The tenant fees ban will cost agents anywhere between £1bn and £4bn over the first ten years, the Government has said.
In its impact statement released at the same time as the Tenant Fees Bill was introduced to Parliament, it said that in the first year alone of the ban, the cost to landlords will be £82.9m, and to letting agents £157.1m, excluding familiarisation, or transition costs.
However, the cost to agents in that first year could be as high £273.9m, or as low as £76.8m – again, without transition costs.
It acknowledges: “There is a potential negative effect on the closure of letting agents and employment losses, and on third party suppliers to letting agents such as inventory suppliers.
“However, if it is the most inefficient agents that leave the market, then in turn market efficiency would improve.”
The impact assessment states: “We are not able to reliably forecast the loss of employment from the ban on tenant fees.”
However, it estimates there are 16,000 letting agent branches in England, employing an average of 3.6people and managing 200 properties.
The impact assessment also acknowledges that letting agents will make up some of their lost income by passing more costs over to landlords.
The paper states: “We expect that landlords using letting agents will see their fees rise by an amount equivalent to 50% of what their letting agent was charging their tenant.
“This is in line with a report from Capital Economics prepared for ARLA Propertymark, which argued that the pass-through rate is likely to be 50-100%.”
In a separate paper released yesterday, the Government has rejected a recommendation that tenants’ deposits should be capped at the equivalent of five weeks’ rent.
Instead, a deposit equal to six week’s rent will be the upper limit and is part of the Tenant Fees Bill introduced into Parliament yesterday.
At the same time as the Bill appeared, the Government published both its impact assessment, and its response to the Housing, Communities and Select Committee, which scrutinised the draft Tenant Fees Bill.
The Government accepted most of the Select Committee’s recommendations, including one a designed to prevent agents from inflating the first month’s rent as a means of circumventing the ban on fees charged to tenants.
The paper makes clear that the fees ban will be rigorously enforced, with one trading standards body in England being appointed as the lead enforcer. One industry figure told EYE: “This sounds like regulation of the industry through the back door.”
Agents who charge illegal fees will be fined £5,000 for a first offence, but if another breach is committed within five years, it will be a criminal offence.
It will also not be possible to claim possession of a property unless the prohibited fees have been paid back. Tenants will be able to recover prohibited fees through the First-Tier Tribunal.
The paper speaks volumes about the level of distrust that exists between the Government and the lettings
For example, the paper says that the ban will prohibit all fees “except those explicitly permitted”.
It says: “We believe that this approach, as opposed to listing all fees that are banned, will prevent letting agents from creating new types of fees in order to circumvent the legislation.”
In order to prevent the first month’s rent being inflated, a varied level of rent can only be charged in the unlikely event of being agreed with the tenant after the tenancy has been entered into.
One of the Select Committee’s recommendations – that landlords could retain a holding deposit if the tenant knowingly provided false information, but only retain the cost of a reference check if the misinformation was not knowingly provided – clearly caused a headache.
The recommendation was rejected.
However, the Ministry of Housing will provide guidance to clarify when a holding deposit can be retained.
In addition, the original clause that would have imposed a criminal penalty for unlawfully withholding a holding deposit has been dropped. A breach will now be punishable only by a civil penalty of up to £5,000.
The Government’s response said it would also issue guidance on default fees.
The official response also gives a boost for the burgeoning deposit replacement sector.
The Select Committee had suggested that the Government should assess the merits of alternatives to traditional deposits.
The response says that the Government will do exactly this, and report back within six months.
David Cox, managing director of ARLA Propertymark, said: “We do not believe the Bill will achieve its aims, as our own research last year demonstrated that tenants will end up worse off and banning fees will not result in a more affordable private rented sector.
“[However] now that we have greater clarity on what the ban will entail, agents must start preparing for when it comes into force.”
The full response document is here:
The impact assessment is at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/704295/Tenant_Fees_Bill_Impact_Assessment.pdf
Again the Government seem determined to hit the poorest tenants. Most landlords ask for 5-6 weeks rent as a deposit. If they have consider taking on a high risk tenant a higher deposit might be requested to take account of the risk. A bit like insurers charging higher premiums for high risk events. This policy will affect those high risk tenants possibly pet owners in some case. It seems the current government work to the “Windrush Standards” ie no common sense and often demonstrating gross incompetence. All we see is knee jerk reactions at every stage.
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What are the penalties for charging a higher deposit and will they provide guidance on how to calculate 6 weeks rent as a deposit?
How would you calculate 6 weeks rent as a deposit if the rent was £1000pcm?
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Total Deposit equals monthly rent times 12 (months in a year) divided by 52 (weeks in a year) times by 6 weeks
or
Deposit = monthly rent * 1.38462
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Sure about that?
£1000 x 12 months / 365 days x 42 days = £1380.82
But what if it is a leap year! divide by 366 days and you get £1377.05
Based on either of these calculations, you have beached the six week deposit requirment.
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Rent = £1,000 for 4 weeks. 1000/2 = 500 so surely the deposit would be £1,500? My rents are per calendar month so that’s how I work it out, and my deposits are 1.5 months rent.
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1.5 months does not equal 6 weeks.
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I believe it is common to recognise that there are 365 days in a year, when in fact their are 365.25 or thereabouts, hence every four years we have a leap year.
As a calender month varies in its number of days one cannot assume their are four weeks, therefore to calculate 6 weeks rent is exactly as Anonymous Coward said (£1000*12)/52*6=£1,384.62
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“therefore to calculate 6 weeks rent is exactly as Anonymous Coward said (£1000*12)/52*6=£1,384.62”
This would seem the obvious way to calculate, but, as I hate ambiguity, I will be calculating it on a daily basis, as one does when working out a pro-rata rental payment, and then round down as I can’t be faffing about pennies. This will ensure I do not inadvertently exceed six weeks rent as a deposit.
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It would have been much more sensible to allow 1.5 months rent as most rents are charged PCM .. easier to calculate all round, fewer ‘pennies’
But government – sensible? ha!
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This notion of the government and shelter to cleanse the industry through the tenant fee ban will do nothing of the sort. Some agents will now either fold, or decide to knock it on the head, but these shady agents everyone is worried about will find new ways of ******** money from tenants.
Our industry does not need new red tape, the consumer does not need extra protection…what is needed is current legislation enforcing. If local councils/trading standards or whoever cant do the simplest of thing and enforce/punish agents who dont display lettings fees in their window, how the hell are they going to clamp down on this, a far more complicated issue?
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We have LLs that have said if fees to them go up, they will manage themselves and freely admit they don’t know all the latest requirements…but who’s gonna find/prosecute them -they don’t appear on any registers or list anywhere, unlike us agents with redress scheme memberships, ICO data controller, CMP etc.
Individual LLs are all gonna go under the radar with standards driven down.
I met a LL the other day (he came to my offices to collect keys for a property of another LL of mine that needs a renovation job and didn’t like my prices, so was getting his mate to do it ‘on the cheap’ and it was that ‘mate’ who mentioned he had five properties) who had a tenant owe him three months arrears so he went round and physically threw him out. He knew that wasn’t the way you’re supposed to go about evictions, but couldn’t stand the three months arrears. He was enquiring how much we charge for management because he ‘might go straight’ from now on. He won’t…not when he knows agent fees are going up.
Unbelievable!
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It takes 2 to Tango
Whatever regulation, fee bans and laws are brought in, there will always be dodgy Landlords and so called agents. There will also be tenants wanting and needing to use these accommodation providers knowingly.
Now there is a sector that needs attention, bans, fines and closing down. It would also get the backing from 99.9% of all decent people. Politicians please listen to the industry explaining what we need, rather than what you think we need
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So if a prospective tenant lies to us about something that comes up in the referencing process and the application is rejected we can’ charge them the cost and we have to stand the cost ?
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HIPS, TENANCY DEPOSIT LEGISLATION, PMA and now fees ban to name a few. All I’ll conceived and executed. The incompetence of the politico’s is breathtaking. As. Result, renting a home becomes more expensive, hitting hardest those who can least afford it.
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Rents in my area have risen by 20% in anticipation of the ban.
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Yesterday PIE report £240m loss of revenue to agents which was a childish estimate!
Today its £1-4bn!
1-4!! Good estimate…
Good news for tenants who won’t feel the impact of this revenue loss to agents at all and, of course, there won’t be many job losses and no businesses will go under!
As I said yesterday politicians are cupid stunts!!
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PS.
Well done ARLA!!
Great retort!!
What is the point of you?
Pathetic!!
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Well done to the government!
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This still leaves pet owners down sh1t creek as we always add on an extra 2 weeks rent to the deposit, totalling 8 weeks. The only way round looks like pet owners paying higher rent every month, every year instead of a one off deposit payment.
Hang on a minute, isn’t that the effect the fee ban will have also? Govt are consistent at least.
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What this will mean is an explosion in guarantors, so that you can go after a real home owner with some real skin in the game!
It’s the only viable solution. Other than an insurance policy which I understand but cannot believe will work. It sounds like a great idea, but once the insurance companies realise that a lot of tenants will leave it to the insurance company to deal with and walk off into the sunset, the premiums will skyrocket!
I think that the big losers here will be “problem” tenants – not the awful horrible ones mind, but the ones that don’t fit neatly into the standard referencing niches.
Pets? I used to take 3 months deposit, because it was never just one thing ruined, it was always everything and even three months worth of money didn’t cover it.
Happy family with too many kids that are young – felt tip marks everywhere!!! Two months, because it made sure the house came back with a good lick of paint, not just silly patch jobs which always need redoing.
Restaurant/ bar workers who receive tips – you know, the ones you make friends with on a Friday night after work at the local pub. You absolutely know they are good for the money, but you know that they will not quite manage the normal referencing process.
People on “top up” housing benefit – really hard working couples living in an area where two times the minimum wage really just doesn’t cut it so they can apply for additional money from the local authority. They usually do jobs that many would consider beneath them and are therefore a vital part of the community.
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Interesting AC. Is a guarantor a tenant? No. Guarantors fee’s anyone?!
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Limit of 6 weeks rent as deposit will STOP a lot of tenants finding property where Pets will be allowed. ….
And, because its Law, it has actually Taken the choice away from them of offering to pay more to be allowed a pet, because Landlord won’t legally be allowed to accept it.
Is nobody in Government going to learn Newton’s 3rd Law, – ” For every action, there is an equal and Opposite reaction. ”
They should stop focusing on incessantly Tinkering with PRS and build more social rented accommodation. When that’s available, there will be market competition that will force behaviour between PRS and Social Housing to compete ( bring it on, I say )
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£50 for a tenancy swap. They must be crazy! A tenancy swap is around 3 hours work over a period of a week and a huge amount of aggravation, so £50 doesn’t cut it and I cant see the landlord wanting to pick up the additional costs. I believe this will ultimately leave the tenant in a less flexible place when it comes to changes and requests. Tenancy swaps will be denied making tenants lives harder as they’ll need to move out.
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Its the good old sausage squeeze one end and the other gets fatter.. The loss of tenants fees means the landlord pays higher agents fees who in turn passes it back to the tenant in monthly instalments by way of a higher rent
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>Its the good old sausage squeeze one end and the other gets fatter
That’s what I was thinking. On the whole though there is a benefit in that Agents can’t overcharge and double charge because things will be theoretically a lot more transparent.
The fact that the government think this will cost agents a fortune suggests there is a lot of it going on. It sounds like they don’t think it will be a simple matter of passing the fees onto landlords who are probably a bit more savvy than tenants.
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I suppose technically you could argue that I double charge. Except I make it perfectly clear to both Landlord and tenant that they are BOTH contributing towards the administration and inventory costs. The Tenant then pays for their referencing, with a bit of profit in there too, and the Landlord pays for the advertising and board etc, again, with a bit of profit.
Technically double-charging to some…
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Theoretically speaking with charges levelled at just the Landlord, any double charging and overcharging should be easier to spot and things should get more competitive due to the higher degree of transparancy.
I have no experience personally because even when I briefly used an Agent I didn’t look too closely at what I was being charged. However a search on Google for “double charging” and “letting agent” finds an article where Citizens Advice are very critical of Letting Agents.
See https://www.telegraph.co.uk/finance/personalfinance/investing/5361173/Buy-to-let-landlords-ripped-off-by-agents-double-charging.html
“Private tenants are routinely being ripped off by letting agents who impose unjustified and excessive charges on them, the report from Citizens Advice, the charity, said. It uncovered considerable scope for double charging tenants and landlords for the same service.”
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Oh, some are disgraceful! One in my area charges over £500 to do what I do for £200. And I think once I’ve taken VAT and costs off that there is maybe £20-£30 profit in it. We could charge more, but it’s not fair so we don’t. Some in my area though charge the landlords pennies just to list their property, knowing that they will fleece the tenant.
It’s why I have always been in favour of some sort of regulation, or a fee cap, but never a ban. I think it is short-sighted and naïve.
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The tenants that are going to loose out are the poor ones, just the ones they say they are supposed to be protecting. Any agent who takes on a DSS with no guarantor is jumping into the fire and most cannot afford 6 weeks deposit. Without the costs being covered for referencing it is a joke expecting landlords to pay for all the false and dodgy applications that will flow. Rents will rise and tenants will end up paying more … so much for helping the needy. It is a joke for a responsible government to acknowledge it will cost many jobs and £4bn. The real danger is if CORBYN gets in, for they have said they will impose further draconian measures on landlords and agents. Without doubt the political agenda on lettings is nothing less than scandalous and misuse of privileged position by MP’s.
Where does the government hope to house all these DSS that are going to be refused? At least with working people you can chase them for costs etc if they misbehave.
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They wont at first. The councils will tell tenants to stay in the property until a warrant of possession id in place. So you have two months for a S21 to run, then you will have to go to court which will take 2-3 months, then wait for a Bailiff to visit the property. So a tenant can in theory stay in the property for 4-5 months after the OWNER tells them they want it back, potentially not paying rent during this time. And if you miss anything off the paperwork you will need to start again.
So by the time it reaches crisis point there will be a new housing minister who will have yet another hare-brained scheme to fix a problem that they created in the first place by not listening to the people who actually know what they are talking about!
And with landlords losing their tax benefit, there will be more repossessions, which coupled with ex BTL properties flooding the market will drive prices through the floor and cause another housing crash with people up to their eyebrows in mortgage debt but unable to sell.
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>Where does the government hope to house all these DSS that are going to be refused?
I wonder if there’s scope within the law for a fourth trusted independent party, where applicants/guarantors can get themselves pre-vetted for a reasonable fee and landlords use this as a pre-requisite.
You can see where the Government are coming from though if what Citizens Advice found is true “fees for checking references ranging from £10 to £275, while the charge for renewing a tenancy ranged from £12 to £20.”
If there are billions to be saved then it’s hard to imagine it will only be the wealthy tenants who benefit. If there are problems caused by the new policy then the Government will have to do something about them too along with all the other things on their plate.
In the end landlords may just have to vet tenants themselves and take a few calculated risks if it becomes too costly to pay an agent. I already do my own vetting and take a few risks. Or just get out of the game if you don’t have the time.
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But then you have the same issue as HIPs did. Is the Landlord going to accept a check done by someone he does not know of or trust. The banks refused to accept surveys done by the seller on the basis that they would be biased.
I’ve just had a tenant where I was not convinced of their suitability for the property, based on the referencing. If these reference companies acted for the tenant then the issues may not have been flagged. As it was, I did some digging and got the full story, no worries. But that only works becaue the referencing company answers to me, and I answer to the Landlord. Plus, I’m the one that has to deal with the headaches of bad tenants…
Again, reasons why a Cap was a better idea than a Ban.
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The point is being missed. The tenant having to pay a fee for referencing, that they will loose if they are bad eggs, was a sure way of weeding out the many bad eggs and saved a lot of everyone’s time at the early stage of marketing. Third party referencing is hit and miss and always has been. Doing your own is best and lettings experience is a must. The cost of getting it wrong runs into the £thousands and 6 weeks deposit is another joke as well all know.
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