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How will the banning of upfront tenant fees affect me?

  05 Dec 2016

This year’s autumn statement from the Chancellor of the Exchequer brought news that Letting Agents will no longer be able to charge upfront fees to tenants when renting a property. The idea behind the ban of fees was to make it easier for tenants to be able to rent properties by reducing overheads at the start of the tenancy. In theory this is a good idea but in practice there may be a number of changes to the industry over the next few years as the changes come in to force.

When will the changes take effect?

Honestly, at this stage we do not know but it has recently been suggested that it may not be until 2018. The government has setup a consultation to see the best way to implement these changes, which convenes in the New Year. After this group has met, the government will require primary legislation and realistically we are looking around 1 to 2 years before any such ban would come in to force. Further details will be come out once the consultation has commenced.

Why do agents charge tenant fees?

Although we cannot confirm the process for each letting agent, at Jezzards, we share the charges for the tenancy setup between the landlord and the tenant. This includes costs towards references (which are bespoke to each tenant’s personal circumstances), the inventory at the start of the tenancy (which protects the tenants deposit by providing a comprehensive condition report of the property), and costs towards the preparation of the tenancy setup. These costs are charged by us in advance of the tenancy so there are no surprise costs for tenants at the end of the tenancy.

As part of the tenancy process, tenants can currently pay their preliminary monies which secures the property whilst referencing is undertaken and normally means the property is removed from the market. The new ban will stop this from happening.

As a tenant will I save money?

This is yet to be seen. Letting agents will need to pass on these costs to the landlord as things such as inventories, referencing, and the time taken to negotiate on behalf of the tenant with the landlord. Whilst in the short term, tenants will save money as landlords pay these costs, the government has been rather short sighted as these costs will, in the longer term, be passed back to the tenant through rising rents. It goes without saying that if the landlord has to pay these additional costs at the start of the tenancy, we will see rent rises to cover these costs. Landlords will need to ensure their costs are met which means they are going to try and recoup them in the first few months’ rent by putting the rent up by £25 to £50 per month.

Depending on the length of the tenancy, it is the tenant who will lose out with rent. The government suggests the average tenancy is around 3 years. With a 3 year monthly rise of £25 (the lower end we suggested), the tenant will have paid an extra £900 over the course of the tenancy versus a cost of approx. £300 of upfront fees. This will mean that the costs are now hidden and not as transparent and we feel this is not what the government was after.

What about securing tenancies

As we understand it at the moment, tenants will not be able to pay any monies upfront except the first month’s rent and deposit. So how are you going to secure a property? If you are not allowed to secure a property with financial commitment, we have to work for our landlord client which means that we will not be able to secure a tenancy until all references are back, move in  monies (first month’s rent and deposit) and signed and dated tenancy agreements are returned. This is probably the worst thing the government could do to the people they claim their new rules are trying to help, “Jam’s”, people who are “just about managing”. The problem we now will face is that whilst tenants undergo references, someone who has Cash readily available may be able to “gazump” other tenants and pay their move in monies and get things done quicker than a tenant who is waiting to payday.

At Jezzards, we feel this will just make the market much more competitive between tenants. An example would be that a property is sourced with us and the tenant taking the property is required to give notice in their property. They are due to pay their move in monies a week or so before the move in date but someone else comes along (perhaps from another agent), offering to pay slightly more and can sign tenancy agreements and pay move in monies today. The original tenant then loses the property and ends up homeless. This seems rather short-sighted in our opinion.

As a landlord how will this affect me?

Over the next few months and years, you will see an increase on fees from agents to cover the costs. We are still deciding as an agency when we are going to make changes in preparation of the proposed changes. As a landlord it could be rather short sighted to go to an agent who charges the cheapest fees as they will most likely still be charging their tenants upfront fees. Sooner or later, these tenants will stop renting through those agents and go to the agents where they don’t have to pay upfront fees. As we have discussed above, you will be able to recoup these fees from the rent and you will have competing tenants for properties up until the time you sign the tenancy agreement. It is going to become a little more of a landlords market as you will be able to run contracts races for your property.

On the flip side, you will see a high percentage of fall through tenancies as you will get tenants changing their mind with no financial penalty.

Overall we are disappointed that the government has taken this stance. We would have preferred the opportunity for open dialogue to discuss a better way of doing things and there are a lot better ways out there. It is now a matter of time before the industry starts adjusting, although I doubt we will see any changes before 2017. As agents it will become a knee jerk reaction to who changes their terms first. Some will wait until the very last minute (although this would be silly for agents to do if their competitors are not). We now have to deal with what we have got as agents, tenants and landlords and I hope that this does not hurt the people they were trying to protect.

If you would like to speak to one of our qualified lettings experts, please contact us on 03330 433 633.


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