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Rents expected to rise as letting fees ban comes into effect

Monday, 29 July 2019  |  Admin

A government ban on letting fees has taken effect, with agencies no longer permitted to charge for setting up a tenancy, giving viewings, checking credit, drafting inventories, obtaining references and carrying out other administrative tasks.

Citizens Advice estimated that private renters have been paying £13m per month in agency fees, while landlord and tenant website Bunk believe it may be over £191m per annum.

In many cases tenants have to pay hundreds of pounds in non-refundable costs before they move into a property. There are reports of people being charged as much as £2,000 before taking up a tenancy. If they need to move and start all over again, this can quickly become unaffordable.

The Tenant Fees Act 2019

The new Tenant Fees Act 2019 means that agents who attempt to charge unfair fees will risk a fine of £5,000, rising to £30,000 for repeat offences, or even a criminal conviction.

The Act applies to all new and renewed tenancies on or after 1 June 2019 will include all existing tenancies from 1 June 2020.

The law states that tenancy deposits may not exceed the equivalent of five weeks’ rent, a holding deposit no more than one week’s rent and any tenancy charge to be no more than £50.

The effect on landlords

If agents ask landlords to make up the shortfall, it could cost them an estimated £83m in the first year alone. The Guardian reports that one north london letting agent has already started suggesting that landlords add £20 per month to rents. Letting agent body Arla Propertymark anticipates that rent will rise by over £100 per year to make up the shortfall.

Administration fees are also likely to be transferred to landlords, who will then seek to recoup the costs from tenants by way of increased rent.

The future for landlords

As lenders offer a range of competitive five-year fixed rate deals for landlords, now may be the time to recalculate the cost of property ownership and work out if rents need to increase to cover additional letting costs.

With other pressures such as increased Stamp Duty and the cut in tax relief on mortgage interest payments, landlords will need to do their sums carefully.

If some leave the sector, then this may improve competition for rental properties.

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