tenants typically stay longer than 6-12 months.

Long term tenants will end up paying a disproportionately higher level of rent over the course of their tenancy.

To make your rental more attractive, you have the option of being flexible and reducing the rent after 6-12 months once the considered fee costs have been covered.

Tenants will feel it is unfair that they end up paying anyway, while you will pay the letting agent for the specific service and then give them more money if their management fee is a percentage of the rent.

Some tenants may take a pragmatic view and believe this is inevitable anyway, so it isn’t like you would be increasing rents out of the blue. If the majority of landlords take this option it isn’t necessarily the case that you would lose tenants to a property offering a cheaper rent.

You will need to make a decision again should fees from the agent increase. With future rent increases you will need to consider both rental market rates and fees. Depending on the agent fees, you could end up with longer void periods if your rent ends up appearing disproportionately high compared to similar properties in your area.

As deposit amounts are usually based on rent, you will receive a higher deposit which may reduce how any repairs or decorating at the end of tenancy affect your rental yield.

 

Increasing the deposit

 

 

Allows you to cover the fee costs quickly.

You need to protect the deposit, meaning you haven’t really “got the money back.”

Gives you extra leeway at the end of the tenancy if you need to make deductions for damage to the property.

If the deposit seems disproportionately high some tenants might be put off.

 

If tenants know fees have been absorbed into deposits they may wonder whether they’re likely to get the fee element back at the end of the tenancy.

Pay your letting agent a higher percentage of the rent to cover fees

 

Keeps your costs fixed irrespective of how often tenants move in and out of the property.

Reduces your rental yields and overall profit from renting the property.

Keeps rent the same for tenants, potentially makes your rental more attractive depending on what other landlords do.

You may set a precedent with your letting agent to suggest increasing their fee or percentage at a later date.

Change your letting agent, or consider letting and managing the property yourself, either directly or with an online letting agent

 

Potential to reduce costs massively, which in turn may enable you to minimize any increase in the rent and/or maintain and improve your rental yields.

For portfolio landlords who also work full time it may be difficult to commit the time to managing properties and dealing with tenant queries.

You may be more attractive to tenants who are suspicious of letting agents and see they will be dealing with you directly.

 

What is unknown at this stage is whether there will be any further amendments made to the Renter’s Rights Bill to stop any of the above scenarios playing out.

It is unlikely the current government will suggest capping rent fees given other changes they have made, including reducing mortgage interest relief, although there is likely to be strong criticism if the abolition of letting agency fees leads to tenants paying the fees by some other means anyway.

There is every chance this topic could become a central pillar of the 2020 General Election campaign given the various political parties varying opinions on the matter and on the private rental market in general.

What do Private Landlords Currently Think?

22% of landlords surveyed by Upad stated they are already planning on increasing the rent to offset any effect on their own margins, though perhaps more significantly 40% stated they wouldn’t increase the rent. The remaining 38% of landlords are currently unsure or have not considered whether they will raise the rent should a ban on tenant fees come into force.

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Upad Founder and CEO James Davis is a portfolio landlord himself. James is fully aware of the Renter’s Rights Bill and its content, and believes the Bill will only lead to tenants bearing the increased costs.

Commenting on the Bill, James said, "Whilst tenant fees charged by high street agents are a massive turnoff for the UK's 9m tenants when choosing new rental property - this is just greed and tenants being taken advantage of, right? – this proposal will backfire.

"These fees will be passed onto landlords who will simply, as our survey has shown that 1 out of 5 landlords will be passing their higher costs onto tenants -in the same way as fuel at the pump increases when price of oil goes up; it’s reasonable. Tenants are already paying too much of their take home pay on rent and this just amplifies the situation. Robbing Peter to pay Paul springs to mind – this Bill should never become law and I urge readers to support any petition or other action against it.

Upad Can Help Concerned Private Landlords

Even if as a landlord you’re not looking too far ahead into the future and at the potential impact of the abolition of tenant fees, you may be able to save money now, increase your rental yields, and lessen the impact of future changes in regulations by using Upad to let your property.

Upad landlords typically save over £750 per tenancy, and the only tenant fee we charge is a £75 referencing fee.

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If you’re a tenant and are soon to be looking for your next property, you can save yourself all letting agent fee costs aside from tenant referencing by renting from a Upad landlord. Simply look out for our logo when viewing properties on Rightmove, Zoopla, or any of the other property portals, or use our property search feature to find your next home.

What Will You Do?

Whether you’re a private landlord or a tenant, let us know if you have thought about how you will manage these changes or whether there are any pros and cons in your own mind that you feel we have missed.

Are you a landlord who has already raised the rent, or changed how you manage your property? Are you a tenant who has already spoken to your landlord and received assurance the rent won’t increase should fees be banned?

Let us know via the comments below, or get in touch through our social media channels to discuss how you’re planning to deal with what could prove a major shakeup of the property rental market in the UK.

Please note this article contains general analysis, comments, and areas for consideration only. The article has been prepared without taking into account any landlord or tenant’s specific circumstances or requirements. Before making any decisions around managing your property portfolio or finding a new home you should consider how the points in this article relate to your specific circumstances or requirements.

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