Letting Agents

Damian Collins Excerpts

Wednesday 27th February 2013 Westminster Hall

[Damian Collins (Folkestone and Hythe) (Con)]

It is a pleasure to serve under your chairmanship, Mrs Brooke. I congratulate the hon. Member for Rotherham (Sarah Champion) on securing this debate and on her speech. She raised an incredibly important point. For me, one of the interesting things about this debate is why our private market is failing when there are many different agents who charge different fees and many properties available. One might expect that people would shop around in that situation and go to better landlords and agents that charge lower fees, but that does not seem to be happening. My speech will focus on why I think the market is failing and what we can do about it.

The point is well made about the disparity in fees, what they are for and why they are charged. I got someone in my office to conduct a mystery shopper exercise in Folkestone, in my constituency, and was interested in the results. I will not pretend that every agent was asked, but I was amazed by the range of fees charged by different agents.

To give an example, an inquiry was made regarding a standard joint tenancy for two adults in work in a flat in Folkestone. The rent for such a flat might typically be between £500 and £600 a month. One agent, when asked, said that their fee structure included a £220 administration fee, a £50 if there was a guarantor and a £120 additional charge on contract completion, totalling £390. There was then a month’s deposit up front, which is standard for most properties, plus £100. Someone paying all the fees could easily pay nearly £500 in charges apart from the deposit, or more than £1,000 just to move in. That is before they have walked through the door. Many people would find it impossible to raise the kind of money to move into such a property, and there are moving costs on top, so someone could easily be paying more than £1,500 just to move into a property. Someone on a low income would not be able to raise such money.

In that example, the fees for the property were quoted by a company called Evolution Property Lettings, which operates in Ashford and Folkestone. I was interested to see whether its fees were typical: it was charging £390 in fees, plus an additional £100 on the deposit, so £490. Another agent, Fell Reynolds in Folkestone, was charging £60 per person in fees—no other administration charges or renewal fees—and only a month’s deposit, without the additional £100.

Someone would save several hundred pounds in fees simply by using a different agent. I am sure such companies have reasons for their fee structure. Jenny, one of my constituents who is thinking of renting a property through Evolution Property Lettings, asked it why it charges those fees, what they are for and why they are different from other agents’ charges, because there is clearly a massive disparity in fees charged for a similar amount of work.

The challenge is why people do not have the information or the confidence to ask around. Does more guidance need to be given to people to suggest what fee structure different agents charge, that they should shop around and ask, that they should go to a reputable agent and that they should challenge agents on the fees that they charge? We should certainly be suggesting that as elected politicians and local authorities should do the same; with citizens advice bureaux, therefore, we are all people who can give advice and, I hope, shame some organisations into being more transparent about their fees and, where possible, into reducing them.

The culture of fees being charged—as I said, the fact that it might cost someone £1,000 to move into a property—blocks up the private rented sector, and that leads to such market failure. The hon. Lady gave an example of tenants who live in a property in a poor state of repair, and I am sure that Members of Parliament throughout the country could all give plenty of other examples from our constituency casework. People live in run-down properties—perhaps containing a category 1 or 2 hazard, as defined by the Housing Act 2004, which would give the local authority the power to intervene—but why do they not move?

One of the reasons why people do not move out of such properties is that they cannot afford to. The managing agents know that, and they will therefore happily sit there and do little to intervene. By the time the local authority inspects the property and requests that the agent or landlord carries out work, many months will have passed. The landlord might then propose to carry out the work but not do it, and so it would not be atypical for more than a year to go by before any definitive action is taken. We have to look at how to clamp down on that element.

How can we make people do the work that they are supposed to do? How can we empower tenants to exercise their rights? There are two elements to that. First, we should all be concerned that most of the worst cases are paid for by the taxpayer, because most of the people pay their rent out of housing benefit, even though they rent in the private sector. Why are we paying housing benefit through poor letting agents to slum landlords? Why do we allow things to continue for a long period before anything is done?

I sympathise greatly with the case made by the hon. Lady, but we may diverge because I think that registers might not be enough. Registers have to be enforced; people have to inspect the properties. The problem that we face is that the inspection work has not been done. Local authorities have the power to inspect properties to force change, but why is that not being done?

When the subject was debated in the main Chamber last month, it was pointed out that it is sometimes difficult to identify who the landlord is to get them to take action. The one thing that we control, however, is the money supply. If we can turn off the money, we would find that the landlords will act pretty quickly, because most landlords want high occupancy in their properties. If they were told that they will not get their money for a month or two and that the work only costs up to £1,000 or so, they would pretty quickly carry out the work. If the agent did not receive the rent on behalf of the landlord, we can be pretty sure that the landlord would soon want to know what was going on. The best way to police rogue letting agents might be to make landlords more challenging about the way that their money is spent in the fees they pay.

I am asking the Minister whether, in the reforms proposed, we are looking to empower tenants to take control of the housing benefit paid out in their name. Should we consider what additional protection we can give to a tenant who tells a landlord or letting agent, “You are not maintaining this property correctly. It is a hazard to me and my health. I believe you are in breach of our contract. Therefore, I am going to withhold the rent I pay to you—the housing benefit you would receive through me”? I believe that many people would be fearful of taking that course of action—fearful of eviction or legal action taken against them—so should we consider how to empower and protect tenants in that situation, so they can withhold their rent or housing benefit?

[Lucy Powell]

The hon. Gentleman makes an excellent point about housing benefit recipients and their relationship with landlords. Does he agree that, under universal credit, with the money going to the tenant rather than directly to the landlord, the onus on the tenant to take action against unscrupulous landlords will be even more challenging than in the current climate? Therefore, will he support Opposition amendments to universal credit, so that we keep the system of paying rent direct to the landlord?

[Damian Collins]

I understand the hon. Lady’s point. The mechanism of making direct payments to landlords could be seen as an incentive to landlords to meet their obligations, because it is massively in their interest to have direct payment of housing benefit: they have sitting tenants; there is massive demand for property; and they are given a guaranteed income, which effectively comes from the Government, one way or another, rather than from a tenant. I can understand how that works in the existing system. With the reforms, however, we can tell tenants, “You will receive the benefit. You can make that decision, but perhaps you need more understanding of your rights and what protection in law you have.”

I do not want to use this opportunity to make up Government policy on the hoof, not that I am in a position to do so anyway, but I have a suggestion. If extra protection is needed, should there be a rent order or something that a local authority can issue to say, “We do not believe that any more rent should be paid on this property by the tenant until the work is completed”? It could also state, “We believe that the tenant in this case is protected in law and cannot be evicted. No legal action can be taken against them until the work is completed. We will inspect it.”

Given that we are paying out of our taxes for failure in the private rented sector and that we are paying slum landlords through housing benefits, how can we use the mechanism of the money that we control to encourage them to invest in their properties more promptly? If they do not, they might otherwise risk losing the benefits. If housing benefit was not paid out, I would prefer tenants to be able to use the money instead for a deposit on a new property that they might wish to rent and to pay for some moving costs. They would then be empowered in the market, so that they could pick up and go elsewhere. At the moment, they are restricted from doing that; they cannot afford to move out of their rented property because of the charges.

My question to the Minister is, how can we work with the proposed housing benefit and universal credit Government reforms to empower tenants, so that the private rented sector works as a proper market and so that tenants are in a position genuinely to pick up and move and go somewhere else—to a different property or agent—if they feel that they are being ripped off or being made to live in slum conditions that are not tolerated and that are in breach of the 2004 Act? That could be a more empowering mechanism for the tenant, and much easier to deliver, rather than having an army of local authority inspectors running around after and chasing up letting agents and landlords.

With the best will in the world, that regime was enabled by the Housing Act introduced by the previous Government, but it has not solved the problems, because the scale of enforcement is so great. However, if we can empower tenants to take action and protect them as they take that action, by taking their business elsewhere, that could be a ready solution to the problem. That is the thought that I suggest. We control the money supply, so perhaps we can use that to stand up for tenants in dire straits, in poor housing and on low incomes. We can protect their interests by standing up for them against the landlords who exploit them.

Before I finish, I apologise to the House. I should have referred to my entry in the Register of Members’ Financial Interests before I made my speech. I hope that you will accept my apology, Mrs Brooke, and my reference to the register at this point.