Letting agents are being warned to take a proactive approach to new legislation that will see them banned from charging upfront fees to tenants.
ITTRIA, which helps agents generate income through referrals, suggests that those firms who move now to incorporate new revenue streams into their businesses may be able to minimise the impact of the fee ban.
Earlier this month, MPs discussed the proposed fee ban in a House of Commons debate.
While concerns were raised about how a ban might affect the rental market, it was once again confirmed by the Housing Minister, Alok Sharma, that a blanket ban on upfront fees charged to tenants will be introduced in the near future.
Sharma did not disclose an introduction date and instead said that the Government’s response to the official consultation on the ban, which closed at the beginning of June, would be published “very shortly”.
PJ Darling, the Managing Director of ITTRIA, says: “Agents have been waiting for some time now to find out when a ban on fees will be introduced, but it seems we are no closer to being told a definitive date.
“The consultation on the ban ended almost four months ago now, and so it seems there is no point in agents waiting around any longer for Government confirmation.”
He advises: “Instead, we recommend that agents use this time to be proactive and start thinking about how to replace lost revenue caused by the ban.
“It’s clear that fees will be banned, and so agents need to prepare now and consider the finer details and dates as and when they are finally communicated by the Government.”
During the Commons debate, which was sponsored by Kevin Hollinrake, the MP for Thirsk and Malton and Co-Founder of national franchise agency Hunters, many MPs spoke of the potential “unintended consequences” of a blanket ban on letting agent fees.
These included rising rents and a negative impact on small to medium-sized businesses.
However, Darling believes: “Agents have no reason to become an unintended consequence of a ban on fees – either through lost staff or closures – if they take a positive and enterprising approach to their business.
“In a few years’ time, we’ll be analysing the effect of the ban on the industry, and we want as many agents as possible to defy the odds, thrive and not end up as a negative statistic.”
There are various figures available suggesting how a ban on fees could affect letting agents. The headline figure of a study commissioned by the Welsh government is that 19% of letting agency income in Wales comes from fees charged to tenants.
The same research also found that 84% of agents charged upfront fees, averaging £178 per tenancy. What’s more, 76% of agents felt that they would see profits fall when the ban is introduced.
The participating agents estimated that a new tenancy typically took 14 staff hours to set up, incurring average costs of £92 paid to other organisations.
“From these figures alone, we can see that the majority of letting agents will take a financial hit when a ban on fees is introduced,” Darling concludes. “Therefore, looking at alternative revenue streams and opportunities to save money now is the only way forward for agents who want to remain successful and profitable over the next few years.”
Many landlords are worried that their letting agents will instead charge them higher fees when the ban is introduced. This could cause rents to increase as a result, which may make it more difficult for tenants to pay.
It’s therefore more important than ever that landlords too are proactive and protect their rental income against potential tenant rent default. Our Rent Guarantee Insurance is the best way to ensure you still get paid if your tenants can’t: https://www.justlandlords.co.uk/rentguaranteeinsurance