After several years of public debate and consultations, many studies and white papers, 2019 seems to be the year that will finally bring some positive change for tenants in the UK.
How? Two announcements were recently made by the government, that aim to bring some more balance to a housing system which has long been broken for renters.
One of these has already received quite a lot of press coverage. I’m referring to, of course, the tenant fees ban. The other one, has been less talked about, but is, in our view, equally important.
Tenant Fees Ban
Expected to come into force on 1 June 2019, the Tenant Fees Bill is intended to ban landlords and estate agents from charging tenants fees for a range of services. These include credit checks, inventories, referencing, renewal and exit fees, property inventories and charging for guarantors. These letting fees have long been a problem for tenants: they are not always clearly or consistently explained, resulting in many tenants remaining unaware of the true costs of renting a property, which impacts affordability. As landlords appoint estate agents for a given property, there is no scope for tenants to negotiate.
All in all, it has been estimated that tenants will save an average of £202 per person with this new measure in place. The government’s impact assessment study evaluated the aggregate benefit for tenants, in the first year of implementation, would amount to an average of c. £323m. The estimated loss of revenue for estate agents, purely from not being able to charge letting fees, is estimated to reach on average c. £314m.
Members of the sector have raised concerns about this bill multiple times, with ARLA evaluating tenant fees currently account for c.20% of the lettings sector turnover and banning letting fees would put severe pressure on letting agents. The ban is also likely to put pressure on large real estate companies like Foxtons, that have seen the contribution of the lettings segment grow from c. 50% of total revenue in 2014 to c. 60% in 2017, due to a much slower sales market.
Estate agents can hope to partially offset this loss by charging landlords for these services. However, landlords themselves are being constrained and pressured with new regulations and more taxes, at a time when exiting the market by selling their properties is not such an attractive option, given the general slowdown in the sale market and uncertainty from Brexit.
Whilst some industry experts and commentators have issued warnings that the bill may result in significant rent increases, we believe that this will mostly mean increased competition for estate agents whose operating model was so far too reliant on tenants paying fees for services that were unduly imposed on them and, ultimately, benefits other stakeholders in the rental journey. They will need to adapt, be more efficient and provide better quality services to landlords and tenants through e.g. increased automation, better trained staff, etc. Hopefully this will mean a more efficient and better quality experience for tenants. All in all, we believe tenants should benefit from the Tenant Fees Bill, as demonstrated by the government’s impact assessment, that estimates net benefits for tenants, assuming an increase in rent, will remain positive at c. £249m on average.
Housing Complaints Resolution Service
The first few weeks of 2019 also saw another significant announcement for tenants: the creation of a new housing complaints service covering the entire housing market, ensuring both tenants and homeowners know where to get help when things go wrong.
For the first time, private landlords will be legally required to join a housing redress scheme or face a fine of up to £5,000 if they fail to do so. This will mean more protection for the nation’s millions of tenants who, up till now, have to work their way through a broken system, with multiple complaint bodies covering the housing market. This new service will make it easier to deal with disputes, get issues resolved and claim for compensation if it is owed.
In addition, the housing minister also confirmed funding of nearly £2.4 million, allocated across 50 councils, in the government’s bid to ramp up action against ‘rogue landlords’.
So overall, it’s been a very positive start to 2019 for ‘Generation Rent’ in the UK.
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