Understandably a lot of people think the ban is great news for tenants, protecting them from unnecessarily high costs. ‘Boo, hiss, bad agents’ is the cry.
Others think it will ultimately cost the tenant more as fees are passed from agent to landlord and back to tenant in the form of increased rent.
So who’s right? Time will tell and indeed there are still a number of grey areas such as – will all additional fees be banned? And when will the ban be introduced? These factors will heavily influence whether the ban is ultimately successful or not.
One thing we can be pretty sure of though is that until the ban is actually introduced the impact will be negligible. Then, assuming it has the same impact as it did in Scotland in 2012, we’ll see at least a year of no change as the market settles and everyone works out what to do.
During that year I suspect that most of the pain will be felt by agents – no I’m not expecting a great deal of sympathy for that one!
Tenant fees represent a varying amount of business for agents, I know of some for whom it’s just 5% of their total income and others where it’s up to 20%!
Now the prospect of losing 20% of your income overnight is pretty daunting for anyone. So early contingency planning and strategizing are essential.
Some agents will adapt, change and do very nicely, some may just about scrape by, some may find ‘creative’ solutions and some will inevitably go out of business.
Again, I’m not expecting much sympathy but agents don’t exist in a bubble and if an agent goes bust or gets too ‘creative’ then almost certainly landlord and tenant will also feel some pain.
Being ‘creative’ could just mean that staff are cut and stretched resulting in service quality issues, but it could also mean corners are cut in regards to legal compliance and property management. Plus where I always say it’s essential to thoroughly reference tenants, there may well be some who knowing they can’t charge for referencing, carry out this vital function in-house.
Having seen the quality of fake documents (bank statement etc) that are being produced nowadays, I think this is a huge risk.
After that year though, if we follow the same path as Scotland, fees will start being passed to landlords and rents will increase.
The graph below shows the period immediately following the Scottish ban on fees, and covers the period Q4 2012 to Q3 2016.
During this time rents in London increased by 10.6%, as you’d expect that’s much higher than anywhere else in England but strangely is nearly 50% less than the increase in Scotland, where rents rose an impressive 15.3%. Is the timing with the ban on fees a coincidence? Is the rise really just a sign of a thriving economy?
Some say that the ban is still a long way off and may take 12-18 months to materialise but as the average tenancy lasts around 2 years, chances are the next agent you use will be the one you have when the pain starts to hit. It may be worth asking now, how they plan to weather the storm.
