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With the Draft Tenant Fees Bill receiving Royal Ascent on 12 February 2019, it is a win for Generation Rent. But how will the Tenant Fees Act 2019 shape the rental market in the latter half of this year?

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Banning Tenant Fees: The Impact on the Rental Market

Tenants have been made to feel somewhat of an afterthought in the rental process ever since the lettings boom of the early 1980s. The business of the UK residential lettings market starts with landlords, who own the “stock” (i.e. the bricks and mortar) letting agents desire.

Combine the need to let rental properties with an already overcrowded market of tenants (especially in London), and you can start to see why these tenants have become secondary: demand far outweighs supply.

However, everything is about to change with the Draft Bill of the Tenant Fees Act, which sees letting agents no longer able to charge admin fees to tenants. The result will see renters potentially save thousands of pounds – a triumphant win for tenants throughout the UK.

But how does it affect the wider landscape of the lettings industry in the UK?

Charges No More

Before the Tenant Fees Act’s Draft Bill was passed in the House of Commons, letting agents were able to charge tenants for admin fees, credit checks, referencing, guarantors, inventories, cleaning, gardening services, renewals and even exit fees.

Renters were culpable of paying around £350 for admin charges, up to £100 on referencing, and £50-plus on a guarantor (if needed). By this point, all the tenant would have done is indicate that they want to rent the property.

With 4.7-million people privately renting in the UK, such fees placed too much of a burden on the tenant, pretty much ending any hope of tenants saving for a home.

Thanks to the new legislation, agents can no longer charge for fees. It also stipulates that holding deposits are capped at one week, while deposits are also capped to five weeks. The result should see tenants having more flexibility when looking for somewhere to live, safe in the knowledge that their pockets won’t be quite so empty before they have even moved in.

Impact on Agents

If renters are going to reap the rewards of the Tenants Fees Act, saving plenty of money in the process, surely things need to even themselves out somehow and the cost of the fees will be passed on somewhere else? While many believe that rents will simply increase to offset the costs, history shows a different approach.

Scotland banned tenant fees in 2012, and yet rents remained the same. Landlords may also fear having to take on the extra cost, which may indeed be the case at first. But with so many letting agents, as well as a plethora of online options, disgruntled landlords will look to take their business elsewhere in a competitive market.

The market might experience a few hiccups as it settles into the new regime, but letting agents know they need to compete with a growing industry – and to do so they can’t place an extra burden on landlords, who they rely on for business.

The Rise of Build-to-Rent

While letting agents maintain a stronghold on the sector, new avenues are emerging and providing tenants and landlords alike with greater choice. Online agents offer a “do it yourself” approach, allowing landlords to set their rental asking price, upload their own photos and manage the entire process. Build-to-Rent provides an all-in-one solution, making their tenants’ lives that much easier.

Neither online agents or Build-to-Rent managers charge for the majority of tenant fees, while the latter completely removes the equation of the landlord and sees a management company looking after every aspect of a tenancy. Just as our CEO, Gavriel Merkado, predicted in this previous article, traditional business approaches in the real estate market are being brought into the 21st-century.

Something to Think About for Developers

While the proposed Tenant Fees Act will not impact developers directly, its repercussions are still worth thinking about when building new residential developments. Many developers may feel that the Build-to-Rent approach is the best route to go – especially in major cities, where rental demand is at an all-time high.

As many developers also strike deals with letting agents to market their developments, it is not unreasonable for them to be keen on seeing how agents navigate the ban in tenant fees. Any deals made will be done so in the knowledge that agents will attract a high rate of landlords and tenants.

If developers see these agents making unreasonable demands in how they make up for the loss of income over admin fees, it may cause developers to look at other ways of marketing their developments. Everyone is looking at the letting agent to see how they react to the ban.

The Future of Lettings

How the market shapes up over the next few years might not be clear yet, but there is no doubting that tenants have become key players in the game. The Draft Bill of the Tenant Fees Act, online letting agents and the emergence of the Build-to-Rent market are giving the underdog tenant more options and a stronger hand in the rental market.

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