The government is about to ban letting agent fees. Good riddance to a rip off.
According to reports this morning, the chancellor will ban letting agent fees in his statement later today.
The move will cheer anyone who has rented a property in recent years, often being charged huge sums for little more than printing out and signing a contract.
We first called for a ban in 2009 and our 2015 report showed why the problem still needed solving. Even after efforts to improve the market, the overwhelming majority of letting agents (88%) still imposed extra charges, often running into hundreds of pounds, with our survey suggesting the total average fee for a tenancy had hit £337—and fees were rising fast.
Letting agent fees are eye-watering and have been rising fast
But it’s not just the eye-watering level of letting agent fees that merits today’s ban. After all, lots of services are expensive, some justifiably so.
What raised eyebrows with letting agents was that their fees varied so wildly and inexplicably. We found letting agents charging anywhere from £6 to £300 to check a reference and from £15 to £300 to renew a tenancy. That is not a well-functioning market. Moreover, these variations bore no clear relationship to the cost of the service provided. We found agents charging as much as £300 for credit checks that are widely available on the open market for £25.
Even so, is an issue like letting agent fees really worthy of the chancellor’s attention? Arguably, yes. That’s because, as private renting has grown, letting agents have gone from being a niche industry to being the gatekeeper to one of life’s most essential services. This is particularly the case for those ‘just about managing’ families that the government has set out its stall to help.
In the last ten years, for example, the number of households living in the private rental sector in England has doubled from 2.2 million to 4.4 million. And the population of renters has not only grown, it has also become more representative of the population at large. While the share of 25–34 year olds who rent privately has more than doubled, rising from 21% to 48%, renting is no longer just a stopgap for the young. One million more 35–54 year olds now rent privately compared to 10 years ago, causing an explosion in the number of children living in the sector. In 2004, the most common household type in the private rental sector was single working-age adults. Now, a million families are raising children in a privately rented home, treble the number a decade ago, and couples with children are the most common type of renters.
Far more couples with children now live in the private rental sector
And if letting agents were taking advantage of their new, more important role, this wasn’t for lack of effort from policymakers. Since 2009, there had already been 3 attempts to make the letting agents market work better.
First, since November 2013, the Advertising Standards Authority (ASA) have required letting agents to provide clearer information about fees and holding deposits before a renter agrees to a tenancy. Second, the government itself added a welcome amendment to the Consumer Rights Bill, requiring letting agents to publish a full tariff of their fees on their websites and in offices, with stronger penalties for non-compliance. Third, since October 2014, letting agents have been required to join a redress scheme, an independent service for resolving disputes between letting agents and their customers.
These changes were worthwhile. And all 3 will have made things better for some renters. But they didn’t solve the problem of rip-off fees.
That’s partly because letting agents didn’t comply. In our research last year, only a third (34%) of letting agents willingly gave us full written details of their charges when asked.
But it’s also because of a more fundamental failure in the market: renters simply don’t choose properties on the basis of letting agent fees.
For anyone who’s rented privately, this much is obvious. Letting agent fees are at best an afterthought and at worst an unavoidable imposition, arising only once a deposit, contract or living arrangement is already in place. In fact, only a quarter (25%) of renters told us they even considered letting agent fees when shopping for a property. As a result, however well you enforce transparency over fees, competition has no bite. It’s landlords that shop for letting agents, not renters, and so it’s landlords that should pay the fees.
Renters don’t choose properties on the basis of letting agent fees
So, all in all, today’s ban is welcome and worthwhile. It will save renters money and it is a proportionate response — and far from a first resort — that will leave behind a better-functioning market. It’s also a sure sign that the government is serious when it says it wants to fix markets that aren’t serving consumers. Energy market be warned.