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Increased pressure on UK landlords may result in leaving rented sector

Staff Writer |
The UK government announced that the Tenant Fees Bill will come into effect from 1 June 2019.

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For tenancies signed after this date, agents will not be able to charge tenants any up-front fees, wrties Kate Eales, National Head of Lettings at Strutt & Parker.

The Tenant Fees Bill aims to improve transparency in the private rental market and reduce the cost to tenants when taking on a tenancy.

Key requirements specified in the Bill include:

- Tenants will not be charged any fees when taking out a tenancy in England

- The deposit paid at the start of a tenancy cannot exceed five weeks’ rent (where annual rent is less than £50,000)

- Stricter rules on holding deposits

- Aside from fees associated with damage to the property, landlords or agents will only be able to charge default fees if a tenant loses their keys or is late paying the rent.

The Tenant Fees Bill only applies to tenancies in England. Letting agents’ fees were banned in Scotland in 2012 and the Welsh Government has also signalled its intention to ban them.

The main driver behind the tenancy fees ban is to provide a better deal for renters, but many landlords have concerns around absorbing these letting costs or being forced to raise rents.

The letting market has become more complex in recent years. There are now around 160 regulations and pieces of legislation that landlords must comply with, and tenants’ expectations around the quality of accommodation are increasing.

Many landlords find that opting for a full management service is preferable to using an agent for lettings only. Fully-managed properties tend to be more appealing to prospective tenants, and remove the stress of property maintenance or potential altercations with tenants.

After a number of years of stagnation in the UK property market and falling rents in London, prices are beginning to rise again.

2016 and 2017 saw the London lettings market flooded with new properties, but this increase in supply led to a slowdown in the market. Meanwhile, increases in buy-to-let taxes and additional regulatory burdens meant the number of rental properties on the market fell by 22 per cent in 2018.

Falling supply leads to more competition and research from Rightmove found that average London rents rose to an all-time high of £2,034 in the final quarter of 2018.

The increased pressure on landlords to pay agent fees may result in more leaving the rented sector, and a further reduction in supply.

In London it is unlikely that the costs will be pushed to landlords if the fees being charged are fair. Regionally, it may be a different picture as some agents model their fees on charging the landlord a smaller fee but bolstering this with a tenant administration fee. It is likely therefore that these landlords will see their fees rise.

For the landlords that remain, increasing competition in the market represents an opportunity to find good tenants who are prepared to pay competitive rates for the right property.

Another issue is that of tenant referencing which is no longer chargeable to the tenant and will be a cost to the agent. We may see this service changing in the future as estate agents look at automating the tenant referencing process.

The Tenant Fees Bill hasn’t quite finished its journey through the parliamentary system. It will now go back to the House of Commons to consider the amendments proposed by the House of Lords, before being put forward for Royal Assent.

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