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Brief Overview

Most of the debate you hear about is of course from the T & G team; as their points are quite simple in that if they ban fees it will be cheaper to move, I see little point in going over them here. Under the current free market system, agents typically charge for applying for a property, then various fees for checking in and out, inventories, renewals etc.

Now you will probably have heard people cry "Fees have been banned in Scotland and there were no rent rises"

Scotland Banned Fees and Rent's didn't rise! - Really?

You will hear that fees were banned in Scotland in 2012 and that rents didn't rise. Well as always the truth is not as it seems. The UK government looked at rents since 2012 until 2016 and saw no rise. This is not surprising because letting fees were actually banned in 1984 and the damage was done then; the law was merely adjusted in 2012 so the statement is completely untrue and irrelevant.

Application / Reference Fee Ban

At the time of writing, potential tenants pay the agent to complete a reference on them. The T & G argument is that the landlord or agent should pay. The problem is with this is that despite what socialists will tell you, you get a lot of applicants who deliberately lie or are evasive on their forms. All agents will tell you this so there is no point denying it.

"If tenants aren't squeaky clean and have good jobs, they will be homeless or living in lesser quality areas"

When you consider that on average there are 5 tenants wishing to take each available property, if you were the agent and had to invest your own money into the tenant in order to reference them, you will of course conduct a pre-reference type interview and rule out all but the wealthiest, best employed, no benefits and no credit card or loan families and no pets!.

How will it be any different? else you will have tenants walking around and "applying" for every house they view, because to them it is just filling out a form and to the agent or landlord it will cost a reasonable amount of money. The agent is not going to gamble £50 in referencing and many hours of work for any tenant that walks through the door are they? Of course not, they will just pick and choose the lowest risk on the face of it and everyone else will be left out in the street.

Other Fees - Check In, Inventory, Utility Transfers etc

Most agents provide a complete "rent and forget" service. This means that you pay the check in fee and move in. The agent will transfer the utilities into your name, open accounts, check you in against the inventory (which is often third party produced, bound and includes a DVD etc). Updating four utility providers is most people's worst nightmare due to the time wasted, so these fees are often split between the landlord and the tenant as it is equally in both their interests. Now what? the agents will mostly say - do it yourself and if you do not it will be in your contract that they will charge you a big penalty for not doing it.

In future, if it is the landlord that pays all fees then the level of service the tenant can expect will diminish rapidly. It is not right that the landlord pays all the fees and the tenant receives the benefit. What will actually happen is the service level will be cut, it will be more of a fire and forget "check yourself in" mentality.

Ask any agent and they will tell you how time consuming many tenants are, whether its asking questions they should know, changing their minds and causing re-prints of documents, breaking things, saying that things don't work when actually they just didn't read the instructions etc - how will this time be funded? Yes you guessed it - it's all coming back to the landlord, or it will be just ignored? What about tenants wanting to add another person to the tenancy? well the tenant cannot be charged for the reference for his girlfriend lets say else the agent will be committing an offence under the draft legislation! and the landlord sure as hell is not going to pay to check on your girlfriend, so now what? tenants will be lucky if the landlord or agent even wants to discuss it, because it is pure cost for them and pure benefit for the tenant.

Remember, without a fee or in legal terms 'consideration' paid by a tenant to an agent, the agent owes you nothing!. If they want to swap tenant because a better ones comes along, then bye bye, no consideration, no contract period.

Will rents rise?

This is borderline a silly question - of course they will and at a faster rate than ever before. In fact they have started already as landlords have been selling off Buy To Let investments to consolidate mortgages. Once the fees hit home, you will have a new generation of landlords with little or no mortgages who will be able to sit and wait for both the lowest risk tenants without fear or having to pay a mortgage. When interest rates are low, there is no rush to let out your assets and most wealthy landlords will always wait for the right tenant over risking a poor quality one for the sake of a short void period.

"Who in their right mind would say rents won't rise!

The huge pressures on landlords will be nothing but upward, more than ever before. There is no desire for landlords to buy more houses to rent out thanks to the stamp duty and the costs for owning a BTL have soared, so common sense says if there are less investor landlords, less new landlords, more landlord costs, less property and more tenants then who in their right mind would say that rents will drop or even stay the same?

Cap on deposits

This is another horribly thought out piece of legislation. The average rental deposit is 1.5x the monthly rent. ten years ago it was just 1x but has slowly increased over the years inline with more rights assigned to tenants. It is again common sense that if it takes on average six months to evict a tenant then the losses will mount. If the government had not installed so many rights stacked clearly in favour of the tenant then the deposit would be less important.

"If you have a pet, you will find it near impossible to move"

The basic makeup is 1 month for missed rent and 0.5 months as a dilapidation provision, with another 0.5 months if you have a pet. So what will the effect of restricting deposits to 1 month be? Obviously if you have a pet you will be in big trouble finding a new home. It is difficult enough now, but in the near future you can forget it. You have been warned!

The deposit issue will mean that there is no real provision for dilapidation's, so this leads back to the damaging effect that no referencing fees will have and that agent will only favour the highest quality tenants. If as a landlord you cannot take a high deposit what can you do? ask for a rental supplement!

Summary

Sadly, the proposed letting fee ban will not improve being a tenant; in fact it will make it a more uncomfortable existence for tenants. Every time the government meddles with a free market it backfires and usually very badly. I am not an advocate of the rip-off letting fees that you often see in big cities, but the fees developed for a reason, they are important and most are reasonable. It is of course ironic that 40 percent of any fees are actually VAT and corporation tax! and if the government is genuinely trying to help the housing market and not a voter pleaser, then what about mortgage application fees?

"The future is not bright for tenants"

The work involved with managing a property is usually a two way street, some landlords are bad and so are some tenants, so the duty is currently to both. Tenants should start preparing now for a different letting environment and get their financial affairs in order - the market is about to change for them and not for the better thanks to some more ill-thought-out legislation.

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