Letting Agent Fees (Tenants)

Rupa Huq Excerpts

Wednesday 6th September 2017 Westminster Hall

[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.

--- Later in debate ---

[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.