Will tenant fee ban lead to rent increases?

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When it comes to changes in the letting industry, it is only natural that people instinctively think of what it will mean to their finances. Landlords and letting agents want to know if they will lose out on money and tenants are keen to see if they will be charged more for their rent. This is why the introduction of a ban on tenant fees is of considerable interest, and many people in or around the industry have been asking whether this tenant fee ban will lead to rent increases.

At the beginning of November 2017, it was announced that the majority of the fees imposed on tenants by landlords and letting agents will be banned. Some of these fees include inventory checks and the cost of referencing, which have been barriers to some tenants and a cause of consternation for many others.

Matters that landlords can still charge for (over and above rent) include:

  • Security deposits, which will be capped at a level of six weeks’ worth of rent
  • Holding deposits, which will be capped at a level of one weeks’ worth of rent
  • Tenant default charges

Some sources believe that these changes will lower the amount of tenants who look privately for rental accommodation. The ban on these fees takes away a barrier that many people had for looking through an estate agent. With this removed, many tenants will find that there are more benefits in renting through a professional letting agent.

If this occurs, there will be a boost for professional letting agents while some private landlords may find a decrease in demand for their services.

There may be an increase in demand for property management services

It is also likely that the removal of these fees will increase the need for property management services. If tenants have more choice, they are likely to be more selective in the property they choose which means the property will have to be in a great condition and that tenants will expect a better level of service.

Many everyday landlords may not be able to provide the level of service expected of them, which means that many of them will turn to a property management service provider to assist them reach out to tenants.

Tenants fees were banned in Scotland and there was a notable impact

Anyone looking for precedence in this matter should note that tenant fees have already been banned in Scotland. In the 12 months following the tenant fee ban, rents in Scotland increased by 4.2% while in the same time frame, rents in England fell by 0.7%. If this trend is followed in England, rents are likely to increase.

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There is no denying that if a professional is denied income from one source, they may try to obtain income from a different source, or make savings. With respect to the rental market, it makes sense that the banning of tenants fees will see some landlords increase rents while others may try and reduce inventory costs or cut back on repair costs.

In the long run, these savings may prove to cost more but in the short term, it is likely that there will be many approaches to the situation. It should be remembered that many tenants are at the ceiling of what they can afford to pay. This means a landlord may find that increasing rents actually costs them custom, so many landlords will do their best to consume the charges and look to offer other benefits or services to minimise the impact on their business.

As with many things in the lettings or property market, it is not possible to predict what is going to happen. With this in mind, it is best to wait and see how the market pans out.

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