Commencing this September, landlords and estate agents will be barred from charging letting fees in Wales under the Renting Homes (Fees etc.) (Wales) Bill. Passed earlier this year, the law protects tenants from charges for viewings, signing of contracts or renewing tenancies.

Described as “monumental” by Welsh rough sleeping and homelessness charity Wallich, the change has ignited public discourse around the country.

Now, landlords and agents can only require payment for rent, security deposits, payment in default for when a tenant breaches contract and additions like utilities, council tax, etc. While many are celebrating letting fees being banned, there are several possible knock-on effects that you need to know. Will this be a positive change for investors? Read on to find out.

What Does The Law Actually Say?

The Welsh Assembly summarised the bill in its introduction as follows:

“An Act of the National Assembly for Wales prohibiting persons from requiring certain payments to be made or certain other steps to be taken as a condition of the grant, renewal or continuance of standard occupation contracts; to make provision about holding deposits and in relation to requirements to publicise certain fees charged by letting agents; and for connected purposes.”

In simpler terms, the bill is prohibiting all forms of payments that guarantee the condition of tenancy or renewal of tenancies. The law is pretty plain: letting agents and landlords cannot ask for letting fees of any kind as a requirement for tenancy.

A lot of political discussion, though, has not discussed where letting agents will balance the books without fees – the money that would be paid as letting agent fees simply isn’t going into a black hole, it’s just going to hit investors, landlords and tenants later down the line.

The Knock-On Effect

Renters should withhold their confetti for now. While the law is being received as wholly positive by the renting sector, it will cause a large knock-on effect. Letting agencies are responding to letting fee prohibition by increasing their charges to landlords. The follow on for this, then, is increased rent charges to accommodate this, increasing the price of rent nationwide.

While these issues will be a headache for investors in the short-term, they should even themselves out over time. Proactive landlords have already raised rents in line with this expected ban, and those with close relationships with their agents and tenants have more than likely sorted out how to balance the rise in fees. However, the burning question in landlords’ pockets is how this change will affect housing prices and, perhaps more importantly, buy-to-let mortgages.

How Do Letting Agent Fees Affecting Buy-to-Let Mortgages?

Many feel as though the buy-to-let well is drying up, but in fact, it’s just filling up with more niche opportunity. From a combination of taxation changes and government legislation, the market has seen a quarter of landlords considering selling up within the next 12 months.

Now, with increased letting agent fees, some landlords are feeling caught out in the cold. Buy-to-let, though, is still here to stay, and the changes to letting agent fees for landlords are opening up more opportunity.

While some landlords and investors are selling up, others are seeing an opportunity, making the most of comparatively low mortgage rates to refinance and diversify their portfolios. With all of these changes, UK Finance reported that new buy-to-let mortgage lending was down 14.3% year-on-year, but this was balanced with evidence that remortgaging was up 4.5%. So, while landlords are cooling off buy-to-let for now, an opportunity is opening up for investors to make the most of falling rates via remortgaging and reinvestment.

If some landlords are deciding to sell, too, then it offers up a chance for perceptive landlords to pick up a bargain. The Land Registry House Price Index showed that property prices fell by 0.6% month-on-month in February, with an annual increase of the same percentage. Overall, a slower market means there is an opportunity for investors to find house prices for a lower price, a trend that is likely to continue given the letting fee abolishment.

Overall, while there is a lot of pandemonium about the letting fees ban, the market is likely to balance itself out in the renting sector. For investors, though, this is an opportunity to either sell up or make the most of glaring gaps in the housing market.

Could An Investment Mortgage Help You?

Sometimes periods of uncertainty and changes can lead to investors running to sell, but what banned letting fees show is that moments like these can quickly turn to opportunity. If you find yourself wanting to make the most of remortgaging, selling or are simply confused, do get in touch.

Our friendly team of brokers can source you investment mortgages at a competitive rate. Let’s talk finance!