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The ban on upfront fees to tenants: eight things for landlords to consider

Posted on 2016-12-23

Philip Hammond’s decision to ban upfront fees charged to tenants certainly took most in the property industry by surprise as, up until now, the Government had seemed to be against the idea of a ban. However, now the decision on the proposed ban has been made, it’s time for landlords, letting agents and tenants to take stock of what's to come.

Many landlords have started to think about how the impending ban on upfront fees to tenants could affect them going forward. That’s why we’ve put together a run-down of eight factors private landlords should consider.

1. A lengthy consultation period
It's widely expected that an official consultation period will be launched soon. This will give the opportunity for industry bodies, like the National Landlords Association (NLA) and the Residential Landlords Association (RLA), to contribute towards the debate and the proposed solution. Landlords themselves will also be given the opportunity to respond to the official consultation. It'll be interesting to see how the consultation's structured and it should give away a few clues as to how the Government's planning to implement the ban in a practical sense. It's likely that the consultation period could take time.

2. Think about the full service
Many commentators are predicting that costs might be passed to landlords, but this is obviously yet to be seen and, in the event that you do have to pay slightly more to your letting agent, it's important to evaluate what exactly you're receiving for your money. With increasing legislation and responsibilities for landlords, a professional letting agent can provide a high level of reassurance and peace of mind.  

3. Shop around
If costs for services from letting agents go up you could consider getting some quotes from a few local competitors, to see what's available.  

4. Choosing the right tenants is more crucial than ever
When a ban on upfront fees to tenants is eventually introduced, it'll be more important than ever that landlords choose the right tenants to occupy their rental properties. In theory, there'll be less financial pressure or obligation on prospective tenants, meaning there could be more scope for tenants that may not actually be suitable for the property they're signing up for. Using thorough and reliable referencing will help you to filter prospective tenants effectively.

5. Could you go it alone? (costs vs. stress & time) 
It can sometimes be easy to forget that not all landlords employ letting agents to manage their portfolios or find tenants. In fact, recent research by the Council of Mortgage Lenders revealed that over a third of landlords have never used a letting agent before. The ban on upfront fees to tenants - and the subsequent prospect of higher letting agency charges – could mean that some landlords might consider 'going it alone' and letting directly to tenants. This may be a viable option for those landlords with more time, experience and small portfolios. One of the biggest considerations though, will be weighing up any additional costs versus the access to all the benefits a good letting agent offers when looking for prospective tenants or managing your property.

6. Raising rents for new tenancies – yes or no?
As expected, after the announcement of the proposed ban on fees there have been several reports claiming that landlords will increase rents in order to cover any additional fees levied by letting agents. "Adding to landlords’ costs, on top of restricting their ability to deduct their business costs from their taxable income, will only push more towards increasing rents" said Richard Lambert, Chief Executive of the NLA. Setting the rental value for your property is always a balancing act, but a letting agent will be able to help you achieve a realistic value based on the relative demand of the market.   

7. Look at Scotland
At the moment, it's very difficult to know how a ban on upfront fees to tenants may affect the rental market in the long term. Most of what we hear and read at this stage is opinion and conjecture. One thing you can do, though, is take a look at the situation in Scotland, where letting agent fees have been banned since 2012. Some research into rental growth and fluctuations north of the border may help to give an indication of how you may be affected over the coming months and years.

8. Don’t be put off
Finally, it's important for landlords to stay positive. There have certainly been a few hurdles put in the way over the last 18 months, but buy-to-let remains one of the best performing asset classes. Thanks to a growing tenant population, and the UK's global appeal as somewhere to live, tenant demand should remain high and prospective tenants are unlikely to be put off from renting new property while they await the implementation of a ban on upfront fees. 

So, there we have it. Considering some of the issues above and carefully plotting your next moves will be all-important in 2017. Landlords now have more to think about than ever, as next year will see long-awaited changes to mortgage interest tax relief introduced and, the following year, further energy efficiency regulation will come into play.

Despite this period of change, it's still a great time to be a landlord, as the number of prospective tenants continues to increase and long-term renting becomes an ever more popular choice of tenure. As always, it's wise to take your time over all big decisions regarding your rental portfolio, listen to the advice of letting agents and rental experts and keep up to date with the latest industry news and legislation.

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