Positive moves for landlords and tenants
Tuesday, June 11, 2019
The new Tenant Fees Act came into force on 1 June 2019, banning letting fees paid by private tenants in England, and capping the security deposits they have to pay at five weeks' rent. Designed to reduce the costs that tenants incur at the start of the renting process, throughout their tenancy, and when their contract ends, the legislation places new rules on landlords and agents about what they can charge tenants. The changes will end the unscrupulous practice by some rogue landlords of overcharging renters for minor damages and protect private tenants from unexpected costs that can make properties hard to afford.
The upside for tenants is clear. They will no longer need to save more than five weeks' rent to secure a property and will no longer have to pay letting fees, saving an average of £400 per move. Holding deposits are capped at one weeks' rent and tenants will only be charged £50 for a change to a tenancy, unless a landlord can prove the process has cost more than this amount. Essentially it removes the significant barrier of upfront costs, making renting a property more accessible for all.
However, although the legislation places the upfront costs firmly back on the landlords’ shoulders, meaning an immediate financial shortfall at the start of a tenancy, it’s not all gloom and doom for landlords. Any loss are likely to be amortised and absorbed over the medium term with the inevitable readjustment of rental values as rental demand and competition for properties increases.
More importantly perhaps, for those with a long term strategy, Buy to Let (BTL) still remains the best option for a return on investment. With the current low savings interest rates, many investors have sought alternative investment options and considered BTL which offers good investment potential for the medium to long term. If you’re looking for a good return over a ten-year period then Buy to Let ticks all the boxes. Demand for rental properties is predicted to carry on rising with just 47% of those born in 1990 likely to be a homeowner by the age of 40.
Depending on the type of property and its location, BTL yields can still reach 5 -10 %. In many areas, landlords can also be fairly confident that property values will appreciate steadily over the next few years to achieve a long-term profit via capital growth. It’s a good option for those who prefer a tangible asset, currently offering better returns than savings accounts particularly when you factor in the potential for capital growth over the longer period.
Strong rental demand is key to preventing lengthy void periods and the demand for rental properties is already there. Following the Tenant Fees ban, as renting becomes more accessible, we anticipate that competition for rental properties will increase with higher demand for fewer properties as those landlords more focussed on a quick return have left the market. The resulting competition should strengthen rental values enabling landlords to recoup the shortfall in fees over a 2-3 year period.
Increased competition for rental properties should also enable landlords to be more selective and it may be worth spending more to refurbish a property and arrange property management in order to attract corporate tenants. Typically these are high earners, out at work for much of the day, so wear and tear on a property is minimal and they tend to treat properties with respect. At least that’s the theory, and the reason why company employees from reliable blue-chip companies are seen by many landlords as the ideal tenant for BTL properties. Corporate lets are not just “easy money”, however; whilst they command higher rents, they have higher expectations. Properties need to be top quality for this demanding market with premium furnishings and fittings, security and broadband connectivity. To be considered for corporate lets, a property must be fully managed with a high level of service and rapid response to any problems that arise.
Full management provides peace of mind. As a landlord you benefit from day-to-day management, emergency repairs, collection of rent, transfer of utilities and a stress free let. Within Frosts’ fully managed service, we carry out periodic inspections of the property on your behalf, and report any defects brought to our attention. We use trusted tradesmen to carry out maintenance work and contractors registered with approved schemes to arrange gas and electrical checks and repairs; we also have emergency cover and a 24 hour tenant help line for when it’s really needed.
All of this means that tenants are happy, knowing that problems will be sorted quickly and efficiently to minimise any issues. And if your tenants are happy you can relax, knowing that we have it covered. Statistically your tenants are likely to stay for longer, meaning fewer void periods and less to worry about. You can even let your property and go abroad, knowing that you’re leaving it in safe hands with an ARLA Propertymark licensed lettings agent. Our company philosophy is “looking after people and property” and we do exactly that, giving you peace of mind throughout the lettings process.
For further peace of mind for landlords we are offering a guaranteed rent collection service* specifically designed to ensure your property is fully protected from all potential liabilities including loss of rent, damages and legal cover. It includes all the fantastic benefits of a normal rent guarantee policy, with the additional perk of making sure you receive your rent on time and in full no matter what. A recent study has found that 26% of landlords cannot afford to pay their mortgage if their rent is late by more than 5 days; the guaranteed rent collection service eliminates this problem altogether.
For more information on how the Tenant Fees Act affects landlords and tenants and how full management and a guaranteed rent collection service can provide peace of mind for landlords, please contact your local Frost office. * subject to terms and conditions and tenants passing the referencing process first.