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Banning Tenant Fees: The Impact on the Rental Market

Residential Investor

Tenants have been made to feel somewhat of an afterthought in the rental process ever since the lettings boom of the early 1980s. The business of the UK residential lettings market starts with landlords, who own the “stock” (i.e. the bricks and mortar) letting agents desire. 

Combine the need to let rental properties with an already overcrowded market of tenants (especially in London), and you can start to see why these tenants have become secondary: demand far outweighs supply.

However, everything is about to change with the Draft Bill of the Tenant Fees Act, which sees letting agents no longer able to charge admin fees to tenants. The result will see renters potentially save thousands of pounds – a triumphant win for tenants throughout the UK.

But how does it affect the wider landscape of the lettings industry in the UK?  

Charges No More

Before the Tenant Fees Act’s Draft Bill was passed in the House of Commons, letting agents were able to charge tenants for admin fees, credit checks, referencing, guarantors, inventories, cleaning, gardening services, renewals and even exit fees. 

Renters were culpable of paying around £350 for admin charges, up to £100 on referencing, and £50-plus on a guarantor (if needed). By this point, all the tenant would have done is  indicate that they want to rent the property.

With 4.7-million people privately renting in the UK, such fees placed too much of a burden on the tenant, pretty much ending any hope of tenants saving for a home. 

Thanks to the new legislation, agents can no longer charge for fees. It also stipulates that holding deposits are capped at one week, while deposits are also capped to five weeks. The result should see tenants having more flexibility when looking for somewhere to live, safe in the knowledge that their pockets won’t be quite so empty before they have even moved in. 

Impact on Agents

If renters are going to reap the rewards of the Tenants Fees Act, saving plenty of money in the process, surely things need to even themselves out somehow and the cost of the fees will be passed on somewhere else? While many believe that rents will simply increase to offset the costs, history shows a different approach. 

Scotland banned tenant fees in 2012, and yet rents remained the same. Landlords may also fear having to take on the extra cost, which may indeed be the case at first. But with so many letting agents, as well as a plethora of online options, disgruntled landlords will look to take their business elsewhere in a competitive market. 

The market might experience a few hiccups as it settles into the new regime, but letting agents know they need to compete with a growing industry – and to do so they can’t place an extra burden on landlords, who they rely on for business. 

The Rise of Build-to-Rent

While letting agents maintain a stronghold on the sector, new avenues are emerging and providing tenants and landlords alike with greater choice. Online agents offer a “do it yourself” approach, allowing landlords to set their rental asking price, upload their own photos and manage the entire process. Build-to-Rentprovides an all-in-one solution, making their tenants’ lives that much easier. 

Neither online agents or Build-to-Rent managers charge for the majority of tenant fees, while the latter completely removes the equation of the landlord and sees a management company looking after every aspect of a tenancy. Just as our CEO, Gavriel Merkado, predicted inthis previous article, traditional business approaches in the real estate market are being brought into the 21st-century.

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About Simon Banks

Simon Banks

Simon has been writing words professionally for six years, with a focus on the UK property market. Other scribblings include the finance, marketing, sports and artificial intelligence sectors. He is also a lover of food, but would rather eat than write about culinary delights.

Articles by Simon Banks

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