Are You Putting Off Tenants With High Upfront Costs?Written By PropertyLoop February 11, 2021
Naturally, landlords will wish to see maximal rental income to ensure returns on their buy to let investment, however with the private rental sector emerging from the pandemic, leaving thousands of renters in arrears and owners uncertain about their future income both parties s are facing significant financial strain.
Even in less bleak times rental property owners will want to minimise their exposure to void periods, leaving them not only without a rental income, but paying for management costs, insurance, potential repairs and mortgage by themselves.
Although some may turn to a more aggressive marketing strategy, or broadening the appeal of their rental opportunity, the solution could be simpler, the upfront costs to renting your property.
What Are the Initial Costs of Renting?
There are a number of costs that come with renting a property. It goes without saying that residents should expect to pay regular rent instalments, but how much are the deposits, when will they be refunded and can you be made to pay rent before moving in?
This is the amount someone pays to take the property off the market. This gives the landlord time to carry out Reference Checks. Once the landlord decides the checks were fine and the tenant can move in, the Holding Deposit is deducted from the first month’s rent.
It should only be necessary to charge around £200 for a Holding Deposit. That is roughly equivalent to around one week’s rent in London. That way, if they pull out at the last minute, chances are, as the landlord, you will only have lost one week’s rent before you can offer the tenancy to someone else. This covers that £200 deposit which the tenant will then forfeit.
The way to avoid this type of scenario is to advertise as soon as your current tenant hands in their notice. That’s roughly giving you four weeks to find another tenant.
The Tenant Fees Act allow you to ask for five week’s rent upfront as a deposit (or more if it’s in an expensive London area where the rents are often thousands of pounds higher). In the case of the latter it’s usually six weeks rent.
The landlord doesn’t hold on to the deposit however. This is paid into one of several government-accredited schemes who hold on to the deposit until the tenant moves out. The landlord can then make any deductions for broken furniture or other damage. If this is disputed by the tenant then arbitration is begun. This is overseen by a panel who rule on how much money the tenant should be awarded from his or her original deposit. The remainder will be going the landlord for the repairs.
First Month’s Rent
As a landlord you should always ask the tenant to pay a month’s rent in advance. For some tenants they can see this as a big risk, especially if they have never rented before and don’t know the landlord from Adam.
This is where online letting agents like ourselves come in. That’s because many new tenants don’t mind paying to a respectable third party. At Property Loop we will hold the rent for a short period of time – around a week – then pass on the sum to the landlord for banking.
Is It Legal to Ask for Rent Upfront?
Recently there have been report of landlords left with a heavily reduced rental income on the back of the COVID outbreak, asking their aspiring tenants to pay as much as six months’ rent in advance. The move has been condemned by many as a way in which owners are able to bypass the regulations of upfront costs put in place by the Tenant Fees Act 2019, a measure put in place by the UK government to make the private rental sector more accessible to first time renters. This is because the Tenant Fees Act imposed restrictions on the amount a landlord can ask a tenant to pay for their security deposit, yet no such threshold was placed on the amount of rent a tenant must pay before they move in.
The online rental platform OpenRent has revealed that of the 1750,000 properties rented on the platform across 2020, 95% of owners asked their future residents to pay at least one months’ worth of rent in advance. The data also showed that of the 9,000 instances where tenants were asked to pay more than a month’s rent in advance, almost 25% requested six months’ rent upfront.
What Can a Landlord Deduct From a Deposit?
As mentioned, before moving into a rental property tenants will be expected to pay the landlord or letting agent a security deposit. In most instances this will amount to the equivalent cost of five weeks rent. Like any other deposit this amount can be returned to the tenants, however this will only be at the end of the tenancy. This is because the landlord is able to make deductions from the amount that will be refunded to the residents, allowing them to recover the costs repairing any damage caused to the property or any rental payments missed.
It is essential for landlords to note that their claims for deductions must be seen a reasonable and will need to provide evidence to sufficiently prove their expenditure for any remedial works. Further to this, landlords are prohibited from making any deductions for what would be considered to be fair wear and tear, commonly defined as the expected deterioration of an item, furnishing or space after multiple tenancies.
Does the Tenant Fees Act 2019 Prohibit Cleaning Fees?
The Tenant Fees Act was implemented in an effort to make the sector more accessible to first time renters by prohibiting many of the traditional charges landlords would impose on their tenants when establishing a tenancy. The regulations prevented owners from charging tenants a mandatory cleaning fee, with any landlord that is found to be in breach of this ruling being penalised with a fine of at least £5,000. Owners are also unable to enter a bespoke term into their tenancy agreement that would allow them to pass on the costs of a professorial cleaning service to their tenants, as this term would be unenforceable.
Tenant Fees Act & Deposit Refunds
As mentioned, the Tenant Fees Act put in place a limit on the amount a landlord is able to request from their tenants for the security deposit. These amounts will not be kept by the landlords but instead entered into a government approved deposit protection scheme. Providing that the owner does not wish to make any deductions from the amount being returned to the tenant, the full amount taken will be refunded to the tenant within 10 days.
How Much Does It Cost to Rent a House
According to a report carried out by HomeLet, the average cost of renting in the UK has risen for the third consecutive month as of September 2021. The average price of monthly rent now sits at £1,053, a 6.9% increase when compared to the same period in 2020, and a 2.3% rise on the previous month. When excusing the nation’s capital of London, the average rent in the UK is up a huge 8.1% on 2020, residing at £892 each month.
PropertyLoop is the world’s first commission free lettings platform. Our platform allows landlords to advertise their rental, reference tenants, curate an agreement, register the deposit and collect rent completely for free! There are no hidden charges, upfront fees or any catches.
Built by experienced property investors and landlords, PropertyLoop connects renters with the owners directly. Your property is featured on all major search and comparison portals as well as advertised by PropertyLoop everywhere else on the Internet. You don’t have to worry about finding the good renters, that’s the job for the platform. Receive offers straight to your mailbox and select the renters that are right for your property. Need access to busy London property market? No problem at all! PropertyLoop is the London market specialist with years of experience and unique knowledge. Whatever your needs are, you can always speak to friendly support staff. Renting property is made as simple as one, two, three.