Tenants lose out as letting-fees ban arrives in England

The move sounds positive for tenants, but the cost will be passed on, says Sarah Moore.


Their rent is likely to go up
(Image credit: Johnny Greig)

A ban on letting fees in England, which has been looming over landlords for several years, finally came into force a fortnight ago. The Tenant Fees Act gets rid of most fees associated with letting a property in England, including payments for viewings, credit checks, references and the drawing up of a tenancy agreement. These used to add as much as £800 to the upfront cost of renting, notes Miles Brignall in The Guardian.

The new rules apply to new or renewed tenancy agreements signed on or after 1 June 2019. If a tenancy was entered into before 1 June, any renewal fees agreed at the time will still be due, but only until 31 May 2020. The aim of the bill is to reduce the costs that renters face at the beginning of, and throughout, a tenancy, as well as to give them a better idea of the total cost of renting a property. Similar fees are already effectively banned in Scotland, and are set to be axed in Wales from September. A ban cannot be passed in Northern Ireland until there is a sitting assembly to do so.

The only payments that landlords or letting agents can now charge tenants (other than rent) are: a refundable deposit capped at no more than five weeks' rent (where the total annual rent is less than £50,000, or six weeks' rent if over this); a refundable holding deposit equal to no more than one week's rent; payment for early termination of the tenancy where requested by the tenant; payment for bills such as utilities and council tax; and a default fee for late payment of rent and replacement of a lost key.

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Landlords who break the rules face fines of up to £5,000 for a first offence, or an unlimited fine if they break the rules again within a five-year period. Letting fees account for 20% of business turnover for letting agents, says industry trade body ARLA Propertymark. That means it's likely that companies will pass these costs on to landlords, who may in turn need to put up rents in order to compensate for the added expense. The government has estimated that absorbing the cost of tenancy administration will collectively cost landlords nearly £83m and letting agents £157m during the first year of the ban.

Whether or not you see an increase in your management fees, now may be a good time to check that you are getting a good deal from your letting agent. Where costs are passed on, ask for a breakdown of what they're spent on. And have a look at the management fees charged by other companies to check you're on a competitive rate.

Extensions excluded from planning permission

Under the 2013 rule change, you can add a single-storey rear extension of up to six metres onto a terraced or semi-detached house, or eight metres for a detached property. Instead of requesting planning permission, you inform the council of your plans, and they then notify neighbours. If neighbours raise concerns, then the council can block the plans.

More than 110,000 extensions have been completed under the rules, according to the government. The 2013 rule change was originally intended to be temporary, but housing minister Kit Malthouse confirmed at the end of May that it would be made permanent, emphasising that it was designed to "help families extend their properties without battling through time-consuming red tape". "This step will make it easier for families to build outwards, rather than go through the arduous process of moving to, a larger home."

This reasoning does make some sense. And it's true that some people would rather make their home bigger than move. But there are other more long-term fixes that would also make it easier for families to move into houses of a more suitable size, such as increasing the supply of housing and thus driving down prices, or reducing stamp duty so that the costs associated with moving are lessened.

Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.