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Kevin Hollinrake (Thirsk and Malton) (Con)
I beg to move,
That this House has considered the proposed ban on letting agent fees to tenants.
It is a pleasure to serve under your chairmanship once again, Mr Owen. I must first draw the House’s attention to my entry in the Register of Members’ Financial Interests. I worked in the property sector for 30 years prior to joining this House. I started my business in the property sector 25 years ago. It has grown into a national business, which I am still involved in as non-executive chair and a principal shareholder. Like many in this sector, my business and its revenue would, on the face of it, be significantly affected by the proposed changes; nevertheless, for reasons I will outline, I am in favour of the ban on lettings fees, but it needs to come with effective enforcement, and we need to cater for unintended consequences, in particular for those whom we are most trying to help in this House: tenants on low incomes.
Why am I in favour? I have declared my interest in this sector, but think that all Members with any outside interests should leave them in the Members’ cloakroom when they join this House. We should first look to ensure that we represent our constituents’ interests. Of course, our constituents include letting agents, landlords and tenants. For me, in business, as in politics, the consumer has to be put first. The free market is ultimately the best regulator that we can ever have. It creates so much opportunity. It created opportunity for my business 25 years ago; there were no protections, entitlements or privileges for the businesses in our market that we sought to compete against then. The consumer, our landlords and our sellers could simply choose which agent delivered the best service at the best price.
Siobhain McDonagh (Mitcham and Morden) (Lab)
May I ask the hon. Gentleman what an unfettered free market, where supply is limited, does for first-time buyers and people on low incomes who have to resort to the private sector?
Kevin Hollinrake
The first-time buyer difficulty is huge. We are not debating that today—we are talking about tenants—but as I stated, we need to consider the plight of those on low incomes, and I will do that shortly.
The point is that tenants do not have a choice. This is not a free market for tenants in terms of levying fees on them. Landlords choose agents; tenants choose properties. When a tenant has chosen a property, the agent can charge them whatever they feel is the right fee. It is a completely closed market at that point. Most agents take a very responsible view of that and provide their services at fair rates, but from the research done in the consultation by the Department for Communities and Local Government, we know that there is huge variation in those charges. DCLG suggests that the average tenant fee is £318; the industry says that it is much lower. One thing that we would all agree on is that there is huge variation. DCLG says that tenant fees are between £120 and £747.
I was recently at a roundtable of letting agents discussing this issue. A high-profile London agent said that they charge a £400 tenant fee, which they justified on the basis that they provide viewings for tenants. To me, that is clearly a service they provide for their landlords. Another leading figure in the estate agency industry talked to me about his daughter, who went to college in Manchester. She rented a house with four fellow students, and they were charged £500 each as a tenant fee. That is simply unfair.
Some agents exploit this opportunity. They use it as a way to compete unfairly in the marketplace, which is not good for people who operate a fair system of charges. They use it to lower their charges to landlords, so that they attract more of them, and transfer that cost to the tenant. That cannot be right. Others use it simply to maximise profits. There is a loophole, and I welcome the Government’s action in looking to close it. I think that tenants should welcome that, as well as housing charities and Members across this House.
However, it is right that we consider the potential impacts of this change, and there are impacts and unintended consequences. First, there is the issue of rent increases. All rules and regulations have a price tag. A similar ban was introduced in Scotland in 2012. It was a kind of secondary ban, because a ban was put in place some years earlier that had not been totally effective. Having talked to agents in Scotland, I know that they had to make more efficiencies after the ban. They cut jobs and transferred some of the costs and charges to landlords, which is bound to result in higher rents. In terms of landlords and the private rented sector, the lettings market is an effective free market, and those markets do not lead to excessive profits if there is sufficient competition, which there is. Research by LSL Property Services—a property company that looked at the Scottish situation—said that there was a 4.3% increase in rents in 2013, compared with a nil increase in 2012.
The likelihood is that there will be a rise in rents, and that will disproportionately affect some tenants. Tenants who move more frequently will probably be better off; tenants who stay in properties for longer—usually tenants on lower incomes—would potentially be worse off if the fees go into rents. Overall, in their consultation, the Government recognise that this is a potential, if not desirable, outcome. The housing charity Shelter, which has been campaigning on this matter, also sees it as a potential outcome. On the forum that we held on Money Saving Expert, we asked tenants about that, and they said that the transparency of that is better than the lack of transparency and the closed market regarding tenant fees.
I see in the Gallery a number of people who are involved in the industry. The industry is very concerned about the impact on jobs and businesses. The industry position is that we should have a cap, rather than a ban, on fees. I understand that, and at one point argued for it, but the trouble with a cap is that it is a contrived device. Putting a cap in place potentially allows for a race to the top. It does not afford the opportunities of a free market, which I see as the best regulator. What charges would we allow and where would those be capped? That was one of the issues with the original Scottish scheme that was supposed to ban fees. It created a loophole that allowed other types of charges. The Government’s position is clear, and the reality is that the direction of travel is towards a complete ban.
We must consider businesses, which are hugely important. Their investment in our economy and the jobs and wealth that are created are very welcome, and we should do whatever we can to ensure that we create a fair, level playing field for business. According to Companies House, the number of letting agents in Scotland has increased since 2012, so some of the worries about businesses seeing difficulties are probably overblown. One of the leading lettings-only agents in Scotland has had no office closures since 2012.
As somebody who believes in competition, I see market failure and closed markets as protecting weak companies that do not compete on a level playing field, and that do not really work, in terms of their services and in terms of efficiencies, which businesses are so good at.
Julian Knight (Solihull) (Con)
My hon. Friend is making an excellent and balanced speech. He mentioned that there has been no decline in the number of letting agents in Scotland since the new regime. How does he account for that? What is the key reason why the industry has continued to prosper?
Kevin Hollinrake
I like to think, although I have no definitive evidence, that a dynamic market has been created. New entrants have come into the market that are willing to work harder and provide different, more efficient services. Some agents will find it difficult and there will have to be job losses, but hopefully those jobs will be transferred to new businesses that come into the market and compete. We should see this as a definite challenge, but also as an opportunity within the sector.
One of the biggest concerns is the unintended consequences, particularly for tenants on low incomes. Agents are allowed to charge tenants for very important services such as references and inventories, but in future they will not be, so the costs will be borne by the letting agent. When faced with a tenant whom we might call borderline—somebody who is on a lower income, who might fail a credit check or who is on housing benefit—the letting agent may not want to carry out a reference check, if they will not get paid for if the tenant fails it, so they may plump for a safer bet. This may result in some tenants being unable to rent the properties they seek.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
I draw the hon. Gentleman’s attention to a quotation from an article in The Daily Telegraph on 27 August. This touches on the point that my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) made about young people. Does he agree with this?
“If you are under 35, it’s likely there is little chance of you ever owning your own home. No doubt you are also fed up of living in overpriced rented accommodation, often of a standard that can best be described as a dump.”
Is this not part of a wider malaise? Our leader would be proud of that article, since a lot of it seems to be pilfered from the 2015 Labour manifesto.
Kevin Hollinrake
Well, nobody has a monopoly on the best ideas. The Government absolutely believe in the power of market forces and want to ensure that they apply universally. However, I do not recognise the hon. Lady’s description of the private rented sector. There are 4 million properties in that sector in the UK, of which about 1 million—a significant number, but a minority—are considered substandard. I will move on later in my speech to how we might deal with properties of substandard quality and condition, but I do not recognise them as characteristic of the industry, of landlords or of agents.
Dr Huq
I neglected to say that the article I mentioned was written by the Minister’s former colleague Rob Wilson, the former MP for Reading East who was defeated at the last general election. He writes that the Conservatives should get a grip on housing if they are ever to win again.
Kevin Hollinrake
That is exactly the purpose of this legislation. I will move on shortly to how we tackle substandard properties, but the point is that they are a minority. The hon. Lady characterises rented properties as universally substandard; I do not accept that at all. When I started in the industry 30 years ago, the only homes for rent in the middle of York were shabby, damp, dark terraced houses. There was very little choice in the private rented sector. Since then, the private sector has delivered excellent accommodation throughout the country. Yes, there are difficulties, including rogue landlords and rogue agents, and we need to deal with them. The Government have legislated and are legislating on that basis.
Kevin Hollinrake
One last time, but after that I had better make some progress.
Sandy Martin
The hon. Gentleman talks about the delivery of rented sector housing in the free market. Does he accept that there is a big difference between a normal market and the housing market—a market for a service of primary importance to the continuation of human life, with a massive gap between demand and supply? That has put the tenants in an impossible position vis-à-vis the agents. In any normal market, such as groceries, demand meets supply. Someone who goes into a supermarket does not get charged its advertising and transport costs on top of the price of the groceries. The customer knows what they are paying, and we need the same in the lettings market.
Albert Owen (in the Chair)
Order. Interventions need to be slightly shorter.
Kevin Hollinrake
The hon. Gentleman makes some good points. In the main I support them, though I do not agree with them all. I have made it clear that there is an issue here that we need to deal with.
I have a couple of further points on unintended consequences. It is welcome that holding deposits will remain, and that if a tenant offers false documentation, the letting agent can retain it. I wonder who adjudicates on whether that process is fair; I think it is part of the redress schemes that apply to letting agents. There are also exemptions for tenants’ actions, so that tenants can be charged if they lose keys or break a contract. Again, I believe that that is fair.
The consultation suggests limiting security deposits to one month’s rent. The difficulty with that is that a number of tenants will try to use their security deposit as their last month’s rent. We know that around 50% of tenancies end with condition issues and work required. Limiting the security deposit to only a month’s rent raises the possibility of leaving the landlord out of pocket, because it is very difficult to chase a tenant for a debt once they have left. One month may be too short a limit; we need to look at that.
We really need to consider enforcement. The consultation proposes that local authorities enforce and oversee the regulations, but we know that most local authorities simply do not have the time to do that effectively. We need proper enforcement to ensure that we deliver a level playing field for all companies, in which rogue agents cannot continue to charge while good agents do not. In a recent survey, 45% of local authorities said that they took a “reactive only” approach to regulation in the sector.
The rules will also apply to landlords who let directly to tenants. England is the only part of the UK that does not have a central register of landlords. Who will monitor landlords to ensure that letting agent fees are not simply being transferred to direct charges from landlords? Who will regulate that area? There is a chance that more landlords will self-let after the changes.
There is a simple solution: extending the redress schemes, which have been very effective in raising standards, to landlords, so that tenants who rent directly from landlords have somewhere to press a claim for unfair treatment, rather than going to their local authority. That would be a light-touch way of regulating the sector. It would also have the benefit of improving rental standards, to which the hon. Member for Ealing Central and Acton (Dr Huq) referred. Redress schemes could apply a national rental standard and oversee it to ensure that we raise standards. The Government have been proactive in raising standards, having introduced measures on smoke alarms, carbon monoxide detectors, electrical checks and client money protection.
Siobhain McDonagh
The hon. Gentleman is very generous in giving way. We can have what laws we like; if local authorities do not have the funds to do works in default if a landlord does not do them, the laws are pointless. In the last year, only 19 of the 33 London boroughs have done any works in default.
Kevin Hollinrake
I accept that point; I made it earlier. A far more effective way to regulate this would be to have a redress scheme, backed up by a lead enforcement agency for prosecutions and higher fines. At the moment, the fines are £5,000, which is insufficient. Fines for rogue agents should be up to £30,000, as in the Housing and Planning Act 2016, and we should also allow for the possibility of banning orders for rogue landlords and agents. Again, that would potentially provide a funding stream for local authorities and the lead enforcement agency.
In conclusion, the way forward is to make sure that we deal with unintended consequences and deliver a considered and strategic solution, using a combination of market forces, the best regulator and light-touch regulations, which would lead not only to a level and fair business playing field but—crucially—a fair deal for tenants.
Siobhain McDonagh (Mitcham and Morden) (Lab)
Thank you, Mr Owen, for calling me to speak and I also thank the hon. Member for Thirsk and Malton (Kevin Hollinrake) for securing this important debate.
At one stage, the private rented sector was the stop-gap for people before they owned their own home. Now in the UK, one in four families with children privately rent, which is up from one in 10 just 10 years ago. In fact, the total number of households privately renting has increased by more than a third since 2010. The under-supply of new houses, particularly social homes and affordable homes, is forcing those households into the private rented sector and extortionate costs have left them trapped and unable to save for a home of their own.
Let us start with the letting fees. Every month, renters pay more than £13 million in unfair fees. On average, each tenant is expected to pay more than £200, with one in seven being charged more than £500. I have heard of tenancy agreements that are as high as £480 and referencing fees that are up to an eye-watering £550. Fees have risen faster than inflation and it is no wonder that, as a result, more than half of tenants have had financial problems. About 27% of tenants have had to borrow or use a loan to pay fees, while 17% cut down on heating and food to cover costs. Can anyone explain why a referencing could possibly necessitate such an extraordinary expense?
Let us take my constituent David as an example. He rents a small room in what was originally a three-bedroom house. There are now two further bedrooms in the loft and the two reception rooms on the ground floor are also used as bedrooms. There are currently 10 households in that house and David is charged £550 a month for his room. That is not the highest rent in my constituency, but it is still high enough, and he was further charged an astounding £1,250 in letting fees, as well as an additional £50 simply to get a letter that explained how much his deposit was and what he had paid for. How can anyone possibly justify such a disgraceful fee? Such fees are exploitative and the market is completely lacking in transparency, with fees being set and charged by individual agents.
I appreciate that I am coming at this issue very much from a London point of view, but the owner of the property that David lives in is taking in a rent of £3,850 per calendar month for an unregistered house in multiple occupation.
Despite the Consumer Rights Act 2015 making it mandatory for letting agents to publish their fees in full, 12% of them still do not do so. One in five tenants expect to have to pay an average of £80 to renew their tenancy, with letting agents preferring short tenancies, so that they can impose fresh extortionate fees on a new tenant. Since the proposed ban on letting fees, one agent has even introduced an additional fee, named a “legal document charge”, as compensation in the short term before the proposed ban hits. Capping those fees would not limit the number of different charges that a tenant might face and I agree with the hon. Member for Thirsk and Malton that they should be banned once and for all.
However, a ban on letting fees will not solve the country’s housing crisis; it would not even solve the crisis in the private rented sector. Since 2010, the cost of private rents has risen by 22%, making tenants increasingly reliant on support from the state. In fact, the amount of housing benefit going to private tenants has more than doubled in the last 10 years, with a quarter of private renters now claiming it. Similarly, the average cost of a deposit in London is a staggering £1,760.30. A ban on letting fees will not solve those spiralling financial issues.
Renters are lost in our housing crisis. They are unable to afford their own home but are unlikely to qualify for social housing. They face paying rents that on average take 41% of their household income, compared with homeowners, who pay 19% of their income on mortgage payments. How can a private renter ever be expected to afford their own home? Extortionate costs have left almost two-thirds of private renters without savings or investment, them precariously close to homelessness if rents continue to rise. It is no wonder that private renters are now the biggest group being made homeless, with one in three homeless cases involving a tenant at the end of their tenancy.
I hold my advice surgery every Friday and the biggest group of people who come to me because they are threatened with homelessness are mature families with three or four children, and they have lived in their private rented home for 10 or 15 years and never miss their rent. They have done nothing; they come to me because of the fact that their landlords can receive higher rents by renting to people who are not even partially on housing benefit. When my mum and dad came to London, they regularly saw signs in the windows saying, “No blacks, no Irish, no dogs”. Today the equivalent signs say, “No one on housing benefit or universal credit”.
Considering the extraordinary costs, it is unforgiveable that almost a third of private rented homes in England fail basic health and safety standards. In fact, a private landlord is more than twice as likely as a social landlord to be renting out a property containing a serious safety hazard. But tenants are petrified of voicing their concerns, with 820 renters per day in 2014 being threatened with eviction for highlighting poor conditions in their home. Councils have the power to fine failing landlords but are strapped for cash themselves and simply cannot afford to enforce the regulations. Next month, the Government’s register of rogue landlords will become active, but unless tenants can access the register it will be worthless to them.
After hearing these statistics, few will be surprised to hear that the level of home ownership in Britain is at its lowest since 1985. When I became an MP in 1997, homeowners could expect to pay just over three and a half times their annual earnings to buy a house; now, it is over nine times. Newly built houses are out of reach for 83% of working private renting families and the vast majority of those families are simply unable to afford a home of their own.
Dr Huq
Does my hon. Friend also agree that this problem is also an outer London problem? It used to be the kind of thing that was associated with inner cities. In my constituency of Ealing Central and Acton, 34.4% of people are in private rented properties, compared with 16% nationally. We have a landlord register, which is a good idea. Does she agree?
Siobhain McDonagh
I totally agree with my hon. Friend. We both represent outer London constituencies and we are seeing rents that are completely unimaginable. I was looking for a home for a constituent who had to leave her previous home in shocking circumstances. We spoke to a very good local landlord, who told me that a one-bedroom flat in the street I was born and brought up in and where my 93-year-old mother still lives would cost £1,250 per calendar month. My constituent is a young woman who has a good job as a civil servant—she works very close to where we are now—but there is no prospect of her having access to such a home.
For those who cannot afford private rents, nearly 76,000 households are now in temporary accommodation, while not a single starter home has been built since the Government announced their flagship programme three years ago. Our housing market is broken. The lack of housing supply is at the heart of our housing problems, from homelessness to falling home ownership and soaring house prices.
Kevin Hollinrake
The hon. Lady has highlighted serious abuses of the private rented sector, particularly in terms of some of the conditions and charges that she referred to. Does she accept that there is life outside London? The property market in the rest of the country can be completely different to the one she describes. Does she also accept that the vast majority of landlords and agents do a very good job in their provision of the private rented sector and making sure tenants get a fair deal?
Siobhain McDonagh
First, I accept the hon. Gentleman’s point about London. Our problem is that London is such an important driver for the country’s entire economy and London is getting bigger. Merton is no longer an outer London borough; it has become inner London because London is becoming Reading or Milton Keynes. The pricing out of the people who do the important jobs that we need to be done from ever having an opportunity to live in our city is an important issue for the whole country.
Wera Hobhouse (Bath) (LD)
Does the hon. Lady accept that the issue is not only a London problem? I represent Bath and the problem spreads around the country from London, so it is not just a London problem.
Siobhain McDonagh
I appreciate what the hon. Lady says. I imagine Bath is becoming part of Greater London as well as people make ever further attempts to be able to afford the sort of home in which they want to bring up their children. I accept that most private landlords and letting agents are good people simply doing a job, but that does not solve our housing crisis. Buying to let causes problems for young people in good jobs who simply want the opportunity that many of us had to own a home, and we have to do something about that. The problem is not bad motives on the part of people, but the fact that buy to let has an implication for the wider housing market, our wider economy and our wider society.
A homeless family turning up in Merton today will be placed in temporary accommodation in Birmingham or Burnley, away from their wider family and away from their support and their children’s schools. That cannot be right for anybody. Let us ban letting fees, but let us not believe that that will help us to resolve our housing difficulties.
Albert Owen (in the Chair)
I do not want to impose an official time limit, but I will call the Front Benchers at half past. Those who wish to speak have about four minutes.
Mr Charles Walker (Broxbourne) (Con)
I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on securing this debate this morning.
There are many good landlords, but it is clear that there are some pretty shocking ones as well. It is in the interests of good landlords to get a grip and ensure that the bad landlords and letting agents are pushed or driven out of the market. It is perfectly reasonable for landlords to fund searches and referencing. I do not think that is a problem; it is a price that landlords should pay.
There is a competition out there among letting agencies for those with properties to let. So if someone goes along to a landlord and says, “We will let your property, but we will charge you £1,000 for referencing,” they will probably get short shrift. However, if they say, “This is a market. We do thorough and good referencing that will cost you £250,” the landlord is probably more likely to use that agency. Landlords will do their research, look online and see an agency has positive endorsements, but with the great internet it is possible to find the agency out there that will let their property to tenants.
I think we need to go a little further because check-in and check-out can cause problems. It is hugely important that check-in and check-out is done by an independent person. My hon. Friend mentioned that 57% of properties are self-let, which creates a problem when the owner—the landlord—checks the tenant in and checks them out. That is not an independent check-in and check-out. It is possible that some landlords allow self-interest to interfere with what is fair and just. I want to see independent check-in and check-out so that when a property is let there is certainty that the person looking at the inventory does not have a stake in the game. It would be reasonable for the landlord to fund that.
Julian Knight
I take my hon. Friend’s point entirely; I am greatly in sympathy with him. However, in the case of an independent landlord doing the checking in and checking out, if it is not done properly and agreed with the tenant at the time, under the tenant deposit scheme any withdrawal of money or holding back of the deposit means it becomes null and void, so there is an onus on the landlord to ensure the tenant agrees with the check-in and check-out process.
Mr Walker
That is a very important point. At the time, the tenant may agree with the landlord that something was damaged before they moved in, but there is no guarantee that the landlord will fix it and then in 12 or 24 months’ time—this is particularly prevalent in student accommodation at universities—try to charge the tenants again for it. Of course, the landlord is often in an economically stronger position. I welcome the fact that there is a third-party deposit scheme, but it only works properly where a letting agent is used. If the landlord is self-letting, they are not obliged to lodge the money with a third party. They keep the money, but are required to insure it with a third party. So at the end of the tenancy, the landlord still has the cash, can hold back what he or she wants and can then say, “If you want to contest it, go and contest it with my deposit.”
I have spoken to Mr Hooker, the chief executive of MyDeposits, and we have a meeting coming up. He sees the flaw in the system. If someone is self-letting, they keep the cash and simply insure against it if there is a claim against them. A lot of tenants have not got the time, the wherewithal or the understanding to challenge the deductions. We particularly see that in student accommodation. I welcome what we are doing, but we need to do more.
Helen Hayes (Dulwich and West Norwood) (Lab)
It is a pleasure to serve under your chairmanship, Mr Owen. I commend the hon. Member for Thirsk and Malton (Kevin Hollinrake) for securing this debate and welcome his support for the ban, drawing on his extensive experience in the industry.
The UK has a housing crisis that is unprecedented since the end of the second world war. By the Government’s own admission, the housing market is broken and they are failing to repair it. The number of new homes being built in the UK is well below the 300,000 homes a year that need to be built to address the shortfall, and the number of genuinely affordable social homes being built with Government funding has atrophied, dropping by a staggering 95% since 2010.
The crisis is manifest in the thousands of people on the waiting list for a secure social tenancy and the thousands who are unable to afford to purchase a home. The number of people renting privately while they wait for a secure social tenancy or try to save to purchase a home has grown enormously in recent years, and increasing numbers of people are living in the private rented sector for the medium to long term, including 1.5 million households with children—three times the number of a decade ago.
We have a private rented sector that is entirely unfit for purpose, in which tenants pay above the odds for lower levels of security and often lower quality accommodation. Private renters spend a higher proportion of their income on rent—41% on average, compared with 19% on average for people with a mortgage—leaving many unable to save and struggling to make ends meet. The ending of a private tenancy is now the single biggest cause of new cases of homelessness. Both my local councils, Lambeth and Southwark, tell me that the number of residents seeking help from the council because their tenancy has come to an end or they face an impossible increase in their rent has gone up by hundreds of cases every year, and I see struggling tenants living in impossible circumstances in my surgeries every week.
The situation is made much worse by the introduction by the coalition Government of the local housing allowance cap, which increasingly means that almost no private sector housing is affordable to people on low-to-average incomes in central London boroughs. The pernicious right-to-rent regulations are increasing prejudice and discrimination in the private rented sector. Councils in London are now seeing people who in the past would never have needed to ask the council for help with their housing being threatened with homelessness as a result of a combination of high rents, the coalition Government’s local housing allowance cap and insecure tenancies.
We urgently need wholesale reform of the private rented sector. We need longer, more secure forms of tenure; intervention to curb spiralling rents; new requirements on the standard of accommodation to make every home fit for human habitation; and an end to the iniquitous practice of section 21 no-fault evictions. Tenants, of course, have contractual obligations to pay rent and keep their rental property in good order, but the balance of power between landlords and tenants in the UK is completely unjust. It needs to be reformed to provide security and stability for the many thousands of residents who are forced to rely on it.
In the context of the need for radical reform, the proposal to ban letting agents from charging fees to tenants is a vital first step. Those fees are presently completely unregulated, and the letting agents are chosen and appointed by landlords. The majority of the services they provide are on behalf of landlords. In the purchase of a home, estate agents—often the same agents who provide lettings services—charge only the vendor. Many tenants move every six to 12 months, so fees are not a one-off cost as they are when buying a home, but a recurring and unaffordable burden. A situation where tenants are spending more than 40% of their income on rent makes it very difficult to save, and paying hefty fees to letting agents on a regular basis is simply another blow that prevents many people from adding to their savings either for a deposit or to create a bit more financial breathing space to cope with unexpected bills.
Some concerns have been voiced by letting agents, but I am not convinced that they are supported by the evidence. The first thing to say is that there are letting agents, including at least one in my constituency, that already do not charge fees to tenants, so it is clear that a successful business model for letting agents can be achieved without the need to charge tenants. The regulation of fees should, in fact, benefit responsible and professional agents, since it is often the least scrupulous agents who charge the highest fees.
Some have argued that tenants will face higher rents as landlords seek to pass any increased costs on to them. I agree with Shelter on that point, which states that predictability beats up-front costs. Although it is to be hoped that landlords would not pass on additional costs to tenants who already pay high levels of rent, an increase of a few pounds a month is clearly preferable to having a small amount of savings obliterated every six to 12 months.
Concerns have been raised that some agents would refuse to check references, resulting in an increase in the number of tenants facing discrimination. Discrimination is already common in the private rented sector. Again, I agree with Shelter: there are better methods, most notably a tenant passport scheme, that would allow checks to be undertaken in an efficient manner and refreshed periodically—rather than taken from scratch at the start of every tenancy—and that would safeguard the interests of both tenant and landlord, while enabling letting agents to operate more efficiently. Any passporting scheme should also apply to tenants’ deposits, which should be transferable from one tenancy to the next, to reduce further the burden of up-front costs.
The Government must act urgently to address the housing crisis, to invest directly in genuinely affordable social housing and to bring forward low-cost homes for first-time buyers. For as long as they fail to do so, more and more people will be living in the private rented sector. We need urgent comprehensive reform of the private rented sector to make it fit for purpose and to address the impact of housing insecurity and homelessness on families across the country. The proposed ban on letting agents’ fees is the minimum first step in that process. I urge the Government to follow through on their commitment.
Albert Owen (in the Chair)
I ask Members to be a bit more disciplined. I call Derek Thomas.
Derek Thomas (St Ives) (Con)
Thank you, Mr Owen. I am grateful for the opportunity to speak, and I commend my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on securing this important debate.
I welcome the Government’s action. When I first became a Member of Parliament in 2015, I was amazed at the number of prospective tenants who came to see me about this issue. We surveyed all the letting agencies and my office was surprised by the sheer scale and variation of charges, so I completely welcome the opportunity to get rid of charges altogether. I have three points to raise for consideration and clarification, and I hope, Mr Owen, that they will not take too long.
First, is there the potential or a plan to cap the deposit? The deposit is often set at a month’s rent. The difficulty of finding the deposit is often the greatest barrier people face in looking for a home. However, rents vary dramatically from region to region. As a result, a deposit that relates to rent can be thousands of pounds in London and a few hundred elsewhere. If the Government plan to cap the amount of deposit that can be charged, will the Minister indicate how the figure will be established? In my view, the deposit should reflect what would be a reasonable amount to bring a property back to its former condition, rather than a typical month’s rent.
I have spoken with letting agents and tenants about what the deposit might be and how that might be regulated, and it is still necessary to have some flexibility. That is in the interest of the tenant. For example, a prospective landlord may consider allowing a pet into a property in return for a slightly increased deposit. If there is no flexibility or consideration given to accommodate a pet, a person who relies on the companionship of a dog or a cat may find it hard to secure a rental property and, as a result, be discriminated against by the cap on what deposit can be charged. I would be interested to hear the Minister’s thoughts on that issue.
Finally, consideration and clarification are needed on how changes are made during a tenancy and who pays for them. If a tenant requires a change during a tenancy, such as removing a name from a tenancy agreement, that will inevitably incur a cost. Tenants need to feel that changes to their agreement can be made easily and when necessary. We must be careful not to create further barriers for tenants and, when bringing in legislation, we need to be careful that we understand clearly who will cover the cost of changes to a tenancy.
I again commend my hon. Friend the Member for Thirsk and Malton for securing this debate. I am grateful for your patience, Mr Owen, and I look forward to the Minister’s response on how deposits will be capped and on who pays for changes during a tenancy when those changes are in the interest of the tenant.
Albert Owen (in the Chair)
I am grateful to the hon. Gentleman. I have not put a specific time limit on speeches, but if people keep to what we have just had from Mr Thomas, we will get everybody in.
Jim Shannon (Strangford) (DUP)
I congratulate the hon. Member for Thirsk and Malton (Kevin Hollinrake) on securing this debate. Although it is clearly about England and Wales, there is a Northern Ireland perspective. The concerns that Members have expressed are concerns that I have as well. There are people on the waiting list who will never be housed, and that is the reason that the housing benefit system for people who need help to live independently is available for private rental households. The difference between renting from the Northern Ireland Housing Executive and a private landlord is not only the protection that is offered, but the cost.
Since the Government’s decision to pay tenants housing benefit instead of paying it directly to landlords, many more landlords have made the decision to work through letting agencies in order to have less hassle. However, that also means that tenants are swallowing the cost increase.
I thank the Library for the evidence in the background information, which notes that 93% of local authorities have failed to issue a single penalty for non-compliance by letting agents. Only three penalty notices have been issued and only one has resulted in the full costs being repaid. We can see clearly where the issues are.
The fact is that when the Government bring in legislation to give protection, the cost ends up resting mostly with the tenants, many of whom can ill afford it. Although a £25 per month increase may not seem much to many people, it would be very hard for a constituent of mine who works 16 hours, lives with her young daughter and has had no help from her husband, who left her, to pay an extra £25, upwards to £100. It would not be paid by housing benefit; it would be paid by her. Although we need more protection, we also need to ensure that the cost is accepted by those it was intended for.
Single parent families are struggling. They are receiving less tax credits, face having their housing benefit reduced depending on the number of rooms in the house, and are unable to work full-time hours and still be a loving single parent. I hate the thought that we are not protecting that type of family unit to the extent that we can and should be.
I again thank the Library for its background briefing, and I make a brief comment on the Northern Ireland perspective. Housing Rights carried out a mystery shopping exercise and went to 40 different letting agents, looking at administration costs, credit checks, tenancy renewal fees and inventory charges. The need for tighter regulation of letting agents’ fees was also raised by several Assembly Members in a debate in June 2016. Housing Rights called for greater regulation of letting agents’ practices, including a requirement for letting agencies to present all fees on their websites, advertisements and promotional material. In Northern Ireland, we recognise the need for that.
I read a guide to the changes, which referred to the mandatory inventory fee, the tenancy fee, the renewal fee and the agencies’ own administration fee. The average tenant pays £233 in fees, and some people pay a huge £700. Some hon. Members referred to the figure of £500, but it can be as much as £700. Citizens Advice found that 42% of renters have to borrow money just to pay the fees, which is not acceptable.
I will finish on this point. It is clear that, although landlords need to cover their costs and many are still paying for the mortgage on their property, we need to ensure that a pricing increase is not met with an increase to the tenant. How does the Minister believe that can most effectively be carried out?
Sir Henry Bellingham (North West Norfolk) (Con)
I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on securing this debate.
Hon. Members have given very good examples of the ways in which various agents exploit tenants. The hon. Members for Mitcham and Morden (Siobhain McDonagh) and for Dulwich and West Norwood (Helen Hayes) raised some dreadful examples. I do not doubt that there is a problem in some parts of the country—particularly London and the south-east—but no tenants have complained to me or other Norfolk MPs about letting fees in Norfolk, where we have a strong private rented market. Furthermore, contrary to what the hon. Member for Dulwich and West Norwood suggested is happening in London, since 2010 there have been 600 registered housing association starts in my constituency. A significant number of new housing association houses are coming on stream, which is due to the local council being very proactive.
I have had the chance to talk to a number of local agents, who are extremely responsible, care deeply about the work they do and take great pride in the houses they let. The average application fee in my constituency is £325, and the average renewal fee is £75. That is the situation in Norfolk. I visited a firm of estate agents in King’s Lynn called Brittons, which made it clear that the ban would have an impact on its business model and would undoubtedly lead to a loss of income and jobs. It believes that the ban would have a number of unintended consequences.
We should look at the amount of work that goes into referencing. I am told that, on average, it takes up to five hours to prepare for a tenancy, as agents have to look at all the different documentation, go through the reference requests, check the credit history and liaise with external referencing companies. I had a session with a couple of the agents in Brittons, and they told me about all the work that has to be done. They pointed out that the ban is a blunt instrument, and that it is being proposed to deal with a problem in one part of the country that is not a problem in East Anglia. I therefore ask the Minister, are there no other ways forward that could be looked at? Would a cap on fees not solve the problem? What about taking referencing fees outside the scope of the action the Government are taking?
My hon. Friend the Member for Broxbourne (Mr Walker) said that the landlord should pay the fees, but the potential tenant forms a relationship and signs a contract with the agent, who then carries out the referencing work on the tenant. The tenant then has the opportunity, through the agent, of bidding for various properties. I therefore suggest that, if the onus is put on the landlord, rents will go up, so there will be unintended consequences.
I am very concerned indeed that there could be a particular problem for tenants on low incomes—for example, those who have a particularly poor credit rating or a complex credit history. If an agent takes on the task of the referencing, it takes the onus off the tenant to some extent. If the tenant clears those hurdles, they will be in the position to have their name put forward for a property.
I entirely accept that there is a problem, and the Government are right to deal with it. They are responding to a great deal of pressure from the non-governmental organisation sector and people representing tenants and other organisations, but I believe they have to be very careful indeed that they do not do something that has unintended consequences. In parts of the country with a solid, well-performing market, they must not make changes that may disrupt the market and cause major problems for small businesses, such as the ones in my constituency.
Albert Owen (in the Chair)
If Mr Knight and Mr Stewart can share the remaining eight minutes between them, that would be very helpful. I will then call the Scottish National party spokesperson.
Julian Knight (Solihull) (Con)
I refer the House to my entry in the Register of Members’ Financial Interests. I am both a landlord and, like many in this House, a tenant. I rent out my family home, and I rent a home in my constituency.
I have scribbled out part of my speech, not just because of the time limit but because of the excellence of the speech by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake). I agree with nearly everything he said. He took a balanced view and, drawing on his wide experience, made some very important points, which I echo.
We have all heard horror stories about letting agents’ fees. I concur with what other hon. Members said; I have experienced that in my surgery and seen the advertising when I have been looking for property, particularly in the south-east of England. Some practices are, frankly, unacceptable, but we have to remember certain things about the fees. If we transfer referencing fees on to landlords, what happens if a tenant comes back with very poor references? That means that the landlord would have multiple fees to pay. That is one unintended consequence.
There is also the unintended consequence of rents going up. My hon. Friend said that there has been an increase of 4.3% in Scotland. That is not a few pounds, as the hon. Member for Dulwich and West Norwood (Helen Hayes) and Shelter said. On a rent of £1,200 a month, 4.3% is approximately £40 a month. That is a substantial sum of money, and would affect most of all those who are in the property for the long term, rather than those who shift between properties. We have to think about that.
I agree that letting agencies can shift their models and become more innovative in the services they provide and in levying charges for things such as broken keys. There is also the potential to sell insurance and products to landlords. That is an underutilised sector, which could be expanded and could bring greater guarantees to the sector, given time.
We should not be too damning of landlords. We hear a lot of propaganda about private landlords, but the environment for landlords has become much more difficult. Small landlords who own only one, two or three properties have a less favourable tax regime than they did. Perhaps it would have been better if we had targeted interest-only mortgages, rather than all landlords who have mortgages. Perhaps a higher up-front stamp duty would have been a better, more income-generating way of producing the same result.
Landlords have had a difficult time in many respects. Quite rightly, they have had to meet new higher standards, but without landlords we would end up in a bipolar world with just social housing and large faceless corporate landlords or large property owners. That would not be ideal, and could impact the property market and the most vulnerable of tenants.
Iain Stewart (Milton Keynes South) (Con)
I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on securing this important debate. Many of the points I wished to make were eloquently made by my hon. Friend the Member for North West Norfolk (Sir Henry Bellingham), so I will not repeat them all.
My interest in speaking in this debate was borne from a meeting I had during the recess with the Milton Keynes Private Landlords Association, which talked me through the legitimate costs it incurs. Very often, it incurs a loss on the checks it has to do for landlords, which is passed on indirectly in higher rental costs to the tenants.
Although there is a genuine problem, and there are some rogue landlords out there, I am worried about the unintended consequences that a blanket ban would have. I agree that it could lead to higher rents. Particularly for people in long-term rentals, that extra monthly cost would significantly exceed the one-off cost they may have to pay in letting fees. I also worry that it will exclude more difficult tenants—those on lower incomes and non-EU nationals—from the market.
There is a wider issue to do with housing. Now is not the time—not in 30 seconds—but I have my own proposals for expanding shared ownership to deal with the balance of buy to let and property owning.
What is needed is better transparency. If we are to have a blanket ban on letting fees, the danger is that the cost gets passed on to the landlord and then passed on in higher rents. I am interested in exploring the tenant passport model, which could be based on the mortgage-in-principle situation—people could have what is almost a “right to rent” done in advance, with the costs taken from both the landlord and the agency. The market could deliver a very cost-effective such product, which would increase transparency and the ease with which people could rent.
Although I would like to expand on that, I am out of time. I hope it has been helpful.
Angela Crawley (Lanark and Hamilton East) (SNP)
It is a pleasure to serve under your chairmanship, Mr Owen.
I congratulate the hon. Member for Thirsk and Malton (Kevin Hollinrake) on securing the debate, and I give credit where credit is due, because this issue affects so many people’s lives and raising it in this place is absolutely necessary. I also congratulate the Government on taking a positive step for people in rented accommodation.
The policy will bring England into line with Scotland, where the ban on tenant fees has helped to make the private rental sector fairer and easier to access. In Scotland, it is illegal for letting agencies to apply conditional charges to renters. For example, they cannot charge for registration or providing a list of properties, and they cannot ask for a deposit before having found a property for the renter. Any charges beyond the deposit and rent are unlawful, including for administrative work or credit checks.
Such measures have made the private rented sector in Scotland more transparent and fairer for tenants. However, I take the opportunity to recognise the comments of the hon. Member for Thirsk and Malton about outcomes and possible unintended consequences, and there are of course nuances in this debate. The hon. Member for Mitcham and Morden (Siobhain McDonagh) highlighted the alarming statistics and the huge impact on individuals’ lives, including the taking out of loans and people having to cut back in order to afford the cost of letting fees. Other hon. Members spoke about deposit schemes, the broken housing market and how it has affected vulnerable families and those on low incomes.
Any charges beyond the deposit are unlawful in Scotland. An estimated 4.8 million renting households in England are expected to benefit from the proposals for the tenants fees Bill, saving them between £200 and £700 per household per move. Letting agents in England are at present able to charge for things such as tenancy reference checks, mandatory inventory fees, renewal fees and administrative fees.
Those costs come on top of a security deposit and the rent, and can therefore be difficult to cover. Research by Citizens Advice found that 42% of renters had to borrow money just to pay fees on entering new accommodation. If the new policy is able to help people avoid needlessly increasing their debt, it is a good one. It will make private renting fairer for low-income families, who are often priced out of the sector by excessive hidden fees. Members will recognise that the policy has the potential to help their constituents who are struggling with social housing lists. By widening access to the private rented sector, it might become easier for many constituents to find accommodation suitable to their circumstances and budgets more easily.
The policy is to be welcomed, but we must ensure that no loopholes allow costs to be passed on to tenants in an underhand manner. A fear covered by many Members in the debate is that landlords and letting agents will increase rents as a result of the ban on tenant fees in order to recoup the lost fees. However, research by Shelter in Scotland in 2013 found that only 2% of landlords increased rents because of the fee ban, so while such a policy can work in tenants’ favour, we must be vigilant about rent prices.
The Government’s statement on the policy reads that it will stop
“tenants having to pay fees through the back door by other routes.”
How will the Minister ensure that fees are absorbed by agencies rather than being passed on to tenants, especially in urban areas such as London and other parts of England where the private rental market is already competitive? Will the Government commit to ensuring that the policy puts tenants first?
Melanie Onn (Great Grimsby) (Lab)
It is a pleasure to serve under your chairmanship, Mr Owen.
I thank all hon. Members who have contributed to this important debate, which was secured by the hon. Member for Thirsk and Malton (Kevin Hollinrake). It is worth recognising the points made by my hon. Friends the Members for Dulwich and West Norwood (Helen Hayes) and for Mitcham and Morden (Siobhain McDonagh) about the specific issues faced by people in London, where supply lies at the heart of many of the challenges in the rental sector, as well as population growth and the expansion of London as a defined area. The perspective of those in the rest of the country, however, is very different, and they have a different set of challenges. In my constituency, that would be to do with security of tenancy and the quality of properties available.
Over the past few decades, the number of people renting privately has increased hugely as home ownership has declined and social housing has been sold. The 4.5 million households who rent their home privately spend far more of their income on housing than either home owners or social housing tenants, with close to half of household income on average going towards rent payments. In addition, over recent years people’s incomes have stagnated, but rents have continued to rise. Private renters also enjoy the least secure tenancies, often moving home after a year or even less. That is not the stability that is needed for bringing up a family, but 1.5 million of households in the private rented sector include children.
There are also the increasingly large numbers of people who cannot afford to buy but are not eligible for a council house. Whether we want to label them as “just about managing” or the “squeezed middle”, they are long overdue a break. As my hon. Friend the Member for Ealing Central and Acton (Dr Huq) mentioned, that is why Labour has been arguing for years that we need to ban letting agent fees. I am therefore pleased that the Government are now following our lead.
Tenants are charged hundreds of pounds a year for any of a variety of fees when renting a property. Before moving in, they can be charged for a holding deposit, a registration fee, an administration fee and a fee for a reference check. Another issue—highlighted by the hon. Member for St Ives (Derek Thomas)—arises when tenants wish to stay in their property beyond the initial length of the contract, because they can be charged a fee for renewing the tenancy. In practice, that might involve as simple a change as the date on the contract, but it can set tenants back by as much as £150. If private renters wish to move, they may have to pay an exit fee, and some even have to pay the letting agent to provide a reference for their new landlord.
For an average cost of £400 per household, private renters are receiving a service for which their landlord has already paid the letting agent. The fees charged by different letting agents vary hugely, which shows that those fees bear little or no relation to the service they supposedly buy. If one letting agent can charge only £6 for a reference check, how can other agents justify charging £300?
Letting agent fees are not only unfair, but distributed unfairly, with those on low incomes paying more than private renters on higher incomes, according to housing charity Shelter. A Shelter survey also revealed that one in four renters had to borrow or use a loan to pay the fees, while one in six was forced to spend less on heating or food.
The issue is not new, and the coalition Government legislated in 2014 to make the system more transparent. Since the requirement to publish details of the fees was introduced under the Consumer Rights Act 2015, however, 33% of letting agents have increased their fees, while only 19% have decreased them. According to Citizens Advice, agency fees have increased by 60% in the past five years—that is an enormous amount of money.
The reason that the reform made no difference was simply because it was tackling the wrong issue. The problem is not one of information asymmetry; everyone knows that the fees are bogus. The problem is that tenants are being charged for services for which landlords have already paid and, in an uncompetitive market, there is not a lot that renters can do to avoid paying.
The hon. Member for Thirsk and Malton expressed concerns discussed widely in the agency sector about what would happen were the fees to be banned. One fear is that the costs will be passed on, from agents to landlords and from landlords through to tenants, which will result in higher rents. Another possibility mentioned was that job losses could occur in the agency sector, but I simply do not believe that to be true. If we look at the examples in Scotland, where letting agent fees were banned five years ago, we see that really has not happened. Rents there have increased by 5% since 2012, but in England rents have gone up by 9%. There is no direct relation between banning letting agents’ fees and rents increasing. It is also worth mentioning that it is easy for landlords to shop around for agents, and if letting agents were to attempt to get away with charging landlords an extra £300 for reference checks, I suspect they would quickly lose an awful lot of business.
We welcome the Government finally coming around to Labour’s policy of banning letting agency fees. Had they realised in 2014 the strain that those fees put on tenants, they might not have voted to reject the amendment to the Consumer Rights Bill proposed by my hon. Friend the Member for Walthamstow (Stella Creasy) to ban letting agency fees. The average renting household has paid an extra £400 for the past three years as a result of the coalition blocking that amendment.
When the Chancellor announced the ban in his autumn statement last year, I had hoped that the Government were seeking to right the wrong urgently. Why was the Bill to ban letting fees announced in the Queen’s Speech only a draft Bill? It has been Government policy for almost a year. The Government said in the autumn statement that the ban would be implemented “as soon as possible”, following the consultation. The consultation has been completed and the policy was part of the Conservatives’ manifesto in the general election, so why the cautious step of just a draft Bill? Will the Minister at least tell us when the Government’s response to the consultation is due and when they plan to move ahead with this?
Will the Minister also explain why there is no action to encourage longer term tenancies in the draft Bill? The Conservatives’ manifesto in this year’s general election said:
“We will also improve protections for those who rent, including by looking at how we increase security for good tenants and encouraging landlords to offer longer tenancies as standard.”
However, there was no mention of that in the Queen’s Speech, when seemingly it could have been easily rolled into the Bill on letting agent fees. Has that commitment gone the way of the dementia tax, workers on company boards, the energy price cap, scrapping free school lunches, cuts to the winter fuel allowance, and the reintroduction of grammar schools and fox hunting, or do the Government remain committed to addressing the scourge of short-term tenancies?
Labour has been clear. We recognise that this is a major issue for private renters. As well as banning letting fees, we would legislate to make three-year tenancies the norm, so that private renters are no longer ripped off but able to put down roots and become a part of their local community.
Albert Owen (in the Chair)
Order. I call the Minister to respond to the debate, and I remind him that, if time allows, the mover of the motion may have a few minutes to conclude.
The Minister of State, Department for Communities and Local Government (Alok Sharma)
It is a pleasure to serve under your chairmanship, Mr Owen. I start by declaring an interest: my wife is the owner of a property that is rented out. I congratulate my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) on securing this timely and important debate. It is clear that he has huge knowledge of the sector from many years spent working in it. I think we have had a good and balanced debate in which many colleagues contributed.
A number of colleagues raised the issue of the housing market, and I agree—it is acknowledged in the housing White Paper—that it is broken. It is one of the greatest barriers to progress in Britain, and particularly to social mobility. However, we are making progress. The housing White Paper set out many of the challenges and what we plan to do, and we are moving forward with that. In terms of net additions, there has been growth—perhaps not at the rate that we would like—and we are also supporting expansion of the build to rent sector.
Fundamentally, I think we all agree that building more homes, particularly in the places where people want to live, is incredibly important. Building those homes, however, will take time. In the White Paper we set out important measures to support people with the help they need right now. Helping people now is what we are trying to address in today’s debate. The hon. Member for Lanark and Hamilton East (Angela Crawley) talked about putting tenants first, and I believe that the draft Bill will be about that.
As colleagues have noted, the private rented sector now accounts for 4.5 million households in England. The Government want to see all tenants receiving a good and affordable service from their landlord and letting agents, and transparency about the true cost of renting. The hon. Member for Great Grimsby (Melanie Onn) talked about the fees being charged and increases by agents. We are aware of that, which is why we intend to ban letting fees paid by tenants in England. We believe that a ban will help to deliver a more competitive, more affordable and more transparent lettings market. As we have heard, a ban has not had the negative consequences in Scotland that some suggested it might.
Good letting agents provide a valuable service in ensuring that properties are safe, compliant and professionally managed. The problem is that the letting agent is chosen by the landlord, so tenants can be charged unfair or excessive fees with limited ability to negotiate or opt out. Evidence shows—colleagues have referred to this—that that is a problem right across England. By banning tenant fees, we will enable tenants to see what a given property will cost them in the advertised rent levels without any hidden costs. We believe that will reduce the up-front costs that tenants face when moving home, and ensure that tenants are committing only to properties that they know they can afford.
Colleagues referred to the consultation. We sought views on how the ban should be implemented and enforced during the eight-week public consultation, which closed on 2 June. We hope to publish the outcome of that shortly. We received more than 4,700 responses, which we have been analysing. Given the range of views from across the sector, we feel it is important to ensure that the fee ban is carefully considered. As the hon. Member for Great Grimsby rightly said, we announced the tenants fee Bill in the Queen’s Speech, but we said that we would first publish the Bill in draft, to enable scrutiny of our proposals by Parliament and stakeholders before introducing the legislation.
Under our proposals, tenants will no longer have to pay letting fees, whether they rent through an agent or directly from a landlord. It is important that all tenants be treated equally under the ban. A number of colleagues asked whether rents may rise. Understandably, a key concern is that letting agents will simply revert their fees to landlords, who in turn will pass the cost on to tenants. The Government do not accept that rent levels will necessarily rise as a result of the fee ban, as there is evidence that some agents are charging excessive fees. Indeed, studies have been done on the potential impact on rents, and all of them show that while there may be increases in rents, they would be significantly smaller than the fees tenants are currently being charged. We will keep the impact on rents under review. All agents will need to be up front and clear about their landlord fees to secure business. As a result, the fees charged should be a fairer and more transparent reflection of the services provided.
A number of colleagues raised the issue of capping, which has been suggested as a more proportionate measure. I simply do not believe that a cap would be effective. A series of caps on different types of fees would be harder to understand and enforce.
On credit and reference checks, as raised by my hon. Friend the Member for Thirsk and Malton, I understand that many landlords and agents believe that the cost of a reference check should be met, or partially met, by the tenant. As with other fees, it is the landlord who chooses to engage the services of a referencing agency; that is essential to them being able to operate as a landlord. We believe that the landlord is better placed to negotiate and pay reference fees than tenants. I recognise that some agents and landlords are concerned that they will be at risk if a tenant withdraws from a property despite reference checks having been undertaken. To address that, we propose that holding deposits be exempt from the ban. That will also act as a deterrent to tenants from registering in multiple or unsuitable properties.
Trading standards do an important job of enforcing current regulations in the private rented sector, which can help keep tenants safe and protect them from poor practice. With their local knowledge of the industry, they are the clear choice when it comes to enforcing the ban on letting fees.
I understand the concern about the resources available to trading standards, and the Government are keen to ensure that they are well supported. In the consultation document, we proposed the creation of a lead enforcement authority in the lettings sector, similar to the one that exists in the estate agent sector, to provide guidance and support to enforcement authorities. I should point out that one of the advantages of banning fees outright is that it makes it easier for tenants to understand and enforce the ban themselves.
A number of colleagues have talked about looking at the sector more widely. The ban on tenant fees will be considered in the context of a strategic approach to the private rented sector, and there is scope to introduce wider regulation of letting agents and landlords. However, at present there is not a clear consensus on what kind of regulation is needed. I am interested in considering the various options and proposals put forward by colleagues and friends in the sector, including the proposals of my hon. Friend the Member for Thirsk and Malton. It is worth pointing out—he talked about this—that we intend to make client money protection mandatory for letting agents that handle client money. That will ensure that tenants and landlords enjoy the same consumer protection already in place in comparable industries. My officials are working with key stakeholders on a “How to let” guide that would complement the existing “How to rent” guide, giving landlords a single source of information for rules, regulations and best practice.
Perhaps I might address some of points raised today. Measures in the Housing and Planning Act 2016 tackle rogue landlords. There are penalties of up to £30,000, the database of rogue landlords comes into effect shortly, and banning orders will be implemented in due course. My hon. Friend the Member for Broxbourne (Mr Walker) raised the issue of deposits and what happens in the case of self-letting landlords. All landlords who take a deposit must put it in a protection scheme; that has been the case since April 2007. The hon. Members for Dulwich and West Norwood (Helen Hayes) and, of course, for Great Grimsby, raised issues about longer tenancies. Of course we encourage the offering of longer, family-friendly tenancies of three years or more in build-to-rent schemes, and we have set that out in the White Paper. My hon. Friend the Member for St Ives (Derek Thomas), among others, raised the question of the capping of deposits. Our view is that the cap needs to strike the right balance. As well as affordability for tenants, there is a need for landlords to feel that it is at the appropriate level. We shall continue to engage on that via the draft Bill.
Mr Charles Walker
I hate to press the Minister on this, but a self-letting landlord is not required to lodge the deposit with a third party. The requirement is only to insure the deposit. They can keep the cash in their own account and, at the end of the tenancy, deduct money from that cash and challenge the out-of-pocket tenants, who are often university students, to come and get it back. We need to look at that; it is not a perfect situation.
Alok Sharma
I know that my hon. Friend cares deeply about that point, which he made with great passion. I should be happy to sit down with him to have that discussion after the debate, perhaps with my officials as well.
There was discussion during the debate of whether certain fees for tenants should be allowed. Our view is clear: all fees on tenants need to be banned. My hon. Friend the Member for Milton Keynes South (Iain Stewart) raised the question of the tenant passport. Of course a ban will not prevent tenants from securing their own references if they want to. Agents and landlords will not be able to require tenants to pay for such a reference check or passport, but tenants can of course choose to procure it. The hon. Member for Lanark and Hamilton East also raised the issue of rent caps. I think the evidence, from the UK and around the world, shows that rent controls lead to fewer properties on the market, and higher rents as a result.
We have had an excellent debate; as I said, we shall publish the outcome of the consultation shortly and there will be an opportunity for colleagues to engage in the draft Bill process, which I hope will result in legislation that as well as being workable will make a difference to tenants’ lives. We believe that the proposed ban on letting fees for tenants is the right approach, and we shall publish the tenant fee Bill in draft form in due course.
Kevin Hollinrake
Thank you for your excellent chairing of the debate, Mr Owen. I also thank the Minister for his comments; he has a clear understanding of the issues. He has had many challenges in his short time as a Housing Minister, and I understand that publishing a draft Bill will allow proper consultation and debate, but I felt that it would be useful to seek today’s debate at an early stage, so that views from across the House could be considered. I thank Members on both sides for their contributions, which have helped to further the debate. It is refreshing to hear Members on both sides accepting that, in the main, landlords and agents do a professional job and are part of the solution, not the problem. [Interruption.] That is certainly how I read the comments of the hon. Member for Mitcham and Morden (Siobhain McDonagh), who shakes her head. It is my clear understanding of the position. However, there is also clearly recognition across the House—and in the industry—of a problem. That is crucial to the ability to reach a well-considered solution.
One of the phrases heard most commonly in the debate has been “the law of unintended consequences”. That law applies far more prolifically than any that we could pass in the House. We have considered issues such as the potential for rent increases, which is debatable, and for job losses, which we must of course take into account. My hon. Friend the Member for Broxbourne (Mr Walker) talked about landlords who enter into direct relationships with tenants, how we supervise that and whether the relationship is fair. My hon. Friend the Member for North West Norfolk (Sir Henry Bellingham) talked about issues relating to rural agents, and I think that was relevant. I agree with the sentiments of my hon. Friend the Member for Solihull (Julian Knight) about ensuring that the future of the private rented sector will be about not just institutional investors but small and medium-sized enterprise landlords, who provide much of the diversity in the location and type of private rented accommodation. Not everyone wants to live in a two-bedroom flat at a high rent in the middle of Manchester, which is what institutional landlords would tend to prefer over properties in more rural areas, which are also important. My hon. Friend the Member for St Ives (Derek Thomas) spoke about the level of deposits, and I share his concern.
The debate was constructive. We are looking for a considered, strategic solution that is fair to landlords and agents, who put their hard-earned money into investing in the private rented sector, but principally, of course, to the consumers. We want something that provides a fair deal for tenants.
Question put and agreed to.
Resolved,
That this House has considered the proposed ban on letting agent fees to tenants.