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Commercial Finance

The banning of letting fees: what happens next?

The Government has announced firm plans to ban letting fees being passed to those renting a property. A date is yet to be set but it’s expected sooner rather than later.

The finer details haven’t been confirmed either, so there is much speculation regarding who will now absorb these costs. Will it be letting agents, landlords or even, indirectly, still tenants?

At present, tenants can be charged various administration fees, such as reference, credit and immigration checks. They may also have to pay a fee for the agent to draw up the agreement, as well as a holding deposit which in some cases is non-refundable. As a result, it’s become costly for tenants to even get in the door of their rented home and that’s what the Government is aiming to redress. 

The average costs that renters using a letting agency need to pay upfront are more than £1,000 nationally and over £2,000 in London, according to a leading housing charity, so it’s no surprise then tenants have welcomed the ban.

It’s rumoured that it will be landlords or letting agents that will now have to cover the cost, with a concern being that if landlords have to pay it, they will simply increase rents to make the money back. That said, rent is predominantly governed by the market, this would seem unlikely. 

In Scotland, where there is already a ban on letting fees, it’s the agencies that are believed to have truly picked up the cost, which suggests that the UK will have a similar outcome.

Essentially, letting agents need to remain competitive and they can’t be if they are passing on fees to landlords. Buy-to-let investors have already had their profits hit by changes to stamp duty and mortgage tax relief, so in order not to lose more profit here they will either shop around for the cheapest agent or even remove the use of agencies completely and find and vet their own tenants.  

We’ll certainly be keeping an eye on the market once the ban in enforced to see what effect this really has on agents, landlords and tenants.

Find out more about our buy-to-let mortgages.

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