Although it’s unclear as to what format the lettings fee ban will take, or when it will be put into effect,it is clear that there are two likely scenarios emerging and from these, three possible outcomes.
1) Letting agents absorb the costs
Taking on the extra costs of administrative tasks as well as swallowing the loss of revenue (developer CBRE estimates that tenant fees form 20% of revenue per property let across England, with figures rising to 24 per cent in the North East) will force branch closures and thousands of job losses.
2) Agents pass the fees onto landlords
Faced with additional charges; landlords have two choices – to pass the costs on in higher rents or to take the hit themselves.
- Landlords take the hit themselves
It’s estimated there are around 1.8 million landlords across the U.K., which means that is difficult to predict how they will react as a group. These numbers also make the rental sector a competitive one, which could stifle individual landlords’ abilities to raise their rents.
If landlords absorb the additional costs themselves, there’s no change in outcome for tenants or letting agents; landlords would bear the brunt of the ban and the resulting loss of income.
- Landlords increase their rents accordingly
If landlords attempt to offset the reduction in their income by raising rents, the administration costs will be passed directly to the tenant.
The Government’s consultation paper states:
“The Government announced at the 2016 Autumn Statement that it would consult on introducing a ban on letting agent fees paid by tenants in England, to improve competition in the private rental market and give renters greater clarity and control over what they will pay.”
“Tenants will be able – at a glance – to see what a given property will cost them in the advertised rent level without any additional hidden costs; this should help to make entering and moving around in the private rented sector easier and less costly.”
However, as the extra charges will be parceled up into an increased rental tariff, the transparency of these charges will actually be reduced. This repackaging will be worsening the issue that the letting fees ban was set up to tackle, negating both its purpose and its impact.
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