Westminster Hall debate: Letting agent fees speech

Last week in Parliament I spoke about the urgent need for comprehensive reform of the housing private rented sector and for letting agent fees to be scrapped.

You can read my speech below or watch it at: goo.gl/5cy47X 

It is a pleasure to serve under your chairmanship, Mr Owen. I commend the hon. Member for Thirsk and Malton (Kevin Hollinrake) for securing this debate and welcome his support for the ban, drawing on his extensive experience in the industry.

The UK has a housing crisis that is unprecedented since the end of the second world war. By the Government’s own admission, the housing market is broken and they are failing to repair it. The number of new homes being built in the UK is well below the 300,000 homes a year that need to be built to address the shortfall, and the number of genuinely affordable social homes being built with Government funding has atrophied, dropping by a staggering 95% since 2010.

The crisis is manifest in the thousands of people on the waiting list for a secure social tenancy and the thousands who are unable to afford to purchase a home. The number of people renting privately while they wait for a secure social tenancy or try to save to purchase a home has grown enormously in recent years, and increasing numbers of people are living in the private rented sector for the medium to long term, including 1.5 million households with children—three times the number of a decade ago.

We have a private rented sector that is entirely unfit for purpose, in which tenants pay above the odds for lower levels of security and often lower quality accommodation. Private renters spend a higher proportion of their income on rent—41% on average, compared ​with 19% on average for people with a mortgage—leaving many unable to save and struggling to make ends meet. The ending of a private tenancy is now the single biggest cause of new cases of homelessness. Both my local councils, Lambeth and Southwark, tell me that the number of residents seeking help from the council because their tenancy has come to an end or they face an impossible increase in their rent has gone up by hundreds of cases every year, and I see struggling tenants living in impossible circumstances in my surgeries every week.

The situation is made much worse by the introduction by the coalition Government of the local housing allowance cap, which increasingly means that almost no private sector housing is affordable to people on low-to-average incomes in central London boroughs. The pernicious right-to-rent regulations are increasing prejudice and discrimination in the private rented sector. Councils in London are now seeing people who in the past would never have needed to ask the council for help with their housing being threatened with homelessness as a result of a combination of high rents, the coalition Government’s local housing allowance cap and insecure tenancies.

We urgently need wholesale reform of the private rented sector. We need longer, more secure forms of tenure; intervention to curb spiralling rents; new requirements on the standard of accommodation to make every home fit for human habitation; and an end to the iniquitous practice of section 21 no-fault evictions. Tenants, of course, have contractual obligations to pay rent and keep their rental property in good order, but the balance of power between landlords and tenants in the UK is completely unjust. It needs to be reformed to provide security and stability for the many thousands of residents who are forced to rely on it.

In the context of the need for radical reform, the proposal to ban letting agents from charging fees to tenants is a vital first step. Those fees are presently completely unregulated, and the letting agents are chosen and appointed by landlords. The majority of the services they provide are on behalf of landlords. In the purchase of a home, estate agents—often the same agents who provide lettings services—charge only the vendor. Many tenants move every six to 12 months, so fees are not a one-off cost as they are when buying a home, but a recurring and unaffordable burden. A situation where tenants are spending more than 40% of their income on rent makes it very difficult to save, and paying hefty fees to letting agents on a regular basis is simply another blow that prevents many people from adding to their savings either for a deposit or to create a bit more financial breathing space to cope with unexpected bills.

Some concerns have been voiced by letting agents, but I am not convinced that they are supported by the evidence. The first thing to say is that there are letting agents, including at least one in my constituency, that already do not charge fees to tenants, so it is clear that a successful business model for letting agents can be achieved without the need to charge tenants. The regulation of fees should, in fact, benefit responsible and professional agents, since it is often the least scrupulous agents who charge the highest fees.

Some have argued that tenants will face higher rents as landlords seek to pass any increased costs on to them. I agree with Shelter on that point, which states ​that predictability beats up-front costs. Although it is to be hoped that landlords would not pass on additional costs to tenants who already pay high levels of rent, an increase of a few pounds a month is clearly preferable to having a small amount of savings obliterated every six to 12 months.

Concerns have been raised that some agents would refuse to check references, resulting in an increase in the number of tenants facing discrimination. Discrimination is already common in the private rented sector. Again, I agree with Shelter: there are better methods, most notably a tenant passport scheme, that would allow checks to be undertaken in an efficient manner and refreshed periodically—rather than taken from scratch at the start of every tenancy—and that would safeguard the interests of both tenant and landlord, while enabling letting agents to operate more efficiently. Any passporting scheme should also apply to tenants’ deposits, which should be transferable from one tenancy to the next, to reduce further the burden of up-front costs.

The Government must act urgently to address the housing crisis, to invest directly in genuinely affordable social housing and to bring forward low-cost homes for first-time buyers. For as long as they fail to do so, more and more people will be living in the private rented sector. We need urgent comprehensive reform of the private rented sector to make it fit for purpose and to address the impact of housing insecurity and homelessness on families across the country. The proposed ban on letting agents’ fees is the minimum first step in that process. I urge the Government to follow through on their commitment.