22 Jun 2017

In the 2016 Autumn Statement, the Chancellor announced an intention to introduce a ban on letting agents charging fees to tenants. The consultation period closed on 2 June 2017 and the Queen's Speech has confirmed the Government's intention that the ban will form part of their legislative programme, currently packaged as "the Tenants' Fees Bill". Despite the Conservatives not controlling a commanding majority in the House of Commons it is a change which appears highly likely to progress into law as there is no evidence from any of the parties manifestos that this position will be opposed by them.

In light of this and given that this is the third legislative change to the residential rental market in recent times (the other two changes affecting SDLT and mortgage interest rate relief), investors could understandably be concerned as to the impact on the Private Rented Sector (PRS).

It is widely acknowledged that letting fees reflect real work that is undertaken. If the ban goes ahead, then the cost of conducting the work involved will have to be charged elsewhere – most likely to the landlords themselves. In most cases, landlords already carry the burden of some of the costs involved. Many landlords will now be faced with the choice of bearing all of the cost themselves or trying to claw some or all of it back via higher rents.

A rise in rents is by no means inevitable. Other countries such as Germany and Scotland have already banned letting fees, but studies into the consequential effects on rent increase have been ambiguous. If landlords do choose to increase rents, then this could alter the current trend in lease term lengths, with tenants recognising the economic benefits of moving more frequently to take advantage of the lack of upfront fees involved.

The full impact of this proposed Bill on the sector will only be seen in time, but with studies projecting that the ban will result in landlords seeing a decrease in income, letting agents losing a similar amount in turnover, and tenants compensating for these losses by paying increased rents, the ban could potentially affect all parties involved in the PRS. Investors who can run their tenant checking function "in-house" and have that overhead factored into their business model may now be at something of a competitive advantage.