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Letting Agent Fees and Deposits: Private Rented Sector

Volume 609: debated on Tuesday 3 May 2016

Motion made, and Question proposed, That this House do now adjourn.—(Kris Hopkins.)

Thank you, Mr Speaker, for allowing me the opportunity to secure this debate. Tonight, I want to highlight the emerging scandal of letting agent fees. Those are fees charged by letting agents when a tenant takes on a new tenancy, on top of any deposit that needs to be paid to secure a property and in addition to the monthly rent that needs to be paid in advance. In London and the south-east, letting agent fees have rocketed over the last two years as competition for rental properties has grown. Not only has the amount charged by letting agents increased, but there has been an increase in the types of fees charged.

There seems to be a particular problem in London, where competition in the private rented sector is fiercest, but the problem is also now affecting many parts of the south-east, including my own constituency of Lewes. My constituency is only 58.2 miles from London and, despite the poor rail service, which has been the subject of previous Adjournment debates, is still very commutable. After being priced out of the London housing market, many people move to the south coast, so competition for rental properties has soared in my constituency during the past 18 months, and letting agents have put up their fees accordingly.

At this point, I should declare that I am a patron of a local housing charity, Homelink, in Lewes. It provides financial assistance to people struggling to secure a deposit for a home to rent. Homelink has seen a significant increase in local letting agent fees during the past 18 months. As a result, it is having to provide local families with financial support for the fees, as well as help for the deposit. In 2015, Homelink provided over £101,000 in financial assistance to local people to help them to secure a home. Despite that, Homelink has seen key workers, those on a low income and young people priced out of the local property market not because they could not afford the rent, but because they could not afford the fees and the deposit required up front.

To investigate the extent of the problem of lettings agent fees, my local citizens advice bureaux in Seaford and Lewes researched those fees across the constituency. They found that the fees can range from £175 to £922. Such fees are in addition to the average six-week rent deposit required—it is rapidly becoming an eight-week rent deposit—and the month’s rent needed in advance. Using the rent calculator provided by the charity Shelter, which is available on its website, a new tenant wanting to rent a two-bedroom property in Lewes, where the average rent is £1,200 a month, would need to stump up in advance anything from £3,032 to £3,779, depending on the lettings fees charged. Realistically, how many of us could afford that?

The research from the citizens advice bureaux goes further, and makes fascinating reading. They have found that not only do fees vary from £175 to just under £1,000, but that such variations can be found by letting agents on the same high street, with the big national letting agents tending to charge the most, while the small independent agents charge the least. Moreover, the type of fees that a letting agent charges varies greatly. Letting agents often charge a holding fee of about £200 to secure a property.

Does my hon. Friend agree that part of the problem is not just the size of the charges, which can be great, but the lack of transparency? They are often levied on the basis of a pretext that is completely unclear and completely unjustified.

I completely agree. I will come on to that specific point in a moment.

The holding fee of about £200 does not always secure a property and is not always refundable. A credit check can amount to about £100. All letting agents charge for drawing up a tenancy agreement, but some charge more for other tenants on the agreement. One tenant who takes out a tenancy agreement may be charged up to £350, but a second tenant may be charged up to £450. Reference checks cost roughly £100, and admin costs usually amount to another £100 to cover phone calls and postage. Some letting agents are making a new charge for an express move. Someone wanting to move into a property within three days will have to pay an extra £100, while to do so within five days costs £50. Letting agents even charge people if they have a pet—this is separate from what the landlord requires—and often charge them £200 to bring a pet with them. If one of the young people in a group who are sharing a property moves out, the person who takes over the sharing arrangement can be charged £300 just to change the name of the sharer in the agreement.

I draw the House’s attention to my entry in the Register of Members’ Financial Interests. My hon. Friend is quite right to raise this subject. There is clearly not a free market for tenants, who follow property rather than choose between letting agents because of fees, so it is an issue that we need to address. However, letting agents rely on these fees for income, and so that income would have to come from somewhere else; it could be added to rent or else come from higher fees for landlords. Agents may also choose to take the most secure tenants and prefer those with good credit histories, rather than take a risk on a tenant with an inferior credit history, because of the risk of having to do the work twice, which would add to their costs. There is a potential issue there, so should we consider a cap rather than abolition?

I completely agree. That will be one of the recommendations I make to the Minister.

Research by the National Union of Students mirrored that undertaken by my local citizens advice bureaux. The NUS surveyed 3,000 students and found that, on average, students pay £887 in fees, going up to more than £1,000 if they rent from an agent online. That shows that the situation in my constituency is being replicated across the country.

There is still one more injustice that tenants have to endure on top—the six-month tenancy regime. Very often, tenants want a longer lease and landlords are happy to give them one. But it is in the letting agent’s interests to keep tenants on a rotating six-month tenancy, because every time that tenancy is renewed the agent charges another £150 to £350. It is a classic opportunity to fleece tenants once again. The renewal of the same lease for the same tenants for the same property just costs the tenants more money. In law, a tenant should be able to ask for a longer lease from their landlord, but letting agents often ensure that that message is not passed on, and so every six months tenants have to pay fees to agents for little more than a new piece of paper.

To go back to the point raised by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), landlords are often none the wiser about the charges that their tenants face. In fact, landlords often pay no fees at all, because they benefit from letting agents who are keen to encourage them to put their properties on their books rather than those of another letting agent. The charges are therefore passed on to the tenant.

What do letting agents actually do to justify their fees? They do a great deal of work. A let-only deal will involve the letting agent assessing a property for rent, submitting the advert, carrying out viewings, doing tenant reference and credit checks, ensuring that tenants have contents insurance, providing tenancy agreements, setting up payments and informing utility companies of any changes. However, does that work really justify charging tenants just under £1,000?

My hon. Friend is making some very important points. Does she appreciate, however, that estate agents are making around 40% of their income from lettings fees, so if we abolish or cap them, those costs will only be passed on to the tenant in a different way, principally through higher rents from the landlord? There are perhaps two answers. She has already alighted on one, which is to try to encourage—not mandate, but encourage—longer tenancies. Secondly, this House should be much more cautious in future about increasing the regulatory burden on landlords, so that letting agents do not have so many items to check off before they can get tenants into properties; I am thinking, for example, of the right to rent changes brought in recently, which put extra costs and burdens on landlords and letting agents.

I thank my hon. Friend for his points. I am sure he will hear some of those suggestions in my recommendations.

The Government have done a tremendous amount to protect tenants and restrict over-exuberant letting agents. Last year, they made it illegal for agents to charge potential tenants to register with them or to charge for providing lists of properties. The Government also changed the law so that agents have to advertise their fees publicly in advance, both online and in their offices; non-compliance is enforceable by local trading standards officers, with a maximum fine of £5,000.

That change is very welcome, but in reality the law is not being followed. Again, my enthusiastic bunch of volunteers at the citizens advice bureaux did a form of mystery shopping locally. They visited 10 letting agents in Lewes and 15 in the town of Seaford. Of those 25, only one had its fees easily and publicly displayed. In practice, then, tenants are none the wiser that there is such a difference in fees between letting agents in the same town.

I therefore have five asks of the Government to ensure further protection for those who find themselves part of generation rent—very often those who cannot afford to buy a property or get a mortgage. First, we should indeed cap letting agent fees, because there can be no justification for the difference in the fees currently charged. Secondly, we should set standards for what can and cannot be charged for. For example, is it right that tenants are charged a holding fee that does not actually hold the property they want and that is not refundable? Thirdly, we should end the practice of charging for tenancy renewal, or at least give greater protection to tenants on short-term lets.

Does my hon. Friend agree that short-term lets of six months are not only hugely costly to tenants in what should be a straightforward renewal—there should also be much more openness about the possibility of having a longer tenancy agreement—but undermine people’s sense of security and their connection to their community?

I agree with my hon. Friend, because tenants have a legal right to ask for longer tenancy agreements, but often that request is not passed on to their landlords.

Fourthly, there should be tougher penalties for not displaying fees, because that is clearly being flouted. I urge that councils should be allowed to keep the money from any fines to encourage them to enforce the law that already exists. Fifthly, we should promote this issue so that tenants are aware that there is a difference between the fees that are charged, often on the same high street for the same properties. I have written about that in my monthly column in the Sussex Express in order to highlight the issue so that tenants are aware and can then make choices for themselves.

In conclusion, letting agent fees have the greatest impact on the young, the poor and those excluded from the housing market. Many letting agents know that these people are desperate to secure somewhere to live and take full advantage by charging exorbitant fees. There is huge competition for housing, particularly in London and the south-east, and if someone refuses to pay these fees there are three or four people behind them in the queue who will. I urge the Government to step in and protect tenants from the scourge of letting agent fees.

I am grateful to my hon. Friend the Member for Lewes (Maria Caulfield) for securing this debate and giving the House an opportunity to discuss letting agent fees and tenants’ deposits in the private rented sector. The Government are committed to promoting a strong and thriving professional rented sector where good landlords can prosper and hard-working tenants can enjoy decent standards and receive a service that represents value for money for their rent. The vast majority of landlords provide a good service and rent out good-quality, well-managed properties. We know from the English housing survey that 84% of tenants are satisfied with their accommodation and that, on average, tenants stay in a property for four years.

The private rented sector is expanding and is now a major part of the country’s housing stock, providing homes for over 4 million households. We want to see professional buy-to-let and institutional landlords and high-quality and professional letting agents who provide value for money for tenants. We have therefore introduced a range of measures to help drive up standards and improve the quality and management of privately rented housing.

Since 2014, all letting agents and property managers have been required to belong to one of three Government-approved redress schemes, with a penalty of up to £5,000 for those who fail to comply. Where standards do not meet expectations, both tenants and landlords now have an effective and transparent means of raising their concerns. This offers a clear route for both landlords and tenants to pursue complaints by weeding out the cowboys who give agents a bad name, and at the same time we hope to drive up standards for tenants.

Since 2015, letting agents and property managers have also been required to display a full tariff of their fees prominently in their offices and on their websites, and to make clear whether or not they belong to a client money protection scheme, with a fine of up to £5,000 if they fail to comply.

We have introduced legislation, through the Deregulation Act 2015, that prevents landlords and letting agents from evicting a tenant simply for making a legitimate complaint about the condition of the property. They have also been prevented from serving open-ended eviction notices at the start of a tenancy, helping to improve tenant security, which I hope my hon. Friend will agree is an extremely important move. We have also made £12 million available to a number of local authorities to help them crack down on rogue landlords and drive them out of the sector. Results have been impressive, with over 40,000 properties inspected and legal action taken against more than 3,000 landlords to date.

And we are going further. Through the Housing and Planning Bill, we are introducing a package of measures that will enable local authorities to do more to improve standards in the sector and ensure that rogue landlords either are forced to improve or leave the sector. Civil penalties of up to £30,000, which the local authority can retain and use for housing and enforcement purposes, will be levied in the most difficult cases, while a database of rogue landlords and letting agents will allow councils across the country to keep landlords and letting agents convicted of criminal offences firmly on their radar and a target for enforcement action.

My hon. Friend will know that the Government, through the Bill, are introducing banning orders for the most serious and prolific offenders. The measures will also require the repayment of rent where a landlord has illegally evicted a tenant, failed to rectify a potentially serious health or safety hazard or breached a banning order. There will also be a tougher “fit and proper person” test to help ensure that rogue landlords and letting agents are properly vetted before they can manage licensed properties.

The Government are committed to ensuring that where a tenant pays a deposit to their landlord, it will be returned at the end of the tenancy, provided the tenant has complied with the terms of the tenancy agreement. Where a deposit is paid in conjunction with an assured shorthold tenancy, it must be protected by the landlord or agent in one of the Government-approved schemes, and certain information must be sent to the tenant within 30 days of the deposit being received. If a landlord fails to do so, the tenant can initiate legal action and the landlord may have to pay the tenant up to three times the amount of the deposit paid. Tenancy deposit schemes in England have protected over 11.5 million deposits since their launch in 2007 and helped to raise standards in the private rented sector and ensure that tenants are treated fairly at the end of a tenancy.

I am clear that the vast majority of letting agents provide a good service to tenants and landlords and that most fees charged reflect genuine business costs. I do not believe, therefore, that a blanket ban or cap on letting agent fees is the answer to tackling the small minority of rogue letting agents who exploit their customers by imposing inflated fees for their services. Banning or capping letting agent fees would not make renting any cheaper for tenants—tenants would still end up paying but through higher rents—which is why the Government believe that ensuring full transparency is the best approach. This can be done by requiring letting agents to publicise a full tariff of their fees, giving consumers the information they want and supporting the majority of reputable letting agents. Such transparency will help to deter double charging by letting agents and enable both tenants and landlords to shop around, encouraging agents to offer competitive fees.

The evidence from Scotland, where letting agent fees have been banned, strongly suggests a direct relationship between a ban and higher rents. The Association of Residential Letting Agents commented that

“there was strong evidence of a negative fallout in Scotland...agents have gone out of business, some have raised landlords’ fees, some have put up rents”.

In the first quarter after the introduction of the ban, rents in Edinburgh increased by more than 5% and in Aberdeen by over 6%. While a direct link between the abolition of fees and higher rents cannot be proved, these rises are significantly higher than inflation. By comparison, over the same period, the average rent increase across England was just 1%.

Moving on to deal with my hon. Friend’s specific questions, I have probably covered those she asked about the cap. Although we do not believe that a cap on letting agent fees is the right answer, when the requirement on letting agents to publicise their fees was introduced in October 2015, we said that we would review how well the scheme was working after 12 months. I think that is a sensible approach, allowing the new system time to bed in and to demonstrate that it is delivering the expected benefits.

I cannot pre-judge the review or its recommendations, but I am clear that we are not ruling anything out. If we find that the approach is not, in fact, working well, we will consider whether more needs to be done, including looking at the case for taking action on fees. The review will be carried out later this year. In the meantime, the Government’s position is that a ban or cap on letting agent fees would be disproportionate, probably pushing up rents without benefiting either landlords or tenants.

My hon. Friend made a request about having statutory tenancies longer than the usual six or 12-month ones. As I said at the outset, the average tenancy is sustained for a period of four years, and the Government are not currently looking to change that. My hon. Friend will know, I am sure, that the model tenancies brought forward by the Government over the past few years have been extremely successful and have been adopted by many letting agents.

My hon. Friend mentioned tougher penalties. When we look at the review, I am sure that that issue will be considered, too. My hon. Friend knows—she served on the Housing and Planning Bill Committee—that there are significant penalties for rogue landlords and rogue letting agents. Civil penalties of up to £30,000 exist as a deterrent to them, and as my hon. Friend mentioned, that sum can be kept by local authorities to assist them with further enforcement.

I am grateful to my hon. Friend for raising this important issue, and I hope that my response this evening has reassured her that the Government take extremely seriously the issues she has set out for us. Following a review later this year, we will consider whether more needs to be done.

Question put and agreed to.

House adjourned.