Tenant fee ban will reduce deposit fees by £2.9 billion a year
The is a huge sum of money currently tied up in the private rental market across England and this will fall with the introduction of the tenant fee ban on 01 June by almost £3 billion a year, new research suggests.
According to Citizens Advice, tenants are currently required to pay as much as two months’ rent as a deposit in order to secure a rental property. With the average rent in England at £844 a month that’s a deposit of £1,688 per person.
The new research from property compliance specialists VeriSmart says that means that with 4.53 million tenants in the sector, the private rental market is currently sitting on some £7.6 billion in tenant deposits.
Under this new ban in England, the required changes mean that anyone paying annual rent over £50,000 will have their deposit capped at six week’s rent, while anyone paying under that threshold will only have to pay a maximum of five week’s rent.
This change is intended to save the average tenant £600 on their initial deposit and reduce the total deposit amounts down to a little under £3 billion.
However, a growing concern is that these latest changes will see more landlords exit the sector having already been hit with stamp duty and tax relief changes and now being squeezed with the bookends of a tenant fee ban one end, and the new Fitness for Habitation Act at the other.
The question for many landlords is whether they can remain in a market, which desperately needs more rental properties, but is limiting the profit on offer to those providing them.
‘The introduction of the tenant fee ban will not only reduce the safety net charged by landlords in the form of a deposit, but it also means that they or their agents can no longer charge for other fees which have historically supported the market, fees such as for tenancy agreements, inventories and check-ins etc,’ said founder of VeriSmart, Jonathan Senior.
‘While it’s true that some bad apples have abused this system in order to increase monetary gain at the expense of the tenant, this simply isn’t the case for the vast majority. Many landlords will now have to foot a larger bill for services that were previously shared between parties or paid for wholly by the tenant, further denting their profits, which have already seen a decline due to new legislation around stamp duty and tax relief,’ he added.