Letting Agent Fees (Tenants)

Kevin Hollinrake Excerpts

Wednesday 6th September 2017 Westminster Hall

[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.

[Sandy Martin (Ipswich) (Lab)]

Will the hon. Gentleman give way?

[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]

Will the hon. Gentleman give way on that point?

[Kevin Hollinrake]

For the final time.

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.