Private sector landlords in the UK are not facing large extra costs due to the new ban on letting agent fees with the financial impact amounting to around £25 a month on average, according to new research.
If letting agents pass on the cost to landlords it will amount to a loss of just 0.14% in returns for landlords with the ban unlikely to have a major financial impact, according to research from property classifieds site The House Shop.
It says that the average fees charged to tenants in the UK sits around the £300 mark, increasing up to £700 in some cases in London and a letting agent will typically charge a landlord between 10% and 15% of their rental income for a full management service.
The analysis from the firms suggest that based on the average UK rent for October 2016 of £902 per month, this would equate to roughly £95 per month, or £1,140 over the course of a 12 month tenancy. Adding in the additional costs of passing on tenancy fees (£300), this would increase to £1,440, or an extra £25 per month.
According to Nick Marr, co-founder of The House Shop, while even this relatively small increase of £25 per month may seem unfair to some landlords, it will not have a significant mpact on their overall return on investment.
‘Even if letting agents are forced to pass on the costs of tenancy fees directly to landlords, it will not have a significant impact on the landlord’s overall yield and profits. In fact, the additional loss in returns could be as little as 0.14% when compared to the existing landlord fees structure,’ he pointed out.
‘Some landlords will undoubtedly raise their rents as a result of the ban as we have seen in Scotland but many will be able to absorb the costs of this new system without substantial losses, meaning tenants should not face a barrage of rent rises once the ban is in place. The other side of the argument here is that perhaps it should be the letting agents themselves who swallow the loss in fees, but tight margins in the High Street lettings market make this an unlikely scenario,’ he explained.
‘Opponents of the proposed ban are claiming that a short term fix may seem appealing at first, but that in the long run it will be tenants who suffer as landlords raise rents to cover the higher costs of agency fees. However, this is not necessarily true,’ he said.
‘The extra financial pressure on landlords will almost certainly result in them shopping around and trying to find the best price, and as landlords explore alternative options to the traditional letting agency service, I have no doubt that we will see a significant increase in the number of private landlords taking a more DIY approach to renting their properties,’ he added.
He believes there will always be a place for the traditional letting agency service. While for some landlords, keeping costs down is the main priority, and they are therefore willing to dedicate more of their time and effort to renting out their property privately, cutting out agency fees altogether in the process, there are a significant number of landlords who simply do not have the time or desire to take a hands-on approach to managing their rental properties.
‘There will always be demand for the type of comprehensive service that High Street letting agents offer, and landlords will always be happy to pay a fair price for a quality service. It essentially comes down to a trade-off between convenience and costs, and good, reputable, hard-working letting agents will still be able to justify their costs to landlords, Marr concluded.
