Rent rise from agents fees not necessarily true

The Chancellor’s announcement of a ban on letting agents charging fees to tenants marks a significant shift in the industry – but should not come as a surprise.

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With the Renters Rights Bill currently passing through the House of Lords and the #MakeRentingFair campaign gaining national press coverage and substantial popular support, it seems the Government have taken note of the millions of private renters in the UK raising their concerns.

Critics of a proposed ban on tenant fees have consistently put forward the argument that a ban is merely a “short term fix” that will ultimately backfire by resulting in the banned fees being passed on to tenants by way of rent rises.

However, after running some figures, we believe this may not necessarily be true.

We calculated the potential loss in return on investment for landlords if letting agents did indeed pass on the costs of the fees ban in the form of higher charges for landlords (see Table 1 below).

Taking the average UK rent of £902 per month, the average rental yield for the last year of 5.00%, and the average tenant fees of roughly £300, landlords could face just £25 extra per month in fees.

Table 1:

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This equates to a loss in returns of just 0.14% compared to the existing system (based on UK averages) – a figure that the majority of UK landlords will be able to absorb without significant financial loss.

Many landlords value the comprehensive service that traditional High Street letting agents offer as it allows them to take a hands-off approach to renting their properties.

These landlords value convenience over cost, and will not be significantly deterred by such a small increase in letting agent charges. At the end of the day, good, hard-working, effective letting agents will still be able to justify their fees.

While there will still be a place for the traditional letting agent, another result of the ban will likely be an increase in the number of cost-conscious private landlords taking a DIY approach to renting their properties.

Landlords whose main priority is saving money will be deterred by a potential fees increase, and will increasingly explore alternatives to the High Street where they can save money by doing more of the work themselves.

This is great news for free-to-list DIY platforms such as our own and I believe we will begin to see the establishment of 2 distinct groups of landlords – on one hand the cost-conscious private landlord, and on the other hand the time-short professional landlord.

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