Dec

Will a ban on letting fees mean landlord ditch agents?

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Ban on Agent’s Fees:

There are two lines of argument here: landlords are already reeling from the government’s tax measures, stricter buy-to-let mortgage criteria, and increased regulation of the private rented sector (PRS). Will the added burden of letting fees – at least that element passed on from agents to landlords – be enough to persuade more landlords to manage their own tenancies?

On the one hand the additional complication of a more regulated PRS is persuading some landlords to rely on agents more than ever. On the other, if letting agents are going to pass on more of their costs to landlords, due not only their inability to pass on fees, but also the additional administration work they now need to do, some landlords might find they have no choice but to be self-managing.

According to one recent survey carried out by mortgage provider Paragon Bank PLC, almost a third of landlords may have to stop using letting agents.

Paragon’s recent report on Private Rented Sector Trends shows there is concern among the landlord community that any ban on agent’s fees to tenants (which the government has committed to impose) would result in an increase in agent’s costs being passed on to landlords.

According to Paragon’s research, around 73% of landlords regularly use letting agents to manage their properties; and 30% of landlords questioned say they would have second thoughts about continuing if their agent’s fees increase.

No date has yet been set for the ban on fees, but the government has recently re-iterated its commitment to such a ban, and it is widely expected next year.

John Heron, Paragon’s managing director of mortgages, says:

“In the midst of ongoing turbulence in the private rented sector, landlords have already had to navigate through challenging policy changes, and rethink their strategies accordingly.

“An increase in landlord costs as a result of a ban on tenant fees would be the latest in a succession of challenges and it is unsurprising to learn that a substantial number of landlords might consider altering their approach to letting out their properties in that circumstance.”

The Paragon survey was based on interviews with a panel of over 200 experienced landlords.

Key Points highlighted in the Survey:

30% of those landlords quested may be discouraged from using a letting agent if landlord fees increase
More than eight out of ten landlords who let direct do not charge any tenant fees
68% of landlords believe up to two month’s rent is a reasonable cap for rental deposits
The majority of landlords (46% – 16% ‘definitely’, 30% ‘probably’) who use an agent or third party said they would not be discouraged from doing so.
27% of landlords do not use an agent or third party to let any of their properties. Of those, more than eight out of ten (84%) do not charge any tenant fees, whilst just 16% do.
The most common fees charged by landlords when letting a property without the involvement of an agent or third party are: credit check (60% of landlords), inventory (55%), referencing (54%) and tenancy agreement (42%), with 33% of landlords charging for other, unspecified fees.
A reasonable cap on rental deposits – 68% of landlords said up to two month’s rent was reasonable. Of those, almost half (46%) said two months, with 22% indicating one month. 14% of landlords said three months was reasonable, whilst just 7% of landlords believe rental deposits should not be capped at all.

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