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How will upcoming changes hit your bottom line?

The Queens’s speech recently capped deposits to no more than one month’s rent and with the tenant’s fee ban looming with increasing speed, the future is somewhat uncertain.

So, what does this mean for landlords in the immediate, and more long-term future? Is there any indication on what will and won’t be allowed in coming months.

Capping deposits

Initially announces by Phillip Hammond in his controversial Autumn Statement, the Queen confirmed the changes to deposits in a move that has seen positive feedback from tenants, but left many landlords tearing out their hair. Currently the average deposit is 4.92 week’ rent (according to research by the National Landlords Association), with 40% of deposits exceeding one month’s rent, so installing a cap is likely to impact many landlords.

Research surrounding the changes may not leave tenants feeling quite so impressed though – as the decision has meant that many landlords feel that they will be less inclined to accept ‘risky’ tenants, pets or even smokers if they are not able to hold more significant deposits that may cover any damage.

Recent research from the national Landlords Association has revealed that even before the ban, 47% of landlords were unwilling to allow pets, with 41% citing potential accidental damage as the reason behind this decision.

YouGov predict that the amount of money sat in deposit schemes is set to shoot up 40% over the next five years, so by 2021 £5.8 billion will be held. The changes to the amount landlords can take isn’t set to have any impact on this figure, instead it is expected that the hike in households reliant on the private lettings market will ensure that hefty amounts of deposits will still be handed over by tenants.

Richard Lambert, CEO at the National Landlords Association (NLA) said: “Some landlords use a higher deposit to give them the extra confidence they need when letting to higher risk tenants, so this could also have the unintended consequence of deterring them from offering their property to those likely to be struggling with affordability in the first place”.

Holding deposits

In line with the cap on security deposits, holding deposits are also being limited. Landlords will no longer be able to hold more than the equivalent of one weeks’ rent as a holding deposit for a property.

The fees ban

As well as noting the caps on deposits, the Queen's Speech also confirmed that the much-talked-about tenant’s fee ban is being actioned. One of the main talking points of the recent election, it was one policy that featured in all manifestos, and seemingly one thing that all parties could agree on.

Currently the finer details of the legislation are yet to be confirmed, with the consultation only closing at the beginning of June. However, whilst it was originally planned that the ban would be introduced primarily for letting agents, it is likely that it will now extend to landlords as well, ensuring that tenants are not subject to any additional costs at all (other than a deposit, capped at one month’s rent).

It is expected that a draft bill will be published for debate this year, with much speculation around whether it will be ready for the Autumn Budget in November, with plans to introduce the legislation in 2018. Whilst Brexit is still very much taking much of the ministerial focus, the housing crisis remains in the spotlight, so it is expected that this significant piece of legislation will be placed fairly high up the political agenda.

There have been concerns about the potential for unprecedented rent hikes in response to a fee ban, and it seems that this is something that we can expect to see - but maybe not as significantly as feared. A recent report, commissioned by ARLA, suggests that 41% of landlords are expected to have to counteract the changes by increasing new tenant’s rents to offset the extra outlay. According to a study by Generation Rent, the average tenant currently pays £404 in fees for a new tenancy, however ARLA's report suggests that if landlords were to increase rents in line with their predictions, the cost to tenants would be likely to be more along the lines of £103 a year, via a rent increase spread across equal rent payments.

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