Letting Agent Fees (Tenants)

Melanie Onn Excerpts

Wednesday 6th September 2017 Westminster Hall

[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.