Landlords have been warned that the draft tenants’ fees bill could result in them losing £300m.

This was the figure reached following work carried out earlier this year by research consultancy Capital Economics for ARLA Propertymark looking at the possible impact of the government’s proposed ban on letting agent fees. 

This week’s Queen’s Speech saw the announcement of the draft tenants’ fees bill, which is aimed at tackling unfair fees on tenants and making the private rental market more affordable and competitive.

The draft bill proposes to: 

•    ban landlords and agents from requiring tenants to make any payments as a condition of their tenancy with the exception of the rent, a capped refundable security deposit, a capped refundable holding deposit and tenant default fees; 
•    cap holding deposits at no more than one week’s rent and security deposits at no more than one month’s rent.

However, ARLA Propertymark believes letting agents cover the cost of vital checks required to set up a tenancy and if fees are banned outright then letting agents will pass the cost on to the landlords through higher agents’ fees. 

“The announcement of the draft tenants’ fees bill [on Wednesday 21st June] was disappointing,” said David Cox, chief executive of ARLA Propertymark.

“It’s unlikely the government had enough time to analyse all of the responses from the consultation, as it only closed 12 working days ago, on the 2nd June. 

“It appears they had already made their decision and therefore the consultation was no more than a ‘tick box’ exercise and they haven’t appropriately taken the industry’s views into account.”

David warned that the ban on letting agent fees would cost the sector jobs and make buy-to-let investment even less attractive and result in the costs being passed on to tenants through higher rents.

David pointed to the research conducted by Capital Economics for ARLA Propertymark earlier this year, which showed that referencing checks undertaken by agents take, on average, eight hours to complete. 

“It is therefore right and proportionate that the industry is recompensed for this work, which benefits tenants. 

“The research also showed that letting agents stand to lose around £200m in turnover, costing the sector 4,000 jobs. 

“Landlords themselves would lose £300m, meaning they may seek to cover their losses by increasing rents to tenants.”

David believed that – on average – rent costs would go up by £103 per tenant, per year, meaning tenants who moved more frequently would reap savings on their overall costs, but longer-term tenants would see a loss as their rents rose. 

“The ban contradicts the government’s stated aim to encourage longer-term tenancies, as tenants who stay in their homes for the long term will end up shouldering the costs of those who move more frequently.”