Poorest areas of the country could pay more as a result of the Tenant Fees Bill

5 November 2018

Goodlord analysed 30,000 tenancies to assess whether it is possible for the Tenant Fees Bill to deliver on its objective of helping renters across England and Wales - and found the impact would be minimal.

The proposed Tenant Fees Bill aims to relieve the financial strain faced by tenants when they move home. Currently, tenants are required to find large amounts of capital to put towards upfront rents, fees and security deposits.

In order to achieve this, the Government has proposed sweeping changes to the letting industry by banning the ability of agents to charge tenants fees for the services they provide, as well as introducing a six-week cap on security deposits and a one-week cap on refundable holding deposits.

Goodlord analysed 30,000 tenancies processed through its software platform for letting agents in 2018 to assess the impact the proposed fee bill might have on tenants and landlords, and whether it is possible for it to deliver on its objective of helping renters across England and Wales.

How much did tenants need to pay upfront to rent a property in 2018?

In 2018, tenants moving home were required to have on average £3,039 available per property. This includes the first month’s rent (£1,092), security deposit (£1442), tenant fees (£209) and a refundable holding deposit (£296).

As expected, tenants in London needed the highest amount upfront per property at £4,347, whereas areas outside of London required tenants to have on average £2,324 before they could move into their rental property.

How much could tenants need to pay upfront in 2019?

In 2019, tenants will no longer be required to pay the average £209 in fees for any administration tasks that agents carry out to facilitate their move as part of the proposed bill.

Tenants will still have to contend with normal annual rent increases of approximately 1.7%, which means the average rent will likely increase to £1,111 per month.

If the six-week cap on security deposits is also introduced, the average maximum amount that a security deposit could be in 2019 is £1,534. After analysis, up to 45% of tenants could be paying more for their deposit, should landlords and agents change current practice and charge an amount to match the cap.

The proposed cap of one week’s rent for refundable holding deposits - which tenants pay to take the property off the market - would equate to £256.

This means the total potential amount of money a tenant would need to find in order to enter a property in England and Wales in 2019 would be £2,901.

2018 vs 2019 (who wins, who loses)?

Should this bill pass as it exists today and rent increases are consistent with market trends over the past two years, tenants looking to rent a property in 2019 may need £140 less. Whilst this is beneficial to tenants, it is important to note that this does not pass on the full benefit of the banned fees to the same value the bill advertises.

Agents, on the other hand, will be losing out on £209 worth of admin fees and £40 of potential coverage against tenants pulling out of a property or providing false information in their application for each tenancy.

When Goodlord looked at the regional divide, however, the company found there is a clear distinction between how this would affect the average tenant in the south of the country and those who rent in the north of the country.

London tenants will potentially save the greatest amount in the money they require to go through the application process, saving on average £209 per property. This is followed closely by tenants in the South West and South East, who could save an average of £248 and £189 respectively.

The biggest potential losers as part of the bill are those tenants in the North, who could be required to put forward an extra £69 for their application in the North West and £57 in the North East.

How will agents recover their lost fees?

Agents will ultimately need to find a way of recovering this lost income from tenants. One common theory is agents will increase management fees to landlords.

In order to effectively cover the total amount of lost fees using solely this method, agents would be required to raise their annual fees to landlords by an average of 1.57%.

If rents are to remain constant, landlords will then receive £209 per year less on their property rent.

It’s unlikely landlords will accept this kind of monetary loss unless agents can show they’re providing more value to their landlords, for example by providing additional services such as insurance.

It is also a possibility that rents could be artificially increased to cover the agents’ losses.

As a result, tenants could be set to lose even more - and ultimately, the savings from the bill could be negated, especially in the less affluent areas of the country.

Goodlord COO Tom Mundy says:  “Our industry needs regulation that doesn’t penalise good letting agents, promotes sustainable rents for tenants and gives landlords peace of mind. Current government legislation is making it harder for this to be the case and in some cases the proposed tenant fee ban is making it even more costly for the people it’s trying to protect.”

Further reading