Government will finally ban rip-off letting fees this summer, saving renters £300 every time they move
- Letting agents will no longer be able to charge rip-off fees to tenants
- Fees will be limited to charges for replacement keys and late rent payments only
- Security deposits to be capped at the equivalent of five weeks’ rent
Letting agents will no longer be able to charge rip-off tenant fees from June, the Government has announced.
The new rules, first proposed by Chancellor Philip Hammond in 2017, will see a ban on landlords and letting agents in England charging tenants any additional fees when they sign up for a new rental property.
Fees will be limited to charges for replacement keys and late rent payments only.
Security deposits will be capped at the equivalent of five weeks’ rent, and holding deposits to one week’s rent.
Government analysis suggests tenants will on average save around £300 every time they move house as a result of the ban.
Renters have been waiting almost two years for the promised ban on agent fees to materialise
The Tenant Fees Bill was brought in after evidence emerged showing that agents were routinely overcharging tenants for simple tasks – many of which they also bill landlords for – either as part of standard agency fees or as extras.
Citizens Advice found that 64 per cent of tenants experience problems paying letting agents’ fees, and 42 per cent have to borrow money to cover the cost.
Meanwhile a report from the charity Shelter found that nearly one in four people in England and Wales feels they have been charged unfair fees by a letting agent.
What are the key points of the Bill?
Fees will be limited to charges for replacement keys and late rent payments only
Holding deposits to be capped at no more than one week’s rent, applying to a maximum of one property only
Breaching the Bill will be a civil offence with a fine of £5,000 for a first offence and civil penalties of up to £30,000
Local authorities will be able to retain the money raised through financial penalties with this money reserved for future local housing enforcement
Source: National Landlords Association
Polly Neate, chief executive of Shelter, said: ‘This Bill is great news for renters, as it will stop them being asked for hundreds of pounds every time they move or want to renew a tenancy.
‘It will also stop them being charged arbitrary amounts that often don’t reflect the reality of the work. When renters are as pressed financially as we know many are, this will provide some important protections, and peace of mind.’
Letting agencies typically charge tenants around £337 in fees to rent a home – and many tenants in London are forced to pay over £400.
This led to concerns that costs are being ramped up rather than passed on.
Credit checks, for example, can cost as little as £3 but many letting agents charge tenants in excess of £50 for them.
In other instances, tenants can be charged for admin work, such as tenancy renewals and inventories, when these should be covered by the letting and management fees already being charged to landlords.
According to comparison site Letting Fees UK, as of April 2016 a two-person household paid an average £386 in letting fees, with fees charged ranging from £40 to up to £780.
Some letting agencies are worse than others
As an example of how bad things can get, letting agent Haslams in Reading recently sent the following estimate to a couple looking to rent a flat in the area.
On top of their deposit and one month’s rent up front, they were expected to pay a further £650 in tenant agency fees, plus a check in charge of £130.
After this they would have received a £450 reservation fee rebate, which they would have already have been expected to have paid.
On Haslam’s website tenants can expect to find a range of extra charges, including £157.50 for adding a tenant and £50 for adding an additional clause to a tenancy agreement.
It also costs an additional £157.50 to process a guarantor application, something apparently not covered in the £650 tenancy agency fee.
On top of this, it costs 50 per cent more to write an additional clause when a tenant is already in the house.
A spokeswoman for the company said: ‘Reputation to us is really important which is why we look at the long-term as well as the short-term aspects of the service that we offer and the fees that we charge.
‘We always benchmark our fees against other leading agents in the area to ensure that we are competitive and in many cases are often cheaper.
‘We look at each aspect of the service that we offer and so our margins vary: on some we make very little and on others we make more resulting in a blended return.
‘Obviously all tenant fees are being banned and so the business model will evolve as the costs associated with letting properties are still there and so they will need to be absorbed.’
The Government predicts that the Bill will cost landlords £83million, or £31 per landlord in the first year of implementation.
It could also cost letting agents £157million and even lead to branch closures and job losses.
Renters collectively can expect to save £240million a year. A Government consultation found that 93 per cent of tenants agreed with the proposals.
Hannah Slater, of campaign group Generation Rent, said: ‘It’s great news that tenant fees for new contracts will be banned from June, saving hard-pressed private renters hundreds of pounds a year.
‘But renters should be aware that tenant fees will continue to be allowed for a further 12 months if written into contracts up until 1 June 2019.
‘Tenants seeking or renewing new contracts in the first five months of this year should shop around and challenge contracts which continue to charge these unfair fees.’
Should security deposits be scrapped altogether?
The average tenancy deposit in the UK is now £1,161 – an increase of 18.6 per cent over five years. On top of this, tenants often have to pay a new deposit when moving before they get their old one back.
Ajay Jagota, founder of deposit-free renting firm Dlighted, said: ‘We’re talking about a system which sucks £4.2billion from our economy, makes renting unaffordable and costs landlords without adequately protecting them against rent arrears and property damage.’
Last year This is Money published a round up of the alternatives to security deposits that already exist, which you can find by clicking here.