Proposed Tenant Fee Ban & the General Election

May 10, 2017

The proposed tenant fee ban was headline news after the Chancellor’s shock announcement until it was usurped by the PM’s own announcement of a general election. This proposed ban will happen whatever the outcome of the election as all a mainstream parties support it. The Tories actually opposed Labour’s bid to impose a ban a few years ago, but with the increase in their traditional voters now living in rented accommodation have adopted the policy as their own. Odd that. A cynical person may think its more about votes.

The DCLG consultation in to the ban continues however make no mistake, this is not about whether or not a ban will be imposed, rather the extent of such a ban.  This has been bought about by a minority of agents using tenants to subsidise their income often undercutting other agents fees to landlords. Others have just seen tenants as a cash cow which they have milked relentlessly. Some agents have continued to bury fees in the small print of their contracts or just not disclose them at all. The worst offenders tenant fee income is often over 20% of their total revenue and it is they who will suffer the most. Quite right too.

No one knows what the outcome of this consultation will be, however Northwood Managing Director, Eric Walker, has been part of the ‘Fair Fees Forum’ which works with Government and stakeholder bodies on it’s implementation. He comments, ‘Whilst it is pretty clear that this ban is inevitable, implementation may be delayed by the election. Whilst it is likely there will be an outright ban, some reasonable allowable charges may be excluded from the ban provided that these charges are for the benefit of the tenants. As a business, Northwood has been an advocate of both landlords & tenants having the right to expect professional standards preferably through proper regulation of the industry‘.

What is most relevant to readers is how the ban will impact on the market. Shelter believe it will increase competition; it wont. Many agents will close unless they cut costs, cut staff or cut corners. We at Northwood are seeing an unprecedented number of businesses up for sale and in many cases, the value of tenant fee income is far in excess of these agents profit margins. We have been surprised how many of these agents still believe it will never happen.

Many believe tenants will save money whilst others believe rents will rise. We hear the argument that rent increases in Scotland were negligible following the tenant fee ban in 2012. The problem with this analogy is that tenant fees in Scotland were actually banned in Rent (Scotland) Act 1984 and the Law in 2012 simply clarified this existing ban. As such, the fees charged in Scotland were minimal. Further, at a time when all deposits had to be paid into a custodial scheme, many agents had deposit deficits and simply sold to larger competitors making this an inaccurate source of comparison but highlighting the point about reduced competition.

Some landlords may think self-management is the answer. There are over 150 pieces of legislation covering lettings and very few of the tenancy agreements used by private landlords are fit for purpose. Deposit regulations are increasing complex and now we have new Money Laundering Regs, Right to Rent Checks, Immigration checks, carbon monoxide checks, Legionaries risk assessments, prescribed information,  EPC’s, new notices under 1988 Housing Act and of course, new precedents are being created almost every week. Many landlords who have never experienced problems to date will find this changes when tenants become more aware of their rights and Trading Standards & HMRC ramp of their focus on enforcement. In the event a landlord seeks possession in the Courts for whatever reason, they may find such action fails for what may appear a ‘box ticking’ exercise seeming unrelated to the claim. This can prove very expensive.

Some believe landlords will simply be charged more, however we are determined that in supporting the tenant fee ban, we will not pass on any costs to our landlords. The reason? We have planned for this ban and have ensured we can continue to provide the same levels of service to both landlords and tenants. If costs are passed on to landlords, then it is reasonable to assume some rents will simply have to rise. Rent increases will be for the duration of the tenancy rather a fee up front which will cost long term tenants more the longer they stay in the property. That seems unfair.

A number of people believe the ban won’t be enforced as Trading Standards are so under-resourced. Make no mistake, this ban will have the biggest police force of all – tenants themselves and there are over 5 million of them in the PRS.

Our biggest concern is that, coupled with the punitive measures introduced under Section 24 of the Finance Act 2015 (known as The Tenant Tax), some landlords may reconsider renting altogether. If the Private Rented Sector fails to grow or worse still, shrinks, then through the forces of supply and demand rents will increase. That said, we urge landlords not to look solely at yields and instead look at how much (or how little!) their money would make in a bank and factor in the increase in property prices.

Whatever the outcome of the tenant fee ban and whenever it is introduced, we are ready to ensure a seamless transition. Those agents still in denial are those who will find themselves ill prepared. As a result, many agents will have to reduce their service levels, cut corners in referencing & compliance, and worse still, some will simply fail.

So, the ban will happen but we don’t know when. Our best guess is late 2018 or perhaps even early 2019, but the Government are full of surprises so can’t rule out an earlier implementation. For tenants, Shelter & Generation Rent, it may yet prove a case of ‘be careful what you wish for’.

Read the Association of Residential Lettings Agents (ARLA) blog of the ban and how it will affect tenants here.

Northwood is one of the largest and most recognised estate agents in the U.K. and the leading supplier of Guaranteed Rent Find us on Twitter @northwoodUK or visit our YouTube Channel.

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