Should tenant fees be banned and what are the implications if they are?
You may have heard amongst the recent election campaign hubbub that Labour wish to ban tenant fees.
As an agent that manages over 550 properties throughout South Yorkshire this is an issue that is close to our hearts and we would like to address why these charges exist.
The majority of letting agents base their business model on charging both the tenant and the landlord. Not being able to charge tenants would result in the agent having to pass these charges on to their Landlords, which in turn would put pressure on landlords to increase the rent on their properties to cover the additional cost.
You might ask yourself, however, if increasing rents is an option now why do we not instigate it?
In a mature provincial lettings business around 60% of income is derived from management commission and 40% from other fees including tenant fees. The average management commission nationally is 9%, which means that on average every £1 of rent generated is split 9p into the agent’s pockets and 91p into the landlord’s. So a ban on charging tenant fees, which translates into an increase in rents, will benefit landlords, but would have a large impact on the agent’s profit and loss sheet.
At Crucible Sales & Lettings our average tenant fee is £216 including VAT (dependent on how may people are applying). Our tenants are not VAT registered so this is a cost which they have to burden.
In context, this figure represents a very small percentage of what a tenant will pay over the lifetime of their tenancy based on our average rent and tenancy length. I am sure you would agree this does not feel exploitative.
It is also interesting to look at the average length of a tenancy in 2015. Approximately, 12 years ago the average tenancy was 14 months. It is now double that.
Private rental is now overtaking social housing and has been since 2013. It is no longer a lifestyle choice, a stop gap between leaving school and buying your first home. Increasingly, we house the nation, and with over a million new tenancies being granted every year, renting a home will be the only property transaction many people will have had experience of.
With this growth in the private rental market comes a responsibility not to alienate a generation of renters. We must work with the new Government to secure longer tenancy lengths and prevent price gouging on fees. We need to ensure that fees are transparent and fair. Tenants must feel safe and secure in the lettings process and landlords should also have a clear understanding of what their agent is charging their tenant.