As of 1st June 2019, letting agents in England and Wales are no longer able to charge additional administration fees to tenants.
The changes have been resisted by some agents, who fear they will negatively affect the revenues they could generate, but for others in the property management sector, they represent a new commercial opportunity.
Tenants were charged fees for a range of supposed administration tasks including tenancy renewal, referencing and credit checks. According to Citizens Advice, the average amount paid by tenants was £400, but now all such costs will have to be met by landlords or agents.
In some cases, landlords may hike their rents to recover these costs. Some letting agencies that currently make most of their profits from charging high admin fees will go out of business.
In Scotland, a similar ban helped to drive out less scrupulous operators, who often subsidised rock-bottom management fees with earnings from tenant fees, when it was introduced in 2012.
We have run an estate agency and a letting agency in Doncaster since 2016 only ever charging tenants a small admin fee of £50, so the impact on us will be negligible.
The other side of our business is to advise people on investing in and managing properties and it’s here that we predict new opportunities as the changes take effect.
In a recent survey of landlords, some 56% said that they would not use a letting agent in the future.
Of those landlords who continue to operate in the sector, many will have neither the time nor the ability to manage their properties themselves.
Such cases will present lots of potential new business for rent-to-rent and lease option managers.
Many landlords will jump at the chance of having their properties managed over a five-year period, for example, with a guaranteed rental income and without the hassle of having to find new tenants, manage rent arrears, deal with disruptive tenants and all the other issues normally dealt with by agents.
Some landlords – already smarting from changes to the tax system that came into effect in January – may simply decide to vacate the market.
Less relief… more tax
New regulations contained in Section 24 of the Finance Bill 2015-16 and also known as the ‘tenant tax’, mean that the amount of income tax relief landlords can now claim on residential property finance costs is restricted to the basic rate of tax.
The changes, which also apply to income earned by UK taxpayers on holiday properties overseas, require them to pay significantly higher tax bills than in the past, in some cases a doubling or trebling of previous rates.
Opportunities for investors
In those circumstances, where landlords decide to sell up, investors can benefit from new properties becoming available for below market prices.
While uncertainty over Brexit has not led to the collapse in the property market predicted by some doom-mongers, some areas remain less buoyant than others, with slower selling times and lower rises in property values.
A sudden flood of properties onto the market in those areas could be good news for bargain hunters.
We’re already preparing for this shift, advising clients attending our regular mentoring groups to be prepared.
We predict that more landlords will want their properties managed by rent-to-rent and lease option managers or who want to sell their properties.
The introduction of punitive regulations doesn’t always mean there will be less activity in the market; for those who think laterally such changes can create new commercial opportunities and all you need to do is take them.
Abi Hookway is the Managing Director of Touchstone Education, which runs UK-wide courses offering advice and guidance to investors in property.