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A Westminster Hall debate took place on the 6th September to discuss the letting agent fee ban. The debate was called by Kevin Hollinrake Conservative MP for Thirsk and Malton. Kevin was the co-founder of Hunters. He is a back bencher and not part of the Government. The format of the debate was following an opening speech by Hollinrake any other MPs can make contributions and at the end the opposition front bench Shadow Minister and the Minister have the right to response. It is chaired by the deputy speaker. There are no votes involved in the debate.
Whilst the debate is open to the public to observe, due to the early start and very limited places in the public section, I watched the debate on BBC Parliament at home. This gave me the opportunity to scribble some notes and to rewind the recording to check what was said. Below is my account of the proceedings. I have not referred to all the contributions as there were about fifteen MPs present most of whom made a contribution. If you want to hear the debate in full, it is available on the Parliamentary website or a transcript is available on Hansard.
Kevin opened the debate by stating that he was in favour of the ban as it puts the consumer first and that it was healthy for a free market, which he believed was the best regulator of the sector. He was challenged on this point by a Labour MP who believed that the unfettered market was the cause of the misery for many in the housing market. (Any member can attempt an intervention during a speech if the speaker “gives way”) Kevin allowed a number of interventions.
He referred to government figures for the average charge amount of £318 (the industry says £223), but also how hard it was for renters to get on the housing ladder. He however stated that the Minister has to accept that the change will come at a cost and there will be impacts and unintended consequences.
In Scotland the fee ban was introduced five years ago, albeit the principle of charging fees was already outlawed, but due to the liberal interpretation of a premium was not enforced. He referred to anecdotal evidence that there had been some job cuts, costs to landlords and this has led to higher rents. He alluded to research by the LSL Group (Your Move Scotland) that rents have risen by an average of 4.3% per annum since 2012. He also believed that the effect of this disproportionally fell on longer term tenants, many of who were the most vulnerable tenants, as the high rents meant they paid out far more in higher rent than the initial costs they would have incurred. However he conceded the system was now at least transparent.
He referred to the suggestion by many in the industry that what was needed was a cap not a ban. He said that the trouble with a cap is that it is a contrived device, which he believed would stifle the free market and lead to a race to the top with agents seeing the cap limit as the target fee whether or not they charged that amount or lower or nothing. It could also lead to the emergence of other charges that fell outside the prescription of the ban.
He quoted figures from Companies House that appear to indicate there had been an increase of new agents in Scotland since 2012 and that a leading letting agent had confirmed that had not closed any offices due to the ban. This contrasted with ARLA claims that 4,000 jobs would be lost in England if the ban went ahead.
He stated that it was his opinion that tenant fees indicated a market failure and that this protected weak companies, so even if some firms went to the wall this would be good for the market and the consumer as firms would become more competitive and innovative in the services they offered.
He was asked by a Tory MP why he felt that the industry had increased in Scotland. He replied that he liked to think 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.
He went on to highlight some potential unintended consequences of the ban. In particular he mentioned referencing and inventories, which the tenant currently pays for or in part pays for. The cost now would be borne by the letting agent. He felt that this could affect the borderline tenants, especially those on housing benefit or universal credit as they could be excluded if the agent felt that they may fail the reference and the property would therefore be offered to a more affluent tenant.
An intervention from a Labour MP asked if this was part of the wider malaise in the industry and low income renters were forced to live in poor quality accommodation, badly in need of repair and under the threat of eviction if they complained. Kevin responded that of the 4 million properties currently rented out, less than a million could be considered substandard. This was the minority (albeit a significant number) but poor quality conditions were not wide spread. He said in his opinion that whilst in the past there was little choice for the tenant and they suffered inadequate living conditions, the quality of housing today available across the income spectrum was much better.
He welcomed the proposal that holding deposits should be exempted from the ban and that this would allow some protection to landlords from tenants who presented themselves on false premises or attempted to obtain a property using fake documentation. Who would adjudicate whether a deposit is forfeited remains to be established, but he was aware that currently this was the remit of redress schemes.
He also mentioned that with regard to security deposits (tenancy deposits), he was aware that many tenants currently use this money as the last month’s rent and that 50% of tenancies end with some cleaning or dilapidation issues. Limiting the deposit to one month rent could lead to the agent or landlord being out of pocket. He felt this issue needed to be considered further.
He also highlighted the issue of enforcement and acknowledged that the local authorities do not have the resources in place for enforcement and this needed to be addressed. He alluded to 45% of councils, when asked about this issue, stating that they took a reactive approach.
He said however that this was why he supported a lead enforcement authority as existed in the estate agent world.
Who will however regulate landlords? He pointed out that England was the only part of the UK not to operate a national registration scheme, so in his view the simplest way was to use the current redress schemes and extend the compulsion to join such a scheme to landlords. He felt that this would be a light touch way of regulating the sector and that the schemes could impose a national rental standard on all those engaged in letting property. He called on the Government to consider a system of mandatory redress with a lead enforcement authority, but also to consider higher fines for noncompliance.
The debate was opened to the floor.
Siobhan McDonagh Labour MP for Micham and Morden, quoted that there were £13 million of unfair fees charged and these have risen faster than inflation, she outlined several anecdotes of “typical fees” and stories from her MP surgery of extortionate fees. She also pointed out the “imaginative” way agents charged for non-work, such a “legal document charge”. She welcomed the ban but stated it will not solve the issue of affordability.
One in three of those presenting as homeless come from the private rented sector having being forced out of their homes by landlords seeking higher rent paying tenants.
A third of properties do not meet the minimum rental standards.
83% of current renters cannot afford newly built houses at multiplier of nine times income, most families are unable for the foreseeable future to buy a property.
She also queried why the proposed register for rogue landlords would not be available to the public. Unless the tenant can access the register it will be useless to them.
A national register of landlords and agent in England is needed she declared.
Dr Rupa Huq a Labour MP in Ealing was quick to point out that 34.4% of her constituents rented property compared to 16% nationally and that her local authority had a register.
Another Labour MP informed us that renters pay 41% of their income on housing compared to 19% for those paying a mortgage.
It was pointed out that this was a very London centric view of the market, however the reply was that London is growing and it’s glow is extending way outside its traditional boundaries. This was emphasised by Wera Hobhouse Liberal Democrat MP for Bath, who said she recognised all the symptoms from the Capital in her area and it was getting worse as London commuters were seeking properties further and further afield.
Charles Walker, Conservative MP for Broxbourne, raised a number of points. He stated that it was absolutely right that landlords should fund referencing. It was for their protection and they benefited from it. He also stressed the importance of the check-in and check-out and that this had to be done by an independent person and the landlord should fund it. He said that he did not believe that the landlord could be independent and that the temptation to conduct the inspection in their favour was too great.
A fellow Tory MP, pointed out that because of the tenancy deposit schemes, if the landlord did not have a robust inventory, almost always found in favour of the tenant and they got their money back. Charles responded that tenant may agree that the property was in need of repair at the start of the tenancy, but the landlord does nothing to rectify the issues and then will get charged at the end of the tenancy for the damage. He welcomed the introduction of the deposit schemes, but believed it only worked properly when an agent was involved as a landlord was not obliged to lodge the money with a custodial scheme or an agent. They were only obliged to insure it. On this basis they could withhold the deposit monies and the only recourse for the tenant would be to raise a dispute, which often they do not either because they do not have the wherefore all, the means or the understanding to do.
Another Tory MP Derek Thomas, spoke against the cap of one month rent on the deposit and how will the figure be calculated. He felt it should reflect the cost of bringing the property back into rentable condition after rectifying breaches by the tenant.
The issue of changes requested by the tenant during the tenancy such as name changes, extra keys was also raised and who should pay for these?
Sir Henry Bellingham a Tory from Norfolk, made the case for his area that this would lead to loss of income and job losses for agents. He stated that he had been informed that the amount of time to prepare a tenancy including referencing was five hours and the best solution was a cap not an outright ban. He also made the case for referencing to be excluded from the fees as he felt that by transferring the cost away from the tenant it took away the onus from tenants with poor credit history to prove they can afford the tenancy.
Julian Knight (Con) Solihull pointed out that whilst the 4.3% rent increases in Scotland was being played down, this meant adding something like £40 extra a month on a typical two bed rental at £1,200 a month, for struggling families this was not an insignificant amount. He recognised that the ban did present the opportunity to change the model agents operate and for them to look at selling other products such as insurance. He pointed out however that landlords have had a difficult time recently and this was forcing many out. This would reduce choice and quality for the tenant.
Ian Stewart (Con) Milton Keynes pointed out that rent increases will greatly exceed one off costs of fees and would potentially prejudice low income tenants.
He very much favoured the tenant passport model and that increased transparency was paramount.
The SNP view was that the fee ban in Scotland had made things more transparent. She warned the Government to ensure loopholes were closed in any legislation for England and to monitor how the fees would be absorbed and not passed on in rent increases.
The spokesperson from the DUP (Northern Ireland), echoed these thoughts but pointed out that 93% of local authorities had not imposed a single fine for noncompliance with current legislation .
In her comments Labour’s Shadow Housing Minister, Melanie Onn, stated that Labour had argued for a fee ban for years. She questioned why the Tories had rejected an amendment by Labour calling for a ban because if they had accepted it, the ban would now be in place. Instead the Government, despite stating last year this as one of their priorities, had only announced the change as a draft bill, not an actual bill. Why?
She alluded to the practice of some agents charging £300 for a reference that another charged only £6 and questioned how tenants were being charged for services that the landlord had already paid for. She quoted that since the requirement to display fees, 33% of agents had increased fees and only 19% reduced them. Fees have risen by 60%.
Overall she also wondered why fees and deposits were the only issues the draft bill sought to deal with and why three year tenancies was not addressed, this is despite a manifesto commitment by the Government to promote them.
In response to the debate the Minister Alok Sharma, stated he acknowledged that the sector was broken and that the solution was to build more houses but that this would take time. What the Government was seeking to do was help people now. The letting agent was chosen by the landlord, so it was only fair that they should pay the costs involved.
He stated that they had conducted an extensive consultation and were working through the 4,700 responses that would be published shortly. He responded to the question why the bill was published in draft as this was to give members the chance to debate and amend the bill before a formal bill was presented.
He did not accept that rent increases was inevitable but would review rent levels after the ban. He did not believe that a cap would be effective and would be hard to understand and enforce. He felt references were essential and were a benefit to landlords and this is why they should pay for them. He however pointed out that they would be retaining holding deposits to prevent multiple applications and landlords being able to recover costs from speculative applications.
Trading standards do an essential job in enforcing standards in the sector. They are best placed to enforce the ban. He acknowledged that there was a resource issue, this is why he was proposing a lead authority approach. He restated his commitment to Client Money Protection Insurance and that they are working on a How to Let Guide to compliment the How to Rent Guide already mandatory. There is however at the moment not a clear consensus on what form further regulation will take. He said however he was keen to work with the sector to make progress on this issue.
On rogue landlords he outlined the measures coming into place for banning orders and fines for up to £30,000 under the Housing and Planning Act 2016. He replied that for self-managed landlords they were required to protect the deposit. Charles Walker intervened and restated that his issue was that a self-managed landlord was not required to lodge the money in a custodial scheme only to insure it. The minister promised to take up the matter with him separately. He mentioned deposit schemes and the capping. The cap needs to strike the right balance and he intends to consult on the right level of the cap during the progress of the bill.
He reemphasised that the fee ban would apply to all fees but that this would not preclude a tenant obtaining their own referencing and purchasing a tenant passport.
In his summary Kevin welcomed the cross party consensus that in the main landlords and agents do a professional job and are part of the solution and not the problem.
From my perspective, the Great Debate was a well informed and constructive one. There appears to be a willingness to make this proposal work. I was particularly interested in Kevin’s suggested solution for an increased role for the redress schemes and the recognition of the work they have done so far. His statement that “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. 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” is very close to the thoughts of many leading voices in the sector and Kevin’s longstanding connections and experience in the industry will go a long way in helping influence the Minister in formulating his proposals. It is clear that if the objective is to put tenants first, whilst maintaining a healthy and competitive market, this is a clear way forward.
We await the further developments on this saga but a number of threats and opportunities for us all are emerging. Watch this space!
Sean Hooker, Head of Redress.
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Please contact us on 0333 321 9418 for further details.